Dépêches

Fitch Downgrades Fort Lauderdale Int'l Airport (FL) System Revs to 'A' & PFC Bonds to 'A-'

Dépèche transmise le 25 avril 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded Broward County's Fort Lauderdale International Airport (the airport) $555 million outstanding airport system revenue (ASR) bonds to 'A' from 'A+'. Fitch has also downgraded the airport's $138 million passenger facility charge (PFC) airport system revenue convertible lien bonds to 'A-' from 'A'.

The Rating Outlook for all bonds is Stable.

RATING RATIONALE:

The downgrade of the airport's senior and subordinate liens reflects the airport's weakened financial position relative to its historical financial performance, the airport's deterioration in debt service coverage levels despite relatively solid enplanement growth during the past decade, and the airport's near-to-medium plans for significant additional borrowings that are expected to result in much higher fixed costs. The airport's lean debt service coverage levels and metrics highlight a reluctance to increase airline rates and charges and a heavy reliance on volume dependent revenue. In the last five years the airport has been marginally above sum sufficiency, absent the use of transfers. The downgrade also incorporates the airport's light liquidity position. Historically, the airport has retained a range of $30 million to $50 million in unrestricted cash and cash equivalents but as of fiscal year (FY) 2010, this cash position has trended down to approximately $15 million, though Fitch does note that the airport maintains an additional $66 million in noncurrent unrestricted investments on its balance sheet as well.

The approximately 100% increase in expected leverage will fund the completion phase of the airport's runway project, which is currently estimated at an aggregate cost of $791 million. The airport anticipates borrowing approximately $800 million but has not yet defined the lien of debt that will be used. However, the airport intends to service the new debt with a mix of annual PFC collections, PFC balances, and state and federal grants. Assuming the additional debt, the airport will have limited financial flexibility and a significant dependence on volume sensitive revenues. Fitch recognizes the airport has accumulated large PFC reserves balances and secured external monies, which will help defray some of the future leveraging, yet financial margins will be minimal. Sensitivity analysis done by Fitch indicates minimal cash flow for future life-cycle costs and pay-go capital once the additional leverage is taken on.

The 'A/A-' ratings reflect:

--The significant presence of low-cost carriers serving the airport that generates a competitive fare environment and increasing demand for air service, coupled with a 95% origination and destination (O&D) passenger profile.

--The airport's well balanced and diverse market share with no one single carrier compromising more than 20% of total enplaned passengers served.

--Despite improving financial margins in 2009 and 2010, debt service coverage ratios remain relatively low ranging from 1.44 times (x) to 1.59x including the use of transfers.

--The competitive Southern Florida airport environment.

--The airport traffic base's significant leisure component.

--Relatively low internal liquidity and high leverage.

--Reluctance to increase airline rates and charges in order to cover the cost of major infrastructure improvements despite the airport's low cost structure and fully residual airline use and lease agreement.

The PFC rating considers the narrowness of the revenue stream, the high levels of annual PFC collections underpinned by a strong O&D traffic base, and adequate coverage levels on proposed debt. The rating also captures the airport's high levels of PFC reserves which can be applied to future debt service.

KEY RATING DRIVERS:

--Further erosion in debt service coverage levels, similar to the levels generated in 2008 and 2009, would pressure the rating;

--Management's future willingness to pass costs along to airlines pursuant to the residual agreement;

--Execution of the capital program without material increases to its size or scope;

--Ability to manage the overall airport cost profile along with adequate coverage metrics.

SECURITY:

Pledged revenues consist of the net revenues of the airport system, which includes Fort Lauderdale-Hollywood International Airport (FLL) and a small general aviation facility (North Perry Airport). PFC bonds are secured by PFC annual collections, reserve balances, and state/federal grants. The airport's series 1998H-1, 1998H-2, and 2001I convertible lien bonds are scheduled to convert from a security pledge of PFC revenues to parity ASR bonds, payable from net revenues of the airport in fiscal 2013.

CREDIT SUMMARY:

The airport's traffic base is forecasted to grow as incumbent low cost carriers continue to strengthen their presence at the airport, driven primarily by JetBlue, Spirit, Southwest Airlines, and AirTran. In FY 2010, overall growth was 4.25% which was in line with the Federal Aviation Administration's (FAA) Terminal Area Forecast (TAF). Estimated growth in FY2011, based on airline projected seats at FLL is 7.4%, which exceeds the TAF estimate of 6.8%. Traffic growth above the national trend is driven by the continued growth of Port Everglades as the emerging largest cruise passenger port in the world, the continued migration of O&D passengers to FLL from neighboring airports, and the up gauging in aircraft. Year to date, enplanements are 9% higher than fiscal 2010 and 2% above then the airport's peak year of fiscal 2008.

Airline cost per enplanement (CPE) has been very stable since 2008 at or near $5.00. Revenues derived from airline rates and charges have historically accounted for approximately 30% of total operating revenues, and management views keeping the airport's cost structure low of critical importance. The total airline CPE was $5.26 in fiscal 2010, which was down slightly from $5.43 in FY 2009. The airport's estimate for CPE in fiscal 2011 is $4.86 and assumes that operating revenue will be approximately the same as FY 2010 despite enplanements that are expected to be approximately 7% higher than in FY 2009. While Fitch believes that the airport has economic rate making flexibility on landing fees and terminal charges given its large O&D enplanement traffic base, the airport appears to be subsidizing airline costs to preserve and/or attract additional low cost carrier service

Senior lien debt service coverage has been on a downward trend and is projected to be near the 1.3x range in the near term, including the use of transfers. In FY 2010, senior lien and PFC coverage ratios dropped to 1.44x and 1.96x from 1.59x and 2.07x, respectively. In the past, the airport has used transfers from its coverage account to reduce costs passed onto its carriers, contributing to historically low CPE levels. With additional financial obligations from the airport's capital improvement plan (CIP) on the horizon, the airport may need to increase its cost sharing with airlines in order to produce coverage levels near its historical range of 1.5x and maintain solid liquidity levels.

The airport's FYs 2011-2015 CIP totals approximately $1.2 billion. The centerpiece of the capital plan is a runway expansion at a cost of $791 million, with the remainder allocated to terminal redevelopments/modifications, installation of an in-line baggage security screening system, and airfield improvements. The airport anticipates issuing approximately $335 million in fiscal 2012 and $465 million in fiscal 2013-2014 in support of the project.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 16, 2010);

--'Rating Criteria for Airports,' (Nov. 29, 2010).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745

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