Fitch Rates UCF Stadium Corp (FL) Series 2015A&B 'AA-'; Outlook Stable
--$33.5 million revenue refunding bonds, series 2015A;
--$10.8 million taxable revenue refunding bonds, series 2015B.
The bonds are expected to sell the week of Nov. 2 via negotiation. Proceeds will be used to currently refund the outstanding certificates of participation (COPs), series 2006A (rated 'AA-' / Stable Outlook by Fitch) and series 2006B, and to pay costs of issuance. The certificates were originally issued to finance construction of the football stadium on the main campus of the University of Central Florida (UCF) in Orlando, FL.
In addition, Fitch affirms the following ratings:
--$39.5 million COPs (Golden Knights Corporation master lease program) series 2006A at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by a lien on pledged revenues related to the stadium facility, including gross ticket sales, rent from the UCF Athletic Association (the association), conference payments, and naming rights revenues. In addition, UCF covenants via a support agreement to replenish any deficiency in the debt service reserve fund (DSRF) from its legally available revenues. The DSRF is expected to be surety-funded to maximum annual debt service (MADS) at issuance.
KEY RATING DRIVERS
UCF SUPPORT AND HIGH CONNECTIVITY: UCFSC is a direct support organization (DSO) and component unit of UCF, created to finance and operate the football stadium for the university. The 'AA-' rating reflects the importance of the asset, overlapping management of UCF and UCFSC, and UCF's agreement to replenish debt service reserve draws.
UCF's STRONG CREDIT PROFILE: UCF's capacity to support UCFSC is a key credit strength. The university's credit profile is characterized by a very large enrollment base, solid demand, positive operations, healthy balance sheet resources, and a moderately low debt burden.
VIABLE STRUCTURE: The stadium has operated since 2007. Pledged revenues have historically been sufficient to pay debt service without use of the support agreement, demonstrating the underlying viability of the structure. Further, the flow of funds directs pledged facility revenues to debt service accounts on a first-fill basis, which enhances the security.
UCF CREDIT PROFILE: The University of Central Florida's (UCF) willingness and ability to support the operations and debt of its component unit, the UCF Stadium Corporation (UCFSC), are the bonds' primary credit strength. Deterioration of UCF's strong credit profile or any indication of reduced willingness to support UCFSC could result in negative rating action.
Formed in 2005 as the Golden Knights Corporation, UCFSC is a not-for-profit corporation organized and operated for the benefit and purposes of UCF. It is a certified DSO of the university under FL law and is considered a component unit of UCF. UCFSC management is effectively integrated with UCF management. The corporation financed the construction of the Bright House Networks Stadium (the stadium) in 2006. Post-issuance, ownership of the stadium will revert to UCF, and the association will manage the stadium on the corporation's behalf under a management agreement.
UCF was founded in 1963 and is one of the 12 universities in the State University System of Florida (student fee bonds rated 'AA' by Fitch). The university serves over 63,000 students on its main campus, hospitality campus, and health sciences campus in Orlando, FL and its 10 regional locations.
UCF SUPPORT ANCHORS RATING
Fitch considers UCF's support of and close ties to UCFSC to be the bonds' primary credit strength. Fitch believes UCF's support is reliable based on the importance of the asset and extensive integration of management between UCF and UCFSC.
This connection is evidenced by a support agreement, under which UCF defers charges for utilities and other services it provides UCFSC if debt service coverage from pledged facility revenues is expected to fall below 1.2x. Fitch believes the strength of this requirement is enhanced by the flow of funds directing pledged receipts to debt service accounts on a first-fill basis. Pledged revenues are preferentially directed to debt service accounts until they are filled to the levels required under the indenture.
If those accounts are fully funded, certain revenues are exempt from transfer, and surplus funds may be released back to UCFSC or UCF. Management notes that the debt service accounts established under the indenture have historically been funded to required levels for the fiscal year by the end of the first (fiscal) quarter, allowing ample time to identify and remedy issues or to prepare university support, if necessary, before scheduled principal payments in March.
In addition to legally required support, UCF management maintains and has provided unpledged sources of support for UCFSC operations. The university holds certain unencumbered funds available for use without a budget amendment or appropriation. In addition, UCF management has additional flexibility to fund capital projects once it takes direct ownership of the stadium. Fitch believes UCFSC's ability to meet its debt service obligations is strong based on a track record of sufficient pledged revenues and UCF's multiple required and unpledged sources to support UCFSC operations. If a draw is required on the DSRF, UCF additionally covenants to replenish the reserve from its legally available revenues.
CREDIT STRENGTH OF UCF
UCF's capacity to support UCFSC is very strong. Legally available revenues under the support agreement were approximately $150 million at June 30, 2015, and have consistently totaled over 10x the combined MADS of the series 2015 bonds and the UCF Convocation Corporation debt for which legally available revenues are also pledged.
The university's overall credit profile is characterized by a very large enrollment base, with over 63,000 students and solid demand. UCF returned to its general trend of positive GAAP-based operating results in fiscal 2014 following restoration of substantial state operating appropriations that were cut in prior years. The university is well-positioned for continued positive results based on subsequent enrollment growth and additional improvement in state appropriations. UCF's balance sheet resources are healthy, with available funds (cash and investment less certain restricted net assets) equal to 50.5% of operating expenses and 78.4% of debt. In addition, UCF maintains a low debt burden, with MADS consuming only 3.1% of fiscal 2014 operating revenue. Including all component unit and DSO debt, UCF's debt burden remains moderate at 5.7%, with strong coverage from operations typically above 2x.