Moody's Investors Service said it has upgraded Florida State University's dormitory revenue bonds to Aa2 from Aa3, impacting approximately $128 million of outstanding bonds.

At the same time, Moody's assigned a Aa2 rating to $42.9 million of Florida State University (FSU) dormitory revenue bonds, Series 2013A to be issued by the Board of Governors of the state of Florida.

The rating outlook is stable. Moody's has also affirmed the Aa2 ratings on prior mandatory student fee and parking revenue bonds.

The upgrade for the prior dormitory revenue bonds reflects the resounding student demand for university housing with fall occupancy consistently near 100%, strategic importance of the housing program to the university, revenue growth of 20% between fiscal 2008 and fiscal 2012 and solid debt service coverage.

The upgrade also considers management's maintenance of substantial flexible reserves within the housing system. As of June 30, 2012, the housing system had $12.9 million of current investments that could fund renovation projects or provide a buffer against potential operating revenue or expense changes.

The senior most Aa2 rating and stable outlook on the FSU revenue bonds reflect the university's strong market position as a comprehensive research university, operating support from Aa1-rated state of Florida, $906 million total revenues and substantial resource flexibility with $410 million of unrestricted financial resources at fiscal yearend 2012.

The rating also reflects the limited revenue pledges supporting the revenue bonds. Credit challenges include palpable political limits on tuition pricing, heightened competition for sponsored research, and reduced prospects for capital support from the state.

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