Dépêches

Fitch Affirms Connecticut's (Bradley Airport) Revs at 'A'; Outlook to Stable

Dépèche transmise le 13 avril 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A' rating on the state of Connecticut's (the state) approximately $7 million 2001 series B general airport revenue bonds. The state has approximately $147 million in outstanding parity long-term general airport revenue bonds, 2011 series A&B that are not rated by Fitch. The governance of Bradley International Airport (Bradley), along with five other general aviation airports, was transferred to the Connecticut Airport Authority (CAA from the State of Connecticut Department of Transportation (DOT), effective July 1, 2011. Bradley is and will continue to be accounted for in the separate Bradley enterprise fund.

The Outlook is revised to Stable from Negative. The revision reflects Bradley's recent recovery in enplanements, up 8.9% to 2.8 million in fiscal 2011 (fiscal year ends June 30), after considerable volatility in the most recent recession. It is Fitch's view that the airport has reached a base level of enplanements, and that this base will adequately support the financial obligations of the airport going forward. In addition, the declining debt service profile enhances Bradley's overall financial flexibility and its ability to maintain debt service coverage at levels consistent with the current rating.

KEY RATING DRIVERS:

Medium O&D Hub with High Competition but Diversified Carrier Base: The economic strength of the air service area that supports the airport's nearly all origin and destination (O&D) traffic base is offset by the highly competitive New England airport environment and historical enplanement volatility at CAA. The airport holds a well diversified air carrier mix, led by Delta Air Lines (Fitch Issuer Default Rating (IDR) of 'B-', Positive Outlook) at 27.5% of enplanements in fiscal 2011.

Strong Contractual Framework: The regulated compensatory rates and charges structure provides strong cost recovery terms from the signatory carriers, allowing the airport to support its outstanding debt service requirements and provide adequate insulation against potential declines in enplanements and concession revenues. The preferential use and lease agreement expires in June 2013. Bradley's cost structure is comparatively low with a cost per enplaned passenger (CPE) at $8.97.

Large Variable-Rate Debt Component: The current capital structure exposes the airport to counterparty performance, as well as basis and refinance risks associated with series 2011 bonds. The bonds are subject to an April 2014 tender date and the debt interest costs are structured to be synthetically fixed through two interest rate swaps. The fixed-rate series 2001B bonds that mature in October 2012 only account for approximately 5% of the airport's total debt outstanding.

Moderate Levels of Financial Leverage: Bradley has an adequate liquidity position (more than 150 days of unrestricted cash on hand in fiscal 2011 with over $41 million in cash and available reserves) and a declining debt service profile that provides additional financial flexibility. The airport also has a relatively low debt burden of $54 per enplaned passenger and low net debt/cash flow available for debt service ratio of 3.64 times [x]. In fiscal 2011, coverage improved to 1.66x, including the revenue enhancement reserves, as compared to 1.46x the prior year.

Demand Driven Capital Program: The airport's five-year $738 million capital plan is largely (88%) demand driven. Management has indicated that no additional leverage is expected over the next several years.

WHAT COULD TRIGGER A RATING ACTION

--Significant further enplanement declines;

--Failure to maintain improved coverage levels. Inability to manage operating expenses which could lead to a less competitive CPE and deterioration of financial flexibility;

--Additional leverage that would increase the debt metrics and dilute coverage levels.

SECURITY

All Bradley's revenue bonds are secured by the net revenues of the airport. The series 2011 bonds are additionally secured by the amounts deposited into the passenger facility charge (PFC) coverage account, limited to no greater than 1.25x of the PFC-eligible debt service.

CREDIT UPDATE

Enplanements at Bradley have historically been volatile, declining for four consecutive years though fiscal 2010, and down an aggregate 30% from 3.6 million enplanements in fiscal 2006. The volatility is tied to the airport's proximity to competing facilities in Boston, Albany, and New York City, as well as the effects of the economic downturn. In fiscal 2011, the airport saw increasing traffic with enplanements rising to 2.8 million passengers, an 8.9% increase over 2010. This growth was attributed to the entry of JetBlue in November 2010, offering nonstop service to Fort Lauderdale and Orlando, as well as increased service by other carriers. Enplanement levels have been essentially flat through the first eight months of fiscal 2012 (through February); up only 0.2% over the same period in fiscal 2011. Management anticipates these traffic patterns to continue through the end of fiscal 2012 and projects flat growth for the year. Fitch will continue to monitor the enplanement trends at Bradley.

Bradley's operating revenues increased 7.6% in fiscal 2011 to $56.5 million and were budgeted to be 1.6% higher in fiscal 2012. The actual year-to-date results through December 2011 indicate favorable performance, with revenues reported at 3% above budget over this time period despite no enplanement growth. Nearly half of the airport's total operating revenues are supported by the airlines.

Operating expenses increased 8.4% in fiscal 2011 to $41.7 million, a departure from an average growth of 2.2% over the last four years through fiscal 2010. The airport incurred salary increases due to refilled positions and higher overtime costs due to snow-related conditions. The actual expenses were slightly below budget for fiscal 2011. Fiscal 2012 operating expenses are budgeted to increase 4% and the actual year-to-date results through December show below budgeted growth for that period. Should expense growth escalate, debt service coverage may be pressured.

The airport's net revenues provided for 1.55x coverage of annual debt service in fiscal 2011 (1.66x with the revenue enhancement account). This is an improvement over fiscal 2010 enhanced and unenhanced coverage levels of 1.35x and 1.46x, respectively. Bradley's debt service profile drops from $19.7 million in fiscal 2011 to $12 million after series 2001B bonds mature in October 2012 (fiscal 2013). Based on Fitch's estimates, unenhanced coverage will increase from 1.5x-1.6x to approximately 1.9x in fiscal 2014 when only the series 2011 bonds are outstanding and based on positive improvement in traffic performance as well as the inclusion of CFC revenues. Under a stressed scenario that assumes a 15% reduction in enplanements the minimum unenhanced coverage is estimated at 1.4x in fiscal 2016.

The airport's fiscal 2012-2016 capital improvement program (CIP) totals $738 million. The largest projects are demand driven and involve the design and construction of a new Terminal B. This accounts for approximately 88% of the CIP. Management has indicated that no additional borrowing is envisaged as a part of the current CIP and the terminal construction will likely be postponed if growth does not materialize. Significant additional leverage could negatively impact credit quality. The required portion of the plan is estimated to cost $85.9 million and includes the demolition of the existing Murphy Terminal, the roadway demolition and re-alignment and utility relocation, sound-proofing projects and airfield improvements. Approximately 64% of the plan is expected to be funded with surplus PFC funds and federal grants.

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. 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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