Dépêches

Fitch Affirms Long Beach's (CA) Airport Rev Bonds at 'A-'; Outlook Stable

Dépèche transmise le 13 octobre 2011 par Business Wire

CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms the 'A-' rating on the Long Beach's (LGB, or the airport) outstanding $121.985 million airport revenue bonds. The Rating Outlook is Stable.

KEY RATING DRIVERS:

-- Small hub with a concentrated traffic base: The airport saw 1.53 million enplanements in fiscal year (FY) 2011 (ending Sept. 30), of which 98% was origination & destination (O&D) traffic. This represents a 5.0% year-over-year increase compared to FY2010. JetBlue's concentration at the airport is high, with 79% of market share in 2011 (Fitch Issuer Default Rating 'B-' with a Stable Outlook).

-- Low historical cost profile: The airport's cost per enplaned passenger (CPE) was low relative to peers at $5.92 for FY2010. The airport forecasts 2011 CPE to be slightly higher at $6.64, increasing to the $7 range by FY2016. The airport utilizes an ordinance like approach for rate setting, which nets all non-airline revenues against annual debt service obligations.

-- Conservative debt structure: All existing long term debt is fixed rate.

-- Stable financial profile: The airport maintains adequate financial flexibility, with 320 days cash on hand. The airport has an internal policy to maintain coverage at 1.5 times (x) and liquidity of 300 DCOH. Debt per enplanement is at $80 and leverage is very high at 17.0x net debt-to-cash flow available for debt service (CFADS). However, this is projected to decrease to 6x by FY2013 when rates and charges reflect the completion of the capital program.

-- Continuing capital program: The current capital improvement plan (CIP) totals $103.73 million with a focus on completion of the new passenger concourse and upgrades to the historic terminal. A portion ($61.4 million) of the CIP was issued with the series 2010 bonds, and there are currently no anticipated future borrowings expected.

WHAT COULD TRIGGER A RATING ACTION:

--A downward trend in airport traffic, either as a result of economic factors or volatility in the aviation sector, may have a particularly negative effect on the airport given the reliance on enplanement-dependent passenger facility charges (PFCs) to cover roughly 60% of debt service requirements beginning in FY2013.

-- Operating expense growth materially higher than the airport's projections.

--Should JetBlue exit or substantially retrench its presence at LGB, it is uncertain how the airport's enplanement base would recover, given that new and/or incumbent carriers could fill slots with smaller gauge aircraft.

SECURITY:

The bonds are secured by the net revenues generated at the airport.

CREDIT UPDATE:

Activity at LGB is restricted to 41 commercial air carrier slots but competition for the slots remains high. When airlines relinquished slots in the past (Horizon in 2009, Frontier in April 2011, and Allegiant in September 2011), the airport received significantly more applications for slots than are available. Despite shifting of air carrier slots and slot restrictions, traffic levels have remained steady at or above 1.4 million enplanements.

The airport projects enplanement growth of 0.9% from FY2013 through FY2016, reflecting both slower economic recovery and the effect of limitations on air carrier activity as a result of the noise ordinance. The DSCR is expected to dip from a high of 4.97x in FY2010 to a low of 2.12x in FY2012, including the use of rolling coverage and PFC revenues to support 125% of PFC funded debt service. Without the use of rolling coverage, DSCR is projected to be approximately 1.87x in FY2012, consistent with management's internal policy to maintain a 1.5x DSCR on a cash flow basis. Under various Fitch scenarios contemplating a pull-down of service by the airport's largest carrier, coverage falls below this level; however, this may be mitigated by modest increases in the airport's CPE levels. Fitch views the potential for a reduction in debt service coverage as a risk; however, the airport's low cost structure and strong liquidity position partially mitigate the potentially descending trend in coverage.

The airport's capital improvement program focuses primarily on permanent terminal improvements, including construction of a new $41 million passenger concourse with permanent facilities for passenger holdrooms, restrooms, concession opportunities, and consolidated passenger screening. The plan also covers some rehabilitation of the airport's runways, taxiways, and other infrastructure from 2011 through 2016. The total cost of the CIP is currently estimated at $103.73 million, with last year's series 2010 bond issuance covering approximately 60% of total program costs. The remainder of the airport's CIP is expected to be funded internally from pay-as-you-go monies and grants. Approximately 85% of PFC revenues will be eligible to service the related debt for the terminal, and management plans to use PFC revenues equal to 125% of PFC funded debt service, allowing the airport to maintain competitive airline rates and charges throughout the forecast period. Other CIP projects will be contingent on the availability of grants, and will be funded through a mix of PFCs, airport improvement program grants, and internal airport funds.

The airport is located between major business and tourist destinations between Los Angeles and Orange Counties, with convenient access to the major freeway links in Southern California. Long Beach Airport is owned by the City of Long Beach. The mayor and the city council of Long Beach serve as the board of directors and set policies for the airport. The airport director and airport staff oversee day-to-day operations.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings

Applicable Criteria and Related Research:

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

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