Ratings agency gives UF good financial report card

Published: Friday, November 8, 2013 at 6:57 p.m.
Last Modified: Friday, November 8, 2013 at 6:57 p.m.

Investing in the University of Florida's housing bonds is a good bet, according to a recent analysis by Moody's Investors Service that also gives a snapshot into the overall fiscal health of the university as well.

The credit rating agency recently gave a favorable Aa2 rating to UF's $25.4 million dormitory revenue bonds scheduled to be issued Nov. 15 by the Florida Board of Governors. That is the third highest rating Moody's offers, reflecting high quality and very low risk.

"High bond ratings mean lower interest rates when the bonds are sold," said Sharon Blansett, assistant to the associate vice president for UF student affairs. "This is good news as we would have lower interest rates to pay."

An 82,000-square-foot, 255-bed dorm is part of the university's master plan. It will be built adjacent to the Disability Resource Center in the Yulee housing complex along Southwest 13th Street.

Some of its unique features will include specially equipped rooms to accommodate students with multiple disabilities and a kitchen that can provide training in independent living skills. It also will be fitted with wider halls and wider elevator doors.

All the necessary approvals have been received, and the project is ready to begin over the semester break, Blansett said.

UF Housing has $141 million in outstanding dormitory bond debt, which has the same rating as the new bonds. UF's dormitory revenue bonds reflect "healthy debt service coverage" and growing revenue driven by a high demand for student housing, the analysis said.

The rating could have been higher had it not been for a couple of factors, the report said: "High debt to total housing revenues, weakened housing system revenues attributed to updating existing dorms and revenues subject to demand for housing."

UF's rental income for 2012-13 was $47.26 million, with $14.36 million pledged for bond debt. Pledged revenues are projected to grow to $21.4 million in 2016-17, officials said, based on a 5 percent annual rental rate increase.

UF's financial health overall is robust and stable, a spokesman for Moody's said.

"Overall, the university is highly rated and in a strong position," said David Jacobson, Moody's associate vice president and communications strategist. "We measure credit quality and the ability for the university to fully repay its bondholders rather than a snapshot into financial health but some people use it that way."

Among its strengths, Moody's reported:

A "dominant market position as the state's flagship and land grant public university," with selective undergraduate admissions and "highly regarded professional and graduate programs."

Prominent standing as a national research institution, with $545 million in research expenditures in 2012, "and recognition as a leading research university with more than 170 interdisciplinary research and education centers, bureaus and institutes."

A "sizable balance sheet" with $1.4 billion in expendable resources, including the resources of its direct support organizations.

Strong fundraising and prior years of healthy capital funding from the state have left the university with very low operating leverage and a low debt-to-operating revenue ratio.

The analysis also noted some financial challenges, including a heavy dependence on federal research dollars — 66 percent of fiscal 2012 research was federally funded — and "state funding cuts to operational and capital spending, with political limitations on tuition increases (that) limit the university's ability to grow revenue and fund capital projects."

The analysis also reported that even though the university and the UF Health Shands Hospital in Gainesville and UF Health Jacksonville medical center are separate legal entities, their close relationship exposes the university to "indirect patient care exposure due to the governance overlap and the close affiliation between the two entities."

That indirect exposure means "the university is at least partially subject to any fiscal strain in the hospitals," Jacobson said, but at this point it is not "significant enough to weigh down the university's rating or outlook."

Matt Fajack, the Chief Financial Officer for UF, said the university is in very good financial shape. State revenues look strong, with a considerable increase in state appropriations this year along with UF's recognition as a pre-eminent university and tasked with starting the online institute.

The hospitals operate as separate legal entities from the university, he said. "From a legal perspective, we don't have any risk there," Fajack said.

Shands is doing very well, he said, but the Jacksonville medical center has had to struggle with a payer mix that includes a large percentage of Medicaid and uninsured patients.

"The revenue growth hasn't been as good as the ratings agencies would like to see," Fajack said.

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