BRADENTON, Fla. — The terms of a direct bank loan drove an outlook revision on Florida Gulf Coast University's debt to negative, and could result in a rating downgrade of two notches, according to Standard & Poor's.
The change in outlook came Aug. 21 as S&P affirmed the A ratings on the university's parking system revenue bonds, and the A-minus rating on housing system bonds.
FGCU, based in Fort Myers, has about $225 million of outstanding student housing and parking revenue bonds.
The negative outlook reflects that the university's direct bank loan with STI Institutional & Government Inc., a subsidiary of SunTrust Bank Inc., introduces "considerable credit risk exposure" stemming from potential acceleration of its parity debt secured by housing and parking system revenues, S&P said Aug. 21.
An acceleration would occur if there are "non-major, noncredit-related events specified in the bond documents," said analyst Debra Boyd.
S&P has warned issuers for months to disclose bank loan financings, whether or not that debt is rated by the agency. S&P has said it is concerned about the potential for undisclosed terms and the magnitude of bank loans, which have become popular due to favorable interest rates.
In the case of Florida Gulf Coast University, S&P said it is also exposed to contingent liquidity risk from the STI Institutional & Government loan because in addition to the potential for acceleration "the university does not currently have sufficient liquidity to address a potential acceleration of all parity debt under the bond documents," Boyd said.
"We understand that management is seeking to amend the bond documents to limit the magnitude of the potential accelerated debt to levels that can be supported relative to its existing liquidity, and that these amendments should be completed within the next four to six months," said Boyd.
"However, should the issuer fail to successfully amend the bond documents to address these risks, and should the university's liquidity levels remain inadequate to cover repayment risk, we could consider a negative rating action of up to two notches," she said.
FGCU's 2013 audit disclosed that the university took a loan for $6.8 million to refund its 2005A variable-rate housing bonds and $5.1 million to refund its 2005B variable-rate parking bonds. Proceeds were used to refinance the debt into fixed-rate mode under the same amortization schedule as the underlying bonds.
The audit did not disclose the lender, or identify any contingent risks associated with the loan.
FGCU has solid undergraduate demand with enrollment growing by 4.5% to 14,074 last fall, according to S&P.
The university has no major capital projects or additional debt plans in the next two years, except for a refinancing in 2016.
FGCU's revenue bonds are rated A-plus by Fitch Ratings and A2 by Moody's Investors Service.
