Rating Action: Moody's assigns A1 to University of South Florida Financing Corp.'s proposed $27 million Certificates of Participation; outlook stableGlobal Credit Research - 01 Sep 2022New York, September 01, 2022 -- Moody's Investors Service has assigned an A1 rating to the University of South Florida Financing Corporation's (FL) proposed $27 million Certificates of Participation (USF Financing Corporation Master Lease Program), Series 2022. Moody's maintains a Aa2 issuer level rating on the University of South Florida, Aa3 ratings on outstanding parking and Marshall Student Center bonds and A1 ratings on USF Financing Corporation outstanding certificates of participation. The outlook is stable.RATINGS RATIONALEThe University of South Florida's issuer rating incorporates its strong market demand and improved operating performance as a well-run comprehensive urban university. Credit quality also benefits from growing wealth fueled by retained reserves, investment returns and philanthropy. Support from the State of Florida (Aaa stable) for operations and capital is strong and growing, and financial leverage remains manageable. Designation as a Preeminent State Research University contributes to USF's excellent strategic positioning and will help propel its growing sponsored research prowess. These strengths are tempered by political limits on tuition and fee pricing as well as a highly competitive environment for students and research funding. Our opinion also considers the role of USF's affiliated organizations that finance facilities, raise funds, manage a faculty practice plan and steward endowed funds.The A1 ratings on the certificates of participation of the housing system incorporate the university's general credit characteristics as well as the lease backed structure of the debt between the USF Financing Corporation and the university for well performing and essential assets in addition to a narrow revenue pledge.The Aa3 ratings on the parking facility revenue bonds and the Marshall Student Center bonds also reflect university's strong quality along with the essentiality of the respective projects with reliable pledged revenue sources primarily comprised of mandatory student fees and designated reserves ensuring sufficient debt service coverage. The rating is one notch lower than the issuer rating because of the limited revenue pledges.RATING OUTLOOKThe stable outlook reflects expectations for positive operating performance and strong cash flow, with manageable increases in financial leverage and maintenance of unrestricted liquidity. The outlook also incorporates expectations that pledged net revenues will continue to provide consistently good debt service coverage on the various bonds.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING-Substantial and sustained increase in total cash and investments relative to debt and operations-Sustained strengthening in EBIDA margins outpacing peer medians-For limited pledge revenue bonds, strengthened debt service coverage or broadening of pledgesFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING-Deterioration of operating performance-Decline in unrestricted liquidity-Sustained weakening of debt service coverage from pledged revenues or material decline in housing or parking system reservesLEGAL SECURITYHousing System Certificates of Participation are secured solely by pledged revenues from the system and are not a general obligation of USF or of the USF Financing Corporation. System revenue includes all gross income and revenue received by the Financing Corporation under various leases from the ownership and/or operation of the housing system facilities. While the pledge is gross revenue, net debt service coverage was 1.2x in fiscal 2021, including federal support. Coverage is expected to be 2x in fiscal 2022, decreasing to an estimated 1.5x over the medium term. The housing system maintains $52 million in reserves (debt service, renewal & replacement, and operating). The Financing Corporation may issue additional parity certificates if System Revenues are projected to be at least 110% of maximum Basic Rent Payments. In addition, the Financing Corporation reserves the right to add and remove facilities and properties from the System Facilities provided that the COPs retain a credit rating of at least equal to the rating in effect prior to the change. There is no debt service reserve account specifically for the COPs. However, if the undesignated fund balance of the Housing System should fall below the maximum Basic Rent Payment, then the Reserve Requirement for the COPs will equal the maximum Basic Rent Payment in the current fiscal year.Parking system revenue bonds are payable solely from net revenue of the parking system of the Tampa campus, including funds derived from a mandatory transportation access fee paid by all students. An additional bonds test requires 1.2x pro-forma maximum annual debt service coverage. Debt service coverage is estimated at 2.1x for fiscal 2022. The system has $14 million in reserves.The Series 2015 revenue bonds for the Marshall Student Center are secured solely by the project revenues, secured by a lien on the student center revenues prior to payment of operating expenses. Additional bonds may be issued with 1.x pro-forma maximum annual debt service coverage from net revenues. Debt service coverage was 1.8x in fiscal 2022 (estimated), with reserves of $13 million.USE OF PROCEEDSProceeds from the Series 2022 certificates will be used to fund the construction of a 100,000 square foot mixed-use student housing and student center facility to be located on USF's Sarasota-Manatee Campus and to pay costs of issuance.PROFILEUSF, a member of the State University System of Florida, is a large, comprehensive public research university founded in 1956. Total headcount enrollment is approximately 50,000 students across Tampa, St. Petersburg, and Sarasota-Manatee campuses. The university, including its direct support organizations and faculty practice plan, has a budget of over $2.3 billion.USF Financing Corporation is a Direct Support Organization (DSO) that administers property for the benefit of USF. The Financing Corporation (USFFC) is presented among other DSOs in the university's annual financial statements as discretely presented component units.METHODOLOGYThe principal methodology used in this rating was Higher Education Methodology published in August 2021 and available at https://ratings.moodys.com/api/rmc-documents/72158. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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