Dépêches

Fitch Affirms Manchester, NH's Airport Revs at 'A-'; Outlook to Negative from Stable

Dépèche transmise le 13 avril 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the City of Manchester, New Hampshire's outstanding $188.4 million of airport revenue bonds at 'A-'. The airport also has $23.5 million of Series 2008 bonds not rated by Fitch. The Rating Outlook is revised to Negative from Stable.

The revision to Negative reflects continued declines in traffic, in part as a result of competition from Boston Logan. Building on enplanement declines of 13.1% and 15.0% in 2009 and 2010 respectively, Manchester's enplanements declined by 4.7% to 1.39 million in fiscal year (FY) 2011, and year date fiscal 2012 numbers continue to show declines of 4.6%. Competition in the New England region remains a concern. Southwest Airlines, which represented approximately 60% of the airport's enplanements in FY 2011, initiated service at Boston Logan in 2009, pressuring service levels and passenger volumes at Manchester ever since. JetBlue recently increased their focus in the Boston market. Further activity by JetBlue and Virgin America at Logan may continue to pressure Manchester's operations by driving fares lower at Logan and pulling traffic. As a result, Fitch views Manchester's traffic base as volatile relative to its current debt burden.

KEY RATING DRIVERS

CONCENTRATED ENPLANEMENT BASE WITH INCREASING VOLATILITY: Manchester Boston-Regional Airport is the sole airport in New Hampshire providing commercial jet service but it faces significant competition from Boston Logan International Airport. In addition, Southwest provides approximately 60% of the air service in the area, meaning there is significant exposure to one airline's scheduling decisions. The air service area benefits from low unemployment rates and strong wealth levels, but competition has reduced traffic by 33% since 2005, leaving enplanements at a level last seen in 2000.

STRONG CONTRACTUAL FRAMEWORK WITH MODERATE COSTS: Manchester utilizes a hybrid ratemaking methodology that is compensatory for the terminal and residual on the airfield. Airline costs per enplaned passenger (CPE) was $7.33 in FY 2011, but price flexibility is somewhat constrained by nearby competition.

MODERATE LEVERAGE WITH ADEQUATE FINANCIAL FLEXIBILITY: The airport has moderate leverage given an increasingly volatile traffic base with debt per enplaned passenger of $156 and 7.1 times net debt to CFADS. Management has been successful in reducing costs and maintaining financial flexibility with debt service coverage (DSCR) per indenture of 1.98 times. Fitch's calculation of debt service coverage, which excludes rolling coverage and treats PFC's as revenues, is 1.30 times. The airport also maintains a strong liquidity position of 551 days cash on hand.

STABLE DEBT STRUCTURE: Manchester's capital structure includes nearly 89% fixed rate amortizing debt, leaving the airport with limited exposure to volatility in the capital markets. Approximately 11% of the airport's debt is variable and is backed by a letter of credit from Citizen's Bank that expires in June of 2013.

LIMITED NEAR-TERM INFRASTRUCTURE NEEDS: The airport's five-year capital improvement program totals $39.4 million and is primarily grant funded and no additional debt is expected in the near term. It is Fitch's view that there are limited rehabilitation needs for the airfield and landside infrastructure as the current passenger terminal was built in 1993 and was expanded in 1999 and 2004 and the runways were extended and rehabilitated in 2002 and 2005.

WHAT COULD TRIGGER A RATING ACTION

--The airport has an elevated dependence on traffic supported non-airline revenue sources. Further erosion in traffic volumes could lead to an unsustainable cost profile, negatively impacting credit quality. Absent significant improvement in the airport's traffic base, negative rating action is likely.

SECURITY

The airport revenue bonds are special obligations of the city payable from net revenues and pledged funds generated from operations at Manchester Boston Regional Airport.

CREDIT UPDATE

In FY 2011, operating revenues remained unchanged from 2010 despite the 4.7% decline in traffic. Fiscal 2011 operating expenses decreased by 1.3% and year to date financial data indicate further cost reductions with operating expenses 11% below budget. Non-airline revenues which represent 67% of total operating revenues are heavily traffic driven. Parking revenues have decreased at a five-year CAGR of 5.2% while concession revenues decreased at a five-year CAGR of 3.9%. Fiscal year to date non-airline revenue is down 3.1%, meaning cost control is critical to continued financial stability. Over the past several years, management has been able to maintain adequate financial flexibility in the face of traffic declines by successfully reducing operating expenses.

The airport's current CPE of $7.33 remains competitive compared to neighboring airports but further reductions in traffic level may lead to higher terminal and landing fee rates, impacting the airport's competitiveness. Under Fitch's base case which assumes 4.6% and 2.0% traffic declines in fiscal years 2012 and 2013, respectively, and moderate expense growth, DSCRs decrease to 1.25 times by 2016. This assumes that rates and charges are not increased. However, Fitch expects that the airport would raise rates and charges pursuant to the agreement, meaning CPE could rise to approximately $9 by 2014. While financial metrics including leverage and DSCRs are within the 'A' category, it is Fitch's view that competition in the region is causing increased volatility. Given this, leverage is viewed as high for the rating.

The City of Manchester owns and operates Manchester-Boston Regional Airport through its Department of Aviation. The Airport is located on a 1,200-acre site in the City and Town of Londonderry, six miles south of downtown Manchester, and approximately 50 miles northwest of Boston. It opened in 1927 and is the only airport in New Hampshire providing commercial jet service.

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

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.