Fitch Rates Florida Community College $28.2MM Cap Improvement Rev Bonds 'A+'; Outlook Stable

July 18, 2008 6:53 PM EDT

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings assigns an 'A+' rating to the approximately $28,200,000 State of Florida Department of Education community college capital improvement revenue bonds, series 2008A. The bonds are scheduled to sell competitively during the month of July or August. At the same time, Fitch affirms the 'A+' rating on approximately $51,470,000 of outstanding capital improvement revenue bonds. Six of Florida's 28 community colleges currently issue capital improvement revenue bonds, which are secured by a mandatory capital improvement fee (CIF) assessed to most full-time equivalent students attending these institutions. The six community colleges are Broward College; Palm Beach Community College; St. Petersburg College; Santa Fe College; Seminole Community College; and Tallahassee Community College (the participating colleges). The CIF revenue pledge is a joint obligation of the participating colleges. The Rating Outlook is Stable.

The 'A+' rating is supported by strong legal provisions which provide bondholders with a first lien on the participating colleges' CIF revenues; the essentiality that community colleges provide to Florida's higher education network; strong oversight from the state of Florida (general obligation bonds rated 'AA+' by Fitch); solid student demand; and low debt burden. Credit concerns include the participating colleges' track record of weak operating performance; limited liquidity; and limited revenue diversity resulting in heavy reliance on state funding.

The CIF increased to $5.00 per credit hour in fiscal 2007 from $3.00 in fiscal 2006. In fiscal 2008 it was increased at five of the six participating colleges, and ranges between $5.25 and $5.70. The fee is authorized by state statute. The fee is limited to 10% of tuition and the annual increase may not exceed $2.00 per credit hour. For fiscal 2008, tuition at the participating colleges ranged from $53.80 to $59.05 per credit hour. With the average tuition at the participating colleges at $56.55 per credit hour and the average CIF at $5.48 per credit hour, a student taking 30 credit hours per year would pay approximately $1,861. For fiscal 2007, the total CIF collected at the participating colleges was $12.5 million. CIF collection for fiscal 2008 is expected to increase to $13.7 million due to enrollment growth and the CIF increase per credit hour.

While student demand at the participating colleges is strong, most financial indicators are below those typically generated by community colleges at the 'A+' level. Each of the participating colleges generally operates below the breakeven level, with the operating margins for fiscal 2007 ranging from a high of negative 0.8% to a low of negative 8.6%. Additionally, the colleges have limited liquidity to absorb any significant reduction in state funding; state funding for operations currently comprises approximately 50% of each participating colleges' total operating revenues. Fitch notes that the aforementioned concerns are partially mitigated by the integral role played by the participating community colleges in the state's public higher education sector and the strong oversight provided by the state, including the state Department of Education.

Bond proceeds will be used to finance the construction of a parking garage on the campus of Broward College ($19.2 million) and a new vocational center on the campus of Palm Beach Community College ($9 million). Proceeds will also be used to purchase a bond insurance policy; fund a debt service reserve account; and to pay various costs of issuance. Maximum annual debt service (MADS) on capital improvement revenue bonds is level through 2028 at approximately $6.4 million. Based on the participating colleges' fiscal 2007 CIF collection ($12.2 million), MADS coverage was satisfactory at 1.9 times (x). For fiscal 2008, MADS coverage is estimated to be 2.2x, based on the expected CIF collection of $13.7 million. The participating colleges' pro forma debt burden is low due to significant support received from the state for capital improvements.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Fitch Ratings

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