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Fitch Rates Metropolitan Airport Commission's (MN) Subordinate Revenue Bonds 'A'; Outlook Stable

Dépèche transmise le 14 septembre 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to the Metropolitan Airport Commission's (MAC; Minneapolis, MN) series 2011A subordinate airport revenue refunding bonds expected to be issued in the amount of $73.8 million depending upon market conditions. The proceeds from the proposed series 2011A subordinate airport revenue refunding bonds will be used to advance refund all or a portion of the subordinate series 2003A bonds. Fitch has also affirmed the 'AA-' rating on MAC's $766.9 million senior revenue bonds and the 'A' rating on $746.5 million of outstanding parity subordinate revenue bonds. The Rating Outlook on all bonds is Stable.

KEY RATING DRIVERS:

--The Minneapolis-St. Paul metropolitan statistical area (MSA) is a well established commercial center for the upper Midwest with no competing facilities in the vicinity. Considerable demand for air service generated from a broad-based local economy with an origination & destination (O&D) base of 8.4 million enplaned passengers. Delta maintains a dominant market share representing 78.7% of enplanements with connecting traffic representing approximately 45% of total traffic which leaves Minneapolis St-Paul International Airport (MSP) susceptible to realignment of hubbing service. Enplanements have increased modestly after several years of declines.

--Carriers operate under a hybrid operating agreement with a compensatory methodology for Terminal 1 (Lindbergh Terminal) costs and residual for the airfield. Terminal 2 (Humphrey Terminal) is under an ordinance. The airport's cost per enplaned passenger (CPE) was a competitive $6.03 in 2010 and is expected to remain competitive despite an expected increase to approximately $6.43 in 2011 as debt service ramps up.

--Comparable to other airports of its size, MSP has a fair amount of leverage with $1.7 billion of debt outstanding (including $226.6 million of general obligation [GO] bonds). All of MAC's debt is fully amortizing and fixed rate.

--MSP has maintained strong and stable financial performance despite recent traffic declines. The airport maintains a diverse revenue stream consisting of aero-nautical, parking, concession, PFC, and other non-airline revenues. MSP's healthy balance sheet helps to manage the financial metrics given the size of its operations. Net debt/cash flow available for debt service (CFADS): 8.19 times (x); debt per enplanement: $111; and days cash on hand (DCOH): 653 days.

--Having recently completed an approximately $2.9 billion capital program, the airport's capital plans are modest, focused on airfield work and noise mitigation. The capital program will be funded from a combination of passenger facility charges (PFCs), proceeds from previous issuance, grants, and available cash. No new money long-term borrowing is currently anticipated.

WHAT COULD TRIGGER A RATING ACTION:

--Significant or unanticipated change in airport's current traffic base, particularly hub operations, and ongoing commitment from its leading carrier.

--Large deterioration of financial metrics as a result of inability to manage cost structure.

SECURITY:

The bonds are secured by a net pledge of general airport revenues.

CREDIT UPDATE:

Passenger demand at the airport is sizable at 15.7 million enplanements with approximately 45% of traffic derived from connecting passengers. Enplanements rebounded slightly in fiscal 2010 up a modest 0.1% following four consecutive years of enplanement declines. Through July 2011 passenger traffic was up 1.2% from the same period in 2010. Overall, traffic is approximately 12% below its peak 2005 level. Key influences to these trends include the prior bankruptcy filing of Northwest, the general downturn in domestic air traffic demand, and reductions in capacity serving both O&D and connecting traffic.

Delta (Issuer Default Rating 'B-', Outlook Positive) is the airport's largest carrier, as it and its affiliates accounted for 78.7% of total enplanements in 2010. Under the terms of its lease agreement, which runs through 2020, Delta covenants that it and its regional affiliate airlines will maintain an annual average of 360 daily departing flights from the airport (no less than 250 of such flights will be aircraft with more than 70 seats). Delta has averaged over 400 daily flights every month in 2011. Delta recently announced plans to prepay leases tied to the series 15 GO bonds, which will lead to the refunding of the $214 million series 15 GO bonds in the first half of 2012. In conjunction with the prepayment of the leases Delta will consolidate training and support functions currently located in the Minneapolis area to Atlanta as part of its strategic business plan.

The other carriers serving at MSP include American Airlines, Sun Country Airlines, US Airways, and United Airlines, none of which represented more than 4% of enplaned passengers in 2010. Southwest Airlines introduced service in 2009 and through June 2011 served 3.7% of the market.

Despite the tepid traffic performance, the airport maintained its sound financial position in 2010 with net revenues providing 2.22x coverage of senior lien debt service (D/S), and 1.57x coverage of subordinate lien debt service, prior to transfers. When PFCs are treated as revenue instead of an offset to D/S senior lean coverage was 2.05x with total coverage of 1.43x in 2010. These coverage levels are largely unchanged from performance figures in the four previous years. Revenue sources are diverse with aeronautical revenues contributing only 35% of total airport revenues. However, with Delta alone contributing to over 80% of airline revenues, counterparty risk is high.

The airport's CPE remains favorable compared to similar sized connecting hub facilities at $6.03 in fiscal 2010 and is expected to rise to $6.43 in fiscal 2011 as debt service increases. Comparatively, other large hub airports across the Midwest will be facing rising CPE levels as costs associated with capital programs are phased into their airline charges. Thus, MSP should be able to maintain its favorable cost position. Cash reserves are notably strong with unrestricted balances of $235 million, translating to 653 DCOH.

The airport's future capital needs are modest, having already completed a $2.9 billion capital program in 2010, the principal component of which was the construction of a new runway. Through 2017, the airport's capital program will total $572 million. Most of the projects relate to airfield and runway rehabilitation, noise mitigation, and routine terminal improvements. The airport expects to fund its capital program with a combination of proceeds from previously issued senior bonds, PFCs, federal and state grants, as well as other available revenues of the commission with no future new money borrowing currently anticipated.

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

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 15, 2011);

--'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=648832

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.

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