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Fitch Downgrades Burbank-Glendale-Pasadena Airport Auth (CA) Rtg to 'A+'; Outlook Revised to Stable

Dépèche transmise le 24 avril 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' rating on approximately $82.7 million Burbank-Glendale-Pasadena Airport Authority (the authority), CA, series 2012 bonds. Also, Fitch has downgraded the rating on $53.5 million of outstanding parity series 2005 bonds to 'A+' from 'AA-'. The ratings are removed from Rating Watch Negative, and assigned a Stable Outlook.

The downgrade reflects the additional leverage and expected dilution of debt service coverage on a long-term basis as result of the proposed borrowing for the new regional intermodal transportation center (RITC) project. An additional credit factor considered is the volatile nature of operating revenues which are influenced by recently weakened traffic performance. Fitch notes the airline costs at Burbank remain very low, liquidity levels are exceptionally robust, and the enplanement base is supported by origination/destination (O&D) traffic within the Los Angeles metropolitan area. However, the airport is exposed to both Southwest Airlines concentration and competition from Los Angeles International Airport (LAX).

KEY RATING DRIVERS:

--Volatile Traffic Base Tied to a Highly Competitive Market: Burbank (BUR) airport enjoys a predominantly O&D traffic profile within a wealthy and highly populated air trade service area, offset by the competitive nature of the Southern California air service market of which BUR serves a relatively modest component. Southwest Airlines (Southwest), which has provided 66% of the airport's overall service in fiscal 2011, dominates BUR's traffic base;

--Strong Cost Recovery Framework: A residual use and lease agreement with a historically low dependence on airline charges and a very low cost structure, resulting in a nationally low airline cost per enplanement (CPE) at about $2.09 in 2011. Assuming no additional traffic losses, the airport is expected to maintain an airline rate under the $5 level;

--Conservative Debt Structure: The airport's outstanding and proposed debt profile consists entirely of fixed-rate bonds with a level debt service profile;

--Low Leverage and Exceptionally High Cash Balances: The airport has notably strong financial metrics, characterized by extremely healthy liquidity levels and low leverage. Currently, the airport maintains over 2.0 times (x) unrestricted liquidity to outstanding long-term debt. Leverage levels will likely remain low over the next several years even when factoring in a proposed borrowing for an RITC project. Over the longer term, a terminal redevelopment project could lead to further leveraging;

--Manageable Capital Plan: Political constraints through 2015 limit the airport's ability to replace or relocate existing terminal facilities; however, the airport is evaluating ancillary projects associated with the RITC project.

What Would Trigger A Rating Action:

--An erosion in the airport's high unrestricted cash balances to meet airport infrastructure needs;

--A continuation in the downward trend in debt service coverage ratios due to traffic activity and/or unsuccessful cost control by the outside operator;

--Inability to complete the RITC project on time and within the cost parameters currently contemplated.

SECURITY:

The bonds, including the proposed series 2012 bonds are secured by net revenues of the airport.

TRANSACTION SUMMARY:

The proposed airport revenue bonds will be used to fund Phase 1 of the RITC project which includes the construction of the RITC structure, the Consolidated Rental Car Facility (CRCF) and several other ancillary projects. The construction of the RITC will displace approximately 1,040 existing surface lot parking spaces that will be replaced on a one-for-one basis by the replacement parking structure. The entire project cost is now estimated at $109 million following modifications to the scope of project.

The primary funding sources for construction are expected to come from a combination of the series 2012 bonds ($59 million net proceeds) supplemented by $33.3 million of collections from passenger facility and customer facility charges (PFC/CFC) as well as equity and loans taken from the authority's facility development reserve. New long-term rental car agreements together with the airport operator are expected to bring a combination of CFC cashflow and rental car facility rents that are projected to meet the project's incremental debt service requirements. The authority expects its debt service profile will grow from the current $5.5 million per annum to approximately $13 million with the issue of the additional airport bonds. The current daily CFC rate is $6.00 and is projected to cover approximately 70% of the series 2012 debt service obligations with the remainder to come from facility rental payments due from the rental car operators.

To the extent there is shortfall in aggregate car rental funds, the airlines have agreed under residual terms of the use and lease agreements to cover the entire obligation. To the extent the rental car companies are unable to meet their financial obligations in a timely manner, the authority does have the ability to use its balance sheet or pass along shortfalls to carriers. Rental car transactions have demonstrated a higher degree of volatility than O&D enplanements through economic cycles as noted by reductions of approximately 25% from 2008 through 2010, although a modest rebound has occurred even with depressed passenger traffic.

The airport's traffic base exhibits above-average volatility and a relatively high concentration risk with Southwest. The airport has approximately 2.18 million enplanements, which is similar to 2002 levels, following multi-year declines from a peak of 2.92 million back in 2008. Fitch believes there is a low probability for a meaningful traffic rebound over the next several years due to the presence of nearby competing airports. In addition, the recent pullout of American Airlines service may translate to a modest 3%-5% of additional traffic loss for fiscal 2012. Domestic O&D passengers account for almost 100% of enplanements but the traffic is concentrated by Southwest Airlines with nearly two-thirds of the traffic base.

Heading into the RITC project, the authority has a history of maintaining very strong financial metrics. In fiscal 2011, the debt service coverage ratio was over 2.6 times (x), although there has been a steady downward trend due to weakness in operating revenues. Sponsor forecasts indicate future debt service coverage ratios, without considering rolling coverage balances equal to 25% of total debt service, to remain over 1.4x. Similarly, airline costs would remain under $4 per enplanement. Fitch's sensitivity analysis, which included some modest traffic losses and higher growth in operating costs show cashflow coverage remaining closer to 1.25x with only minor increases in airline costs.

With a $100 million facility development reserve on top of $37 million in operating funds, the airport maintains liquidity and leverage metrics that are exceptionally strong. Fiscal 2011 indicated over 1,400 of days cash on hand while net debt ratios were effectively negative. Taking into consideration the additional debt and $10 million of expected draws from the airport's facility reserve for the RITC project, Fitch calculates the net debt to cashflow available for debt service ratio to be under 1x. To the extent additional draws are needed for future terminal redevelopment, the rating may be under pressure as a result of potential changes to these metrics. A 10-year agreement with the city-owners of the airport has restricted any major terminal enhancement projects at least through 2015. A continuation of such an agreement will further alleviate pressures on airport leverage.

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, 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.

Business Wire

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