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Fitch Upgrades Tucson Airport Auth's (AZ) Senior Lien Bonds; Affirms Airport Rev Bonds

Dépèche transmise le 8 mars 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded Tucson Airport Authority, Inc.'s (the airport or authority) approximately $8.8 million senior lien airport revenue bonds to 'A+' from 'A' and affirms the $63 million subordinate lien airport revenue bonds at 'A'. The Rating Outlook on all liens of debt is Stable.

The upgrade on the airport's senior lien bonds reflects the very low percentage of remaining senior debt relative to the airport's overall capital structure, the superior coverage levels from airport net revenues that are complemented by a strong liquidity position, and short maturity life on the senior bonds with no expected borrowings at that lien level in the near term. The outstanding senior lien bonds are set to mature in fiscal year (FY) 2013 and currently only account for approximately 13% of the airport's total debt outstanding. Fitch notes that should there be significant future borrowings at the senior lien level, rating pressures may be warranted.

Key Rating Drivers

Medium Hub with Diversified Carrier Base: Tucson International Airport (TIA, or the authority) served 1.84 million enplanements in FY 2011 of mainly origination and destination (O&D) traffic, which represents a slight decline from FY 2010 levels. TIA holds a well-diversified carrier mix with no single airline exceeding 35% of enplanements, features a strong presence of military, government, and manufacturing which offsets the traffic base's moderate concentration in tourism, and directly competes with Phoenix Sky Harbor International Airport which serves more markets with greater frequencies.

Solid Rate-Making Flexibility: The airport operates under a residual airline use and lease agreement, which has allowed the airport to maintain a stable cost per enplanement (CPE) through the downturn of approximately $7.32 in FY 2011, produce consistently strong debt service coverage levels at or above 2.0 times(x) historically, and fund capital expenditures with surplus cash flows.

Conservative Debt Structure: The airport maintains fixed-rate debt for all of its obligations with a level to descending debt service profile.

Low Leverage Characterized by Strong Liquidity: The airport's debt burden is extremely low due to the airport's substantial cash reserves. The airport's net-debt-to-cash flow available is negative and extremely low relative to its peers. As of FY 2011, the airport held approximately 1,191 days cash on hand with approximately $25.4 million in unrestricted cash and $88.4 million in restricted cash reserves.

Manageable Capital Program: The airport's facilities are modern. The airport's capital plan is estimated at approximately $142 million and is expected to be funded primarily from external grants, aid, and pay-as-you-go monies.

What Could Trigger a Rating Action

--A significant change in the healthy liquidity balances, which provides a cushion to the airport's smaller scale of operation;

--Material shifts to the traffic base or carrier composition;

--Additional borrowings or spending requirements that would pressure the airline cost position.

SECURITY:

The senior lien bonds are secured by net revenues generated at the authority after the payment of operations and maintenance expenses. The subordinate lien bonds are secured principally by a pledge of available passenger facility charges (PFC) and a subordinate pledge of net airport revenues.

CREDIT SUMMARY:

Traffic in FY 2011 was relatively unchanged when compared to fiscal 2010. The airport reported a modest 1.1% increase in enplanements in FY 2010; however, these slight gains were later reversed in fiscal 2011, decreasing by approximately 0.7% to 1.83 million enplanements. Although traffic has stabilized from the notable declines the airport experienced in FY 2009, the airport's traffic recovery has been slow to take place. In FY 2012, the airport expects enplanements to remain essentially flat from FY 2011 despite recent increased service from American and Southwest Airlines. While the airport's 98% O&D traffic base provides a stable base of service, the presence of nearby Phoenix Sky Harbor airport approximately 100 miles north with sizeable low-cost carrier offerings, and serving a greater variety of markets, will likely constrain strong traffic gains and/or any shifts in passenger market share.

Fitch views the airport's market place and airline diversification as a positive credit attribute. The authority's main airport, Tucson International Airport, benefits from a balanced airline market share of legacy and low-cost carriers serving short- to medium-haul flights. The airport's two dominant airlines, Southwest Airlines and American, have retained stable market share at 34% and 22%, respectively, and have a long history of serving the airport. Recently the airport gained incremental service from American with daily service to LAX, and Southwest commenced a new daily flight to BWI in February 2012.

The authority's modest debt burden and strong non-airline generation has allowed the airport to maintain a largely stable CPE considering the lack of enplanement recovery since FY 2009. CPE for FY 2011 was $7.32, slightly lower than the $7.36 reported in FY 2010. For FY 2012, management expects the CPE to remain largely unchanged from FY 2011.

Despite the airport's protracted traffic recovery, debt service coverage levels remain consistently high and capture the airport's low debt burden and level-to-declining annual debt service profile.

In fiscal 2011, the authority generated an aggregate debt service coverage ratio of 2.34x, which far exceeds the rate covenant on both the senior and subordinate lien, set at 1.25x and 1.10x, respectively. Similarly, in FY 2010, the airport's all-in debt service coverage was 2.59x. Senior lien coverage was approximately 3.63x in FY 2011 and is projected to increase to 3.82x in FY 2012. Also, in FY 2011, subordinate lien coverage was approximately 3.82x, in-line with historical results, and is expected to be approximately 3.35x in FY 2012. During FY 2011, the authority defeased approximately $10 million of its senior lien series 2001 bonds with available reserves, thus reducing annual debt service obligations by approximately $1.3 million and augmenting already high coverage levels.

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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