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Fitch Places Burbank-Glendale-Pasadena Airport Authority on Rating Watch Negative

Dépèche transmise le 31 mai 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch places the 'AA-' rating on approximately $56 million Burbank-Glendale-Pasadena Airport Authority (the authority) senior lien airport revenue bonds on Rating Watch Negative.

Rating Rationale:

The Negative Watch on the authority's general airport revenue bonds reflects Fitch's concern over the airport's plan to issue parity debt obligations in support of its Regional Intermodal Transit Center (RITC). Although the final bond sizing is unknown and funding sources have not been finalized, the current estimate of approximately $90 million will place downward pressure on the airport's historically high debt service coverage levels and significantly increase the airport's debt burden.

The bonds are expected to be fully supported by a combination of CFC revenues and facility rental payments paid by rental car companies, which is a narrow and more volatile revenue stream that could result in further reliance on general airport revenues or use of the authority's balance sheet. Current estimates indicate debt per enplanement figures could rise to the $60 range from the current low of $24 and debt service coverage will fall closer to 1.50 times (x) to 2.0x, a significant departure from the over 3.0x generated by the authority over the past five fiscal years. While debt service coverage and net debt to cash flow available for debt service (CFADS) will remain low, robust financial flexibility is required to mitigate the risks associated with the airport's smaller traffic base and highly competitive market.

The authority plans to issue the bonds in 3rd or 4th quarter of calendar year 2011. Absent a material change in the project's scope, an affirmation of the 'AA-' rating is unlikely.

The 'AA-' rating reflects:

--The airport's origination/destination traffic profile within a wealthy and highly-populated air trade service area provides a strong anchor that is offset by the competitive nature of the Southern California air service market of which BUR serves a relatively modest component, and the domination of air service by Southwest Airlines (Southwest), which provided 66% of the airport's overall service for fiscal 2010;

--A residual use and lease agreement with a historically low dependence on airline charges and a very low cost structure, resulting in airline per passenger cost levels at about $2.11 in 2010;

--The airport's continued robust financial margins, characterized by cash in excess of outstanding debt and historically healthy debt service coverage ratios at or above 3.0x;

--Political constraints through 2015 that limit the airport's ability to take on long-term capital expansion costs at the existing terminal facilities.

KEY RATING DRIVERS:

--Dilution in debt service coverage ratios or liquidity position to support the RITC;

--Continued traffic losses and/or unsuccessful cost control by the outside operator could impair the authority's historically strong non-airline revenue generation ability, resulting in thinner margins;

--Ability to complete the RITC project on time and within the cost parameters currently contemplated.

SECURITY:

The outstanding bonds are secured by net operating revenues of the airport.

CREDIT SUMMARY:

The additional planned senior lien bonds will be used to fund Phase 1 of the Regional Intermodal Transit Center (RITC) project which includes the construction of the RITC structure, the Consolidated Rental Car Facility (CRCF) and accommodations for local and regional transit buses and shuttle services, including shuttles operated by off-Airport rental car companies, and a bus passenger waiting lounge. The construction of the RITC will also displace approximately 360 self-parking spaces in Parking Lot D. The authority plans to replace those spaces on a one-for-one basis by constructing a replacement parking structure in the northeast portion of the existing valet parking area as part of the 2011 Project. The replacement parking structure will offer valet parking only. Parking revenues traditionally account for upwards of 40% of total operating revenues.

Rental Car transactions have demonstrated a higher degree of volatility than O&D enplanements through economic cycles, decreasing by approximately 25% in FY 2010 from FY 2008. Transactions began to rebound steadily in fiscal 2010 and the authority estimates rental car transactions will grow by 3.5% in fiscal 2011, based upon nine months of actual data. From FY 2011 - FY 2016, rental car transactions are forecasted to grow in line with enplanements at approximately 1.0% with an average of 3.13 rental days per transaction. However, should the average number of transactions days deviate from projections, estimated CFC revenues would be significantly lower than expected, requiring rental car companies to cover the shortfall in the form of facility rent payments. Although the proposed structure may change with the actual bond offering, in the current plan, bondholders will have an elevated exposure to rental car company counterparty risk if the authority doesn't use its balance sheet or pass along the shortfall through the use and lease agreement.

The airport's traffic base activity exhibits above average volatility. The airport has experienced multi-year declines and there is a low probability for a meaningful traffic rebound due to the presence of nearby competing airports. The current level of enplanements was last seen 2002 at 2.2 million. In 2008, enplanements peaked at 2.92 million but fell steeply in fiscal 2009 by 16.5% after experiencing six consecutive years of growth. Traffic was further pressured in fiscal 2010, declining by 6.3% from fiscal 2009. For fiscal 2011, the airport expects traffic to be down by 3.0% and stay at this level through fiscal 2012. Given the very competitive air service market and presence of other regional airports with similar airline carriers and fares, Fitch believes the likelihood for substantial enplanement growth is limited. Domestic O&D passengers account for almost 100% of enplanements.

The authority expects its debt service profile will grow from the current $5.5 million per annum to approximately $13 million with the issue of the additional airport general revenue bonds. Forecasted CFC revenues at the $6.0 rate, the maximum rate allowed under State law, are not sufficient to cover the series 2011 debt service, thus facility rent paid by the rental car companies in the amount of the shortfall is pledged to bondholders. Projected CFC collections are estimated to cover approximately 75% of the series 2011 debt service obligations.

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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