OREANDA-NEWS. March 23, 2016. Fitch Ratings has assigned a 'BBB+' rating to approximately \\$90 million series 2016 revenue bonds issued by Higher Educational Facilities Financing Authority on behalf of Nova Southeastern University (NSU).

At the same time, Fitch affirms the outstanding 'BBB+' rating on the following bonds, issued by the Town of Davie, Florida, the Florida Higher Educational Facilities Financing Authority (HEFFA) and/or the Broward County Educational Facilities Authority (BCEFA) on behalf of NSU, outstanding in the following par amounts as of fiscal 2015:

--\\$94.2 million series 2013A;
--\\$18.1 series 2013B;
--\\$43.6 million series 2012A;
--\\$28 million series 2011;
--\\$99.8 million series 2006.

The Outlook is Stable.

The bonds are expected to sell as early as the week of April 4th. Proceeds will be used to current-refund NSU's outstanding series 2006 and advance-refund a portion of the series 2011 bonds for net present value savings, and pay costs of issuance.

SECURITY
The bonds are a general obligation of Nova Southeastern University (NSU), secured by a pledge of and first lien on pledged revenues, which include tuition, fees, and dormitory revenues.

KEY RATING DRIVERS

POSITIVE OPERATING MARGINS: NSU's consistent generation of positive operating margins is a primary credit strength and anchors the 'BBB+' rating. Modest liquidity and moderate debt levels temper the rating, although the university's operating surpluses continue to generate satisfactory pro forma maximum annual debt service (MADS) coverage.

MANAGEABLE DEBT: The university's continued generation of operating surpluses supported pro forma MADS coverage of 2.9x in fiscal 2015. Additionally, Fitch recognizes the gradual but consistent movement of NSU's debt distribution to a fixed-rate long-term debt portfolio. Finally, NSU has no additional debt plans over the medium term.

MODEST LIQUIDITY LEVELS: Unrestricted cash and investments have grown over NSU's operating history and remain adequate for its budget, which is larger than most Fitch like-rated universities. However, available funds as a portion of long-term debt and expenses remain weaker than similarly rated peers.

HEALTH PROFESSIONS DEMAND: NSU benefits from a continued demand for the health professions; total headcount for these programs continues to increase with high selectivity and rising matriculation rates. Continued demand for these programs remains important for the university's operating margins and a stable credit profile.

RATING SENSITIVITIES

LIQUIDITY AND DEBT MANAGEMENT: Rating stability for Nova Southeastern University is predicated upon maintaining unrestricted cash and investments and current debt levels with continued generation of positive operating margins.

EXPOSURE TO BANK AGREEMENT TERMS: NSU has several outstanding bank loans that include certain non-financial-related covenants that could trigger an event of default and potential acceleration of certain debt, raising the risk to bondholders. Although NSU has sufficient resources to manage an acceleration of its bank loans, liquidity would be compromised, which could result in downward pressure on the rating.

CREDIT PROFILE

NSU is the largest independent university in Florida, with its main campus located on 300 acres in Davie, FL. In fiscal 2016, NSU had full-time equivalent (FTE) enrollment of 19,056 students, compared to 19,042 in fiscal 2015. Fiscal 2015 adjusted unrestricted revenues totaled \\$625.7 million.

OPERATING MARGINS POSITIVE
The 'BBB+' rating continues to be supported by NSU's consistent operating performance which generates healthy pro forma MADS coverage, and continued focus on health professions within program offerings, which enjoy sustained demand.

NSU's management team continues to budget for an approximate 5% operating margin, which Fitch believes will continue to drive solid coverage metrics. For fiscal 2015, NSU generated a 6% operating margin, which supported pro forma MADS coverage of 2.9x.

ADEQUATE LIQUIDITY METRICS
NSU's liquidity has grown year over year, and unrestricted cash, investments and temporarily restricted investments, also known as available funds (AF), totaled \\$270.8 million as of FYE 2015, which signifies a modest 1.3% increase from the prior year's \\$267.2 million AF balance.

