[February 14, 2012]

Fitch Affirms FAU Finance Corporation's Capital Improvement Rev Bonds 'A+'; Outlook Stable

Fitch Ratings affirms the 'A+' rating on approximately $120.9 million of taxable ($112.5 million) and tax-exempt ($8.5 million) capital improvement revenue bonds issued by The FAU Finance Corporation (FAUFC).

The Rating Outlook is Stable.

SECURITY

Capital improvement revenue bonds (the bonds) are secured by a first lien on gross revenues generated by Innovation Village, a 1,216 bed housing project (the project) financed by the bonds, and by a subordinate pledge of net revenues generated by Florida Atlantic University's (FAU or the university) existing housing system (the system). Bondholders also benefit from a cash funded reserve fund equal to maximum annual debt service on the bonds.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'A+' rating reflects robust demand for housing on FAU's campus; timely completion and strong occupancy of the project; and the system's ability to support debt service on the bonds, as needed, given its consistent ability to generate surplus revenues following the payment of system expenses and debt service.

CONSTRAINED FLEXIBILITY: Counterbalancing rating factors include sole reliance upon demand driven revenues to pay debt service and the system's high debt burden and limited financial cushion, both of which are characteristic of a standalone university auxiliary enterprise.

SUCCESSFUL PROJECT OPENING: Strong first year occupancy of the project is expected to drive a positive margin for fiscal 2012. The housing system is expected to generate similarly strong financial results.

INTEGRATION WITH FAU: The project is being managed as part of the system; FAU sets rates for both the system and the project; and the senior lien on system revenues has been closed, with FAU no longer having the ability issue senior lien system debt.

CREDIT PROFILE

Project Characteristics

FAU and a private manager jointly manage the project, which is located in proximity to FAU's existing housing stock. Project occupancy, upon opening (fall 2011), reached approximately 98.0%; spring 2011 occupancy remains similarly strong. FAU has the ability to fill project beds mid semester as it maintains an actively managed wait list of interested students.

The standalone nature of the project is mitigated by a number of attributes. At issuance, FAUFC essentially consolidated the project into its existing housing system by using a portion of bond proceeds to pre-pay ground rent on the land where the project and existing housing facilities reside. Furthermore, FAU has the ability to establish rates and charges sufficient to provide debt service coverag for outstanding senior lien system bonds and the bonds. Interest on the bonds is capitalized through 2013.

There is approximately $71.1 million of senior lien system bonds outstanding, all of which were issued through the State of Florida Division of Bond Finance. As FAU no longer has the ability to issue senior lien system bonds with the closing of that senior lien, all future housing debt will be issued on a parity basis with the bonds.

FAU Housing System

Fitch rates FAU's senior lien system bonds 'A+' reflecting attributes which similarly underpin the rating on the bonds. For fiscal 2011, the system, consisting of 3,662 beds (including the project) generated an operating margin of approximately 29%. Strong housing demand drove the solid performance, which was up slightly from prior years. Despite the increase in the housing stock with the opening of the project, fall 2011 system wide occupancy (including the project) was 97.7%. Management reported wait lists of 252, 470, and 150 in fall 2009, 2010, and 2011, respectively.

The system's ability to amass significant reserves is constrained by the capital intensive nature of its operations. Consequently, the system's fiscal 2011 available funds ($8 million), or cash and investments not permanently restricted, represent a minimal, though adequate 70% of operations and 11% of debt. The strength of system debt coverage, which has averaged approximately 1.5 times (x) over the past five fiscal years partially mitigates concerns over the system's very high debt burden (43%), based upon fiscal 2011 system revenues and maximum annual debt service of $5.77 million (fiscal 2020).

Future Capital Needs

FAUFC anticipates issuing an additional $49 million of bonds over the next two years to accommodate the perennially strong demand for on-campus housing at FAU. Debt carrying charges associated with these bonds is expected to be offset by additional revenue generated by the increase in occupied beds. Consequently, the system's ability to maintain strong occupancy, while concurrently managing the costs of a larger system, is critical to maintaining the rating.

FAU is a comprehensive university offering 145 liberal arts and professional degree programs across its 10 colleges. In addition to the main campus in Boca Raton, FAU has six satellite campuses located throughout southeast Florida. For fall 2011, FAU's total headcount was 29,290, reflecting a 3.4% increase over the fall 2010 headcount of 28,325.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Revenue Supported Rating Criteria' (June 20, 2011);

--'U.S. College and University Rating Criteria' (July 14, 2011).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830

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