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Fitch assigns an 'AA-' rating to approximately $155 million
Raleigh-Durham Airport Authority, NC's (the authority) airport revenue
bonds, series 2007 (alternative minimum tax). Fitch also upgrades
approximately $622 million outstanding airport revenue bonds to 'AA-'
from 'A+'. The series 2007 bonds, maturing in 2038, will be sold the
week of May 14, 2007 via negotiation by Citigroup and Lehman Brothers.
The series 2007 bonds are expected to be insured by a financial
guarantor whose financial strength is rated 'AAA' by Fitch. The Rating
Outlook on all bonds is Stable.
The upgrade to 'AA-' reflects the authority's strong financial
position marked by high levels of unrestricted liquidity, strong
operating margins and minimal debt needs through the next 10 years.
Credit strength is also provided by the strength of the airport's air
trade area, a diverse mix of airlines serving the airport and sound
management practices. Fitch's rating also assumes no additional
general airport revenue bond debt for Terminal C, the successful
petition of additional passenger facility charge authority, and
continued favorable lease negotiations with American Airlines
(currently in control of 10 exclusive use gates).
Credit concerns center on the timing and construction risks
associated with the reconstruction of the airport's Terminal C and the
possibility for unanticipated reduction in airport liquidity levels
should construction costs for the airport's capital improvement plan
(CIP) prove to be higher than budgeted. The airport's approximate $900
million CIP (fiscal years 2007-2015) centers on the complete
reconstruction of Terminal C ($570 million), renovation of Terminal A
($96 million), and a customer facility charge backed consolidated
rental car center ($104 million).
While construction costs for Terminal C are largely secured under
fixed-price contracts, increases in other elements of the airport's
CIP, such as the Terminal A renovation, could result in lower levels
of unrestricted liquidity. Fitch notes, however, that the authority
has a demonstrated history of prudent financial and capital project
management and that the airport's current CIP is modular and would be
implemented in stages based on demonstrated levels of passenger
demand.
The authority's management has resulted in successful cost
containment, very firm compensatory leasing arrangements with the
airlines, and strong non-airline revenue stream, particularly from
parking. The airport's high percentage of non-airline revenues (75% in
fiscal 2006) serves to offset tenant airline costs and maintain an
estimated cost per enplaned passenger of $3.60 in fiscal 2006. The
airport's cost per enplaned passenger is expected to rise to a peak
near $5.75 in fiscal 2012 as debt service reaches its maximum in 2013.
Net revenues in fiscal 2006 equated to a 55% operating margin and
were sufficient to generate 2.0 times (x) debt service coverage.
Coverage of maximum annual debt service through 2015, net of passenger
facility charge revenue offsets to debt service, is expected to be at
or above 1.50x. The authority held $93 million in unrestricted cash at
the close of fiscal 2006, approximately $33 million of which is set
aside in a board designated operating reserve account. Upon
cash-funding elements of its capital improvement program through
fiscal 2015, management expects to maintain approximately $100 million
in unrestricted liquidity, of which $35 million will be held in an
operating reserve account. This level of liquidity is a key credit
factor as it provides the authority with the flexibility to cash-fund
elements of its capital cost overruns and deal with unanticipated
changes to the air service market.
The airport's air service area exhibits characteristics supportive
of additional demand for air service at the airport, including high
levels of per capita personal income, a large university population,
and a lack of material airport competition within a two-hour drive.
Passenger traffic increased 4% in 2006 to reach 4.7 million enplaned
passengers, recording a higher level of originating passengers than in
fiscal 2001 when it served as a connecting facility for Midwest
Airlines. The airport's consultant has forecasted total enplanement
growth of about 3% per year through fiscal 2015, a rate slightly lower
than the airport's five-year historical average annual growth rate in
O&D passengers at about 4%.
Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.
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