AF constituted 46.1% of operating expenses and 65.2% of pro forma debt (\\$415.6 million), including non-cancellable operating leases. These measures are slightly improved from fiscal 2014, but NSU's available funds to operating expenses and debt ratios are somewhat weaker than similarly rated educational institutions. This weakness is somewhat mitigated by the generation of positive operating margins and continued surplus generation that supports the building of a liquidity cushion over the long term.

MIXED ENROLLMENT TRENDS
NSU's enrollment trends over the past five years continue to reflect a decline in overall headcount. Specifically, total undergraduate, graduate and professional headcount has dropped 18.3% to 23,236 in fiscal 2016 (fall 2015) from 28,457 in fiscal 2012 (fall 2011). Notably, undergraduate headcount enrollment decreased 27.5% to 4,641 in fiscal 2016 from 6,397 in fiscal 2012. However, FTE undergraduate enrollment was stable in the last academic year, reflecting execution of the University's strategy.

Part of the enrollment decline can be attributed to NSU's shift in strategy and heightened selectivity to improve student academic quality. Incoming traditional undergraduate students as of fall 2014 were required to have a minimum 3.0-grade point average, while NSU's SAT target scores are also improved. The university acknowledges that there may be enrollment pressures due to this initiative, but expects enrollment pick-up once the strategy has been fully achieved.

NSU's graduate and professional FTEs comprise approximately 80% of the total student base, unlike most of its rated peers. Favorably, the health professions division (primarily graduate and professional programs) continues to experience steady enrollment trends; however, overall graduate headcount declined 5.1% to 14,871 in fiscal 2016 from 15,667 in fiscal 2015. The decline is largely attributable to losses in the education division's part-time enrollment. Law school enrollment also declined but at a slower rate than prior years.

CONSTRUCTION PROJECT UPDATE
In 2013, NSU borrowed approximately \\$94.2 million, which in part financed certain capital projects such as the building of the 215,000 square foot (sf) Center for Collaborative Research (CCR) and building of the 54,000 sf Sports Center II. NSU intends for approximately 55% of CCR space to be used by the university for internal research programs, while the remaining capacity is expected to be leased to external parties.

NSU continues to report healthy interest in the space and expects lease contracts to be in place prior to the completion of the facility, which is scheduled to open in 2016. NSU expects the CCR to be self-supporting once fully operational. Management states all projects are on time and on budget, and NSU has no additional debt plans at this time.

DEBT PROFILE
Including the current plan of finance, NSU's total pro forma long-term debt, including non-cancellable operating leases, will be approximately \\$415.6 million. Pro forma MADS of \\$30.98 million in 2024, excluding non-cancellable operating leases, represented 5% of unrestricted operating revenue and covered 2.9x by net available revenue from operations. This pro forma MADS coverage and moderate debt burden continue to compare favorably against rated peers within Fitch's portfolio.

NSU's fixed-to-variable-rate debt mix has changed considerably over time. Variable-rate debt, including a \\$7.5 million bank loan, comprises approximately 16.25% of total long-term debt post the current financing compared to 26.1% in fiscal 2012.

Additionally, NSU has two series of bonds that are directly placed with Regions Bank and SunTrust Bank that mature in 2029 and 2024, respectively. The university's series 2008A variable-rate bonds are supported by a direct pay letter of credit, which expires in 2017 and according to management, the process to renew or extend the letter of credit has been initiated.

While Fitch does not rate the series 2008A, 2009, and 2012B bonds (\\$131.5 million), it does incorporate the debt into its analysis and has reviewed the various bank documents. Certain events of default under the bank loans include the failure to meet financial reporting requirements, timely notice of an event of default, as well as not meeting financial covenants, including a liquidity ratio of 30%, and debt service coverage of 1.35x. However, NSU's growing resources partly mitigate these concerns.

For additional information, see 'Fitch Affirms Nova Southeastern University's (FL) Rev Bonds at 'BBB+'; Outlook Stable' (Oct. 08, 2015), available at www. fitchratings.com.