BRADENTON, Fla. — Two rating agencies reacted positively after Florida Gulf Coast University modified terms of a direct bank loan.
Fitch Ratings removed FGCU's A-plus and A revenue bond ratings from Watch Negative Monday, the same day Standard & Poor's revised the outlook on the A and A-minus rated debt to stable from negative.
In affirming their ratings, both agencies said they revised the status of the bonds because of changes in the terms of an $11.2 million loan that provide additional time to pay off the loan in the event of a default.
Analysts also found that the university has adequate liquidity to pay the loan under the new terms.
The university had $208.9 million of outstanding revenue bonds at June 30, 2014. The debt was issued by the Florida Gulf Coast University Financing Corp., for housing, parking, and other capital needs.
The bank loan, on parity with the bonds, is with STI Institutional & Government Inc., a subsidiary of SunTrust Bank Inc.
Fitch and S&P questioned the loan last fall, and said that it could result in acceleration of all parity debt if a default, including a covenant violation, occurred. Both agencies said then that the university's liquidity could not support payment of all the debt.
Under an amendment, the loan cannot be accelerated until after a 30-day notice period before the loan can be accelerated, according to analysts.
"Although the direct bank loan is still on parity with the university's publicly rated bonds and subject to cross default, the amendment, in our view, slows down the process of acceleration for noncredit-related reasons, allowing the issuer sufficient time to call the loan in full before the default would trigger a cross-default acceleration of parity bonds," said S&P analyst Debra Boyd.
"The revision of the outlook to stable reflects the execution of an amendment by STI International, under its 2013 housing and parking loan agreement direct bank loan, to limit the contingent liquidity risk to a level that is supported by the university's available liquidity," she said.
Fitch also said it believes that the amendment provides the corporation adequate time to react to a default situation, and to consider refinancing or repaying the STI loan with the corporation's unrestricted internal resources.
FGCU had $88.3 million in unrestricted liquidity as of March 5, according to S&P.
Florida Gulf Coast University opened in 1997 in Fort Myers about 28 miles north of Naples on the state's southwest coast. It currently has 14,673 students enrolled in undergraduate, graduate, and non-degree courses.
