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Fitch Rates El Paso, TX's Airport Revs 'A+'; Outlook Stable

Dépèche transmise le 31 mai 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an underlying 'A+' rating to approximately $16.1 million of the city of El Paso, Texas's (the city) airport revenue bonds, series 2011. In addition, Fitch has affirmed its underlying 'A+' rating on $7.1 million in outstanding airport revenue refunding bonds, series 2003. The Rating Outlook is Stable for all bonds. The proceeds of the series 2011 bonds will be used to finance pavement rehabilitation and landscaping at Butterfield Trail Industrial Park.

RATING RATIONALE:

--El Paso International Airport's (the airport) essential role as the primary commercial airport for the Western Texas region and the airport's strong 90% share of origination and destination (O&D) traffic profile in fiscal 2010 (ended Aug. 31). Historically, enplanements have exhibited fluctuations during economic cycles (down an aggregate 10% between fiscal years 2007 and 2010).

--The airport has a low debt load with debt/enplanement of $14.9 and 3.6 times (x) net debt/cash flows available for debt service (CFADS). The airport has 197 days cash on hand.

--Historically healthy debt service coverage of at least 4.12x over the last four fiscal years (through fiscal 2010). While coverage levels are expected to decline when including the series 2011 issuance (2.56x in fiscal 2012), credit metrics are expected to remain consistent with the current rating. The cost structure is comparatively low relative to peer airports with a cost per enplaned passenger (CPE) of $5.39 in fiscal 2010.

--High airline concentration with two carriers, Southwest Airlines (Southwest rated 'BBB', with a Stable Outlook by Fitch) and American Airlines (American rated 'CCC' by Fitch) representing a combined 74% of enplanements.

--Manageable capital improvement program (CIP) funded with diverse funding sources.

KEY RATING DRIVERS:

--Stabilizing traffic activity and continued commitment from the airport's major carriers including Southwest and American;

--Management's ability to control its cost profile, and preserve financial margins and debt service coverage. Renewal of the airline use agreement later in 2011 under comparable cost recovery terms are expected.

SECURITY:

The bonds are supported solely by the net revenues of the airport, after the payment of maintenance and operating expenses.

CREDIT SUMMARY:

The airport's position as a primary commercial airport within the western Texas and southern New Mexico region and its high percentage of O&D passengers (90% in fiscal 2010) serve to mitigate the small scale of operations. Enplanements fell 0.4% and 10.3% in fiscal years 2008 and 2009, respectively due to the economic downturn and were essentially flat (up 0.9%) in fiscal 2010 at 1.6 million. In addition, enplanements through the first seven months of fiscal 2011 (through March) are 2.3% below prior year, largely due to capacity reductions. The airport is forecasting a reasonable 1.7% decline in fiscal 2011 as service additions during the second half of the fiscal year are expected to offset recent declines.

More than half of the airport's enplanements are served by Southwest, representing 52% in fiscal 2010. American is the next largest carrier with a 22% share. Given the combined carrier concentration, any material reduction of Southwest or American flights would result in a lower traffic base, possibly with difficult recovery prospects.

The airport's airline agreement employs a cost-center residual approach for landing fees and a compensatory terminal. The existing agreement expires in August 2011, and the airport is currently renegotiating the terms of a new signatory carrier agreement; the proposed agreement is expected to maintain the existing hybrid rate-setting structure with no substantial differences. Managing the future airline agreement to provide for continued financial flexibility will be key to rating maintenance. The airport's CPE was $6.13 in fiscal 2009 and declined to $5.39 in fiscal 2010. CPE is budgeted to slightly increase to $5.65 in fiscal 2011. Relative to other airports of similar size and scope of operations, this CPE is still competitive. Although the airport's traffic profile and carrier concentration are generally more comparable to lower-rated airport credits, Fitch believes the combination of a high O&D base and low leverage are key offset factors that support the 'A+' ratings on the bonds.

Operating revenues have grown at a CAGR of 3.2% from fiscal years 2005 to 2010, while costs have grown at a faster rate of 5.6% over the same period. In 2010 operating revenues increased by 3.1% while operating costs were held flat to fiscal 2009, primarily due to restrictions on overtime and hiring as well as energy savings endeavors. Management has bolstered non-aviation revenues by developing airport's property to add industrial parks, hotels, and other assets. Non-aviation revenues have comprised at least 56% of total operating revenues since fiscal 2006.

Debt service coverage has been strong, ranging from 10.63 times (x) to 4.12x between fiscal years 2007 and 2010. In fiscal 2010 debt service coverage was 4.67x and is expected to decline to 3.96x in fiscal 2011 (or 3.71x excluding the coverage account). Annual debt service obligations begin to rise in fiscal 2012 as a result of the current financing; the airport consultant estimates combined debt service coverage to remain above 2.43x through fiscal 2016 (or 2.18x excluding the coverage account). After the outstanding series 2003 refunding bonds mature in August 2016, coverage is forecast to increase to as high as 3.4x excluding the coverage account. However, Fitch's stress scenario, which contemplates lower revenue and enplanement growth, indicates additional funds may be needed to maintain coverage at expected levels. Management indicated this would require increased revenue through higher CPE levels and further containment of operating costs.

The airport's terminal and airfield capacity are estimated to be adequate through the near to medium term. The airport's total CIP is estimated at $134 million through fiscal 2016 and includes the project costs and funding sources for the current financing. Projects will be funded through a combination of federal grants (28%), revenue bonds (10%), passenger facility charge (PFC) revenues (27%), customer facility charge (CFC) revenues (22%) and airport cash (8%). PFC revenues are collected at a rate of $4.50 per eligible enplanement, and are used for pay-go project funding. These revenues are not pledged to the repayment of the outstanding bonds. The airport is contemplating charging a CFC in early fiscal 2012 to finance the construction of a consolidated rental car facility. Although moderate level of additional debt will likely accompany the CIP within the next year to fund the construction of the consolidated rental car facility, the amount and structure of this financing has not yet been determined.

The airport is owned by the city of El Paso and is operated as a self-sufficient enterprise. The airport opened for commercial air service in 1928 and is located on about 6,800 acres approximately six miles east of the city and 10 miles from Mexico border. It serves an important role in the area's commercial and air cargo network. In addition, the airport's nearest U.S. competitors are located at least 250 miles away.

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

Applicable Criteria and Related Research:

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

--'Rating Criteria for Airports' dated 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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

Business Wire

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