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Fitch Affirms Northwest Arkansas Regional Airport Authority's Revs at 'BBB'; Outlook Stable

Dépèche transmise le 15 mars 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the underlying 'BBB' rating on approximately $34.8 million in outstanding Northwest Arkansas Regional Airport Authority, Arkansas (the authority) fixed-rate airport revenue refunding bonds, series 2003. The authority has approximately $30 million outstanding in parity long-term variable-rate bonds, series 2010 that are not rated by Fitch. The Rating Outlook is Stable.

KEY RATING DRIVERS:

Small Hub with Concentrated Traffic Base: Northwest Arkansas Regional Airport's (XNA, or the airport) small, origination and destination (O&D) traveler base has experienced moderate levels of enplanement fluctuations through the economic downturn. The airport reported 562,747 enplanements in 2011, which represented a 1.4% decline from the prior year. American Airlines' concentration at the airport is above average (Fitch Issuer Default Rating (IDR) 'D'), with 40% market share in 2011. The air trade area's established business profile with large corporate presence, i.e. Wal-Mart (IDR 'AA'/Stable) and Tyson Foods (IDR 'BBB'/Stable), is a credit strength, but there is potential for ongoing economic sensitivity of these industries that may result in some volatility in enplanement activity.

Favorable Rate Setting Framework: The airline use and lease agreement provides for strong cost recovery terms. The airport's cost structure is comparatively low, with cost per enplaned passenger (CPE) at $5.36 in 2011. Non-airline revenue sources (at approximately 61% of operating revenues) are expected to continue to grow, with anticipated concession revenue growth associated with the addition of the new concourse.

Large Variable Rate Debt Component: The current airport capital structure lends to some potential exposure to both counterparty performance and to basis risk on debt interest costs. Approximately 46% of authority's total debt is in variable-rate mode with a portion hedged through a synthetic fixed swap agreement.

Manageable Levels of Financial Leverage: The authority maintains a relatively strong liquidity position evidenced by the availability of restricted funds, with approximately $17 million specifically set aside to cover debt service shortfalls after payment of expenses. In turn, the airport currently has a favorable 5.8 times (x) net debt/cash flows available for debt service. Historically stable financial performance has resulted in healthy debt service coverage levels of 1.42x (excluding the coverage account) or greater over the last five years (through 2011); XNA's outstanding debt level is higher than most small hub airports at $115 per enplaned passenger.

Modest Capital Program: The current capital improvement plan focuses on a $30 million runway rehabilitation project that is expected to be largely grant funded. There are no anticipated future borrowings expected over the next several years; however, limited bond financing may be considered for a construction of a parking deck.

WHAT WOULD TRIGGER A RATING ACTION:

--Significant shift in enplanement base and downsizing of service or capacity presently operating at the airport, particularly the airport's largest carrier (American Eagle/American Airlines);

--Changes to the airport's financial metrics or cost structure for the airlines;

--Additional leverage that would meaningfully dilute coverage levels.

SECURITY:

Bondholder security for both the series 2003 & 2010 bonds is provided from airport revenues, including passenger facility charges (PFCs). The bonds are also secured by certain restricted fund balances held by the airport authority, currently totaling $7.3 million. Fitch does not rate the series 2010 bonds which have liquidity support from a letter of credit from Regions Bank (IDR 'BBB-/F3').

CREDIT SUMMARY:

AMR Corp. and its principal subsidiary American Airlines, Inc. were downgraded by Fitch to 'D' from 'CCC' after the company filed for Chapter 11 bankruptcy protection on Nov. 29, 2011. Since the filing, the carrier has not changed service levels at the airport. Should significant reductions in service levels occur, Fitch believes this could have an impact on the airport's credit rating.

The airport's enplanements decreased at a compound annual growth rate (CAGR) of 0.8% between 2006 and 2011; the 1.4% decline in 2011 to 562,747 was attributed to continued economic weakness and the associated frequency reductions by carriers, as well as several days of heavy snow related service suspensions in the winter of 2011. The authority has forecasted flat enplanement levels for 2012.

The airport's airline agreement employs a cost-center residual approach for landing fees and a compensatory approach for the terminal facility. The agreement was extended in December 2011 with no substantial differences and it will expire in December 2013.

Operating revenues have grown at a CAGR of 3.6% from 2006 to 2011, while costs have increased at a rate of 1.1% over the same period. As per the authority's preliminary 2011 results, operating revenues increased by approximately 4% to $11 million while operating costs were reduced by 7.8% to $4.6 million. The authority has been able to decrease operating expenses by maintaining cost saving practices. Financial performance for 2011 was stable, with approximately $2.9 million in unrestricted reserves (233 days of unrestricted cash on hand) and a total liquidity position of approximately $22.9 million, of which $9 million is restricted for debt service and $7.9 million is set aside for operational and maintenance expenses and debt service shortfalls.

Debt service coverage was estimated at 1.65x in 2011 (1.90x when including the rolling coverage account), an increase from 1.44x in 2010. Both series 2003 and series 2010 refunding bonds are scheduled to mature in 2027, with total estimated annual debt service costs ranging between $5.8 to $6.3 million through maturity. PFCs have traditionally contributed a minimum of $2 million to the revenue base. Fitch will continue to monitor coverage levels and should coverage levels drop below its historical band, downward rating action may be warranted.

In August 2011, the authority completed the expansion an upper level concourse at the airport. The authority plans to repair its runway that will be funded with approximately $30 million in AIP grants and entitlement funds. A possible parking expansion project potentially funded with bond financing supported by customer facility charges is not included as part of the current capital plan.

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', dated Aug. 16, 2011;

--'Rating Criteria for Airports', dated Nov. 28, 2011.

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=656970

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