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Fitch Affirms NYC Industrial Development Agency, NY Special Facility Revs (TOGA) at 'A-'

Dépèche transmise le 12 mai 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch affirms the 'A-'rating on $312.9 million New York City Industrial Development Agency's Special Facility Revenue Bonds, Series 2005 (Terminal One Group Association, L.P. Project, or TOGA). The Rating Outlook is Stable.

RATING RATIONALE
--Proven operational history and demand for the terminal project. Enplanements were 1.975 million in 2010, up 3.4% from 2009 level and up over 50% since 1999. Passenger traffic is almost evenly split between the four signatory and eleven contract carriers;
--The strong underlying market and resiliency for international air traffic. JFK Airport ranks as the leading international gateway airport in the U.S. Terminal One is just one of two multi-carrier terminals at JFK dedicated to serving international carriers;
--TOGA partnership is stable amongst the four signatory carriers: Air France, Japan Airlines (JAL), Korean Airlines, and Lufthansa. Importantly, the JAL bankruptcy in 2010, which has subsequently exited in early 2011, has not impacted service levels or financial responsibilities. Other foreign-flag contract carriers serve out of Terminal One keeping operations at near full capacity;
--Satisfactory legal structure including an unconditional and irrevocable obligation by TOGA to make lease payments equal to debt service without set-off or abatement; a joint-and-several obligation from all four TOGA partners with full step-ups; monthly deposits of lease payments; project liquidity that includes a 25% operating & maintenance reserve, a 25% annual debt service rolling Coverage Account, and a fully cash-funded debt service reserve fund held by trustee;
--Stable airline cost structure, moderate leverage, and sound financial profile. All project debt is in fixed rate mode obligations. Additional revenues from contract carriers, concessionaires and interest earnings subsidize costs to signatory carriers. Management indicates that no major capital expenditures are necessary and can be funded without new borrowings;
--Credit quality of partner carriers is weak and instability in the airline industry may impact business performance. Further, elevated competition risk for contract carrier service exists within JFK and other NY area airports.

KEY RATING DRIVERS:
--General stability in airport traffic performance. Fitch will continue to monitor for material changes in terminal traffic caused by underlying demand or competition at other JFK terminals;
--Credit or performance issues with the signatory carriers;
--Shift in the terminal project cost structure or weaker performance in non-aeronautical revenues, resulting in less competitive cost per enplanement (CPE) or stresses to financial flexibility;
--Material changes in future capital and/or debt needs;

SECURITY:
Facility rental payments made by the lessee, TOGA, secure the Series 2005 special facility revenue bonds.

CREDIT SUMMARY:
Terminal One opened in the fall of 1998 and serves as an essential facility for a number of the world's leading international carriers. The pattern of traffic levels has been largely positive through most years in operation. In 2010, aggregate enplanements were 1.975 million. This traffic base represents a 3.4% increase in enplanements over the prior year. Peak traffic levels occurred in 2007 with 2.2 million enplanements. Fitch notes that the four signatory carriers: Air France, Lufthansa, Japan Airlines and Korean Airlines, alone have demonstrated a solid level of annual traffic for Terminal One, collectively averaging 1.1 million enplanements annually over the past five years.

Air France continues to remain the largest carrier with about 25% of total traffic activity. TOGA also contracts with 11 additional carriers through multi-year leases and these carriers capture approximately 47% of the terminal's total passengers. Many of these airlines have renewed their respective use agreements recognizing the cost advantage, although most renewals are for three years or less. One of four signatory carriers. Japan Airlines (JAL) filed for bankruptcy in early 2010 and has since exited that process. TOGA's management has indicated that JAL's actions did not impact the carrier's operations at the terminal facility and that JAL has been current on all financial obligations

Overall, facility operations remain sound with stable activity and ongoing capital investments. Notable improvements made in recent years include new A380 widebody aircrafts at up to four of the terminal's ten active gates. Future capital improvements are modest and can be funded without additional borrowings. One larger project under consideration is a new in-line baggage system, the costs of which are likely to be covered through federal funding sources. Competition for foreign-flag carrier exists within JFK as Terminal Four-IAT is the largest JFK facility for international traffic, serving approximately 35 carriers and over four million enplanements. However, Fitch believes that the New York market is likely to preserve its dominant position for international travel and therefore both terminals should hold onto most of its traffic base.

From a cost perspective, Terminal One has produced net cost profile that has been lower than originally projected and has proven to be attractive to retain contract carriers. Figures for 2010 indicate terminal costs at under $27 per enplanement. When including net costs for ramp operations, overall costs are about $39 per enplanement. Comparatively, Terminal Four cost levels are not materially different at about $40 per enplanement. Of the $100 million in total operating revenue collections for fiscal 2010, approximately 44% is derived from the signatory carriers and supplemented by a 38% collection level from contract carriers. Concessions and other revenues sources typically provide for 15% to 20% of operating revenues. While revenues derived by contract carriers and concession tenants are not pledged to bondholders, Fitch believes that these revenues are important to the credit as it provides a partial subsidy of costs to the obligated signatory carriers.

The financial position of the TOGA operations is sound, noted by moderate leverage (7.1 times (x) net debt to casflow available for debt service) and a healthy fund balance including a cash funded debt service reserve maintained at maximum annual debt service, and a separate unencumbered cash reserve balance of $19.7 million. TOGA is required to keep fund balances equal to 25% of annual operating costs and 25% of annual debt service requirements. At these levels, Fitch believes that TOGA has adequate liquidity capacity to handle adverse events such as a signatory carrier loss or an unanticipated sharp decline in demand.

TOGA is a New York limited partnership established to lease, finance, construct, maintain, and operate the new Terminal One facility. TOGA's general partner is Terminal One Management, Inc. (TOMI), and its limited partners are the signatory airlines: Air France, Japan Air Lines, Korean Air, and Lufthansa. TOMI shareholders consist of the four signatory carriers and each is obligated to pay all Terminal One costs, including debt service; this obligation is joint and several and provides a pro rata step-up provision.

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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