Dépêches

Fitch Rates Dallas-Fort Worth (TX) Airport Refunding and Improv Bonds 'A+'; Outlook Negative

Dépèche transmise le 12 avril 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' rating to Dallas-Fort Worth International Airport, Texas' (DFW) approximately $294 million joint revenue refunding and improvement bonds, series 2012C (Non-AMT) and $403 million joint revenue improvement bonds, series 2012D. Fitch also affirms approximately $3.9 billion in outstanding joint revenue improvement bonds issued by the cities of Dallas and Fort Worth, Texas for DFW at 'A+'.

The Rating Outlook for all bonds remains Negative.

KEY RATING DRIVERS

SIZABLE TRAFFIC BASE SUBJECT TO CONCENTRATION AND CONNECTING EXPOSURES: The airport is located in a strong primary market area that generates strong demand for air service. Further, DFW's favorable central geographic location provides for a well-balanced traffic profile for both domestic and international passengers. DFW relies on its dominant carrier, Fort Worth-based American Airlines (American; Fitch Issuer Default Rating 'D'), with approximately 87% market share and a high proportion of connecting traffic. American has maintained its current scale of operations at DFW since the bankruptcy filing in November 2011, although uncertainty remains with regards to future operating decisions.

STRONG RATE SETTING MECHANISMS: The recently implemented airline use agreement allows for timely recovery of costs within all airline cost centers and provides for adequate cashflow generation to meet all funding requirements under the bond documents as well as funding for renewal and replacement. Airline costs are currently low for a large-hub airport at $6.32 but will double over the next five years as airport capital spending is funded.

FIXED RATE, LOW COST CAPITAL STRUCTURE: All of DFW's debt is issued in fixed rate mode with generally conservative debt amortization.

STABLE FINANCIAL METRICS: Debt service coverage and liquidity metrics have historically been sound. In fiscal 2011, debt coverage was 1.52 times (x) combined with almost 600 days cash on hand. High leverage remains a concern as debt per enplanement is expected to approach $200 in fiscal 2015 (ended Sept. 30) or north of $450 per origination enplanements.

LARGE SCALE CAPITAL PROGRAM WITH RELIANCE ON ADDITIONAL BORROWINGS: Much of the $1.94 billion terminal renewal and improvement program as well as other $1.9 billion of airport improvements will be funded by up to $3.0 billion of additional borrowings. In light of AMR's current bankruptcy situation, prudent management of capital spending and borrowings will be critical to credit maintenance.

WHAT COULD TRIGGER A RATING ACTION

--Changes to American's Service Operations: The Chapter 11 bankruptcy position of American and its principal operating subsidiaries could result in material operational changes that are adverse to DFW's credit.

--Lack of Adequate Revenue Growth: Given the debt focused nature of the airport's capital program, a reliance on growth of both airline and non-airline revenues will remain key to managing costs and controlling leverage. Revenue underperformance, particularly from non-airline sources could pressure DFW's rating.

--Regional Competition: Beginning in October 2014, all restrictions related to domestic air service to or from a competing airport will be removed and any airline will be allowed to operate nonstop service to all U.S. destinations. Fitch will closely monitor the effects, if any, on air traffic at DFW.

SECURITY

The bonds are secured by an irrevocable first lien on gross revenues generated by the operation of DFW, as well as passenger facility charge (PFC) revenues to the extent they are specifically pledged to an individual series of bonds.

TRANSACTION SUMMARY

The airport plans to issue parity senior-lien revenue bonds for the purpose of funding its ongoing capital program as well as to refund debt associated with the construction of its on-airport Grand Hyatt hotel.

On Dec. 2, 2011, Fitch revised the Rating Outlook to Negative from Stable reflecting the potential for elevated risks and uncertain outcomes associated with the bankruptcy of DFW's principal carriers, American Airlines and American Eagle. American and its regional affiliate, American Eagle, collectively accounted for approximately 85% of DFW's 28 million total enplanements in fiscal 2011 (ended Sept. 30). Transfer traffic also represents a relatively high 57% of the airport's total traffic, the majority of which is generated by American. On a financial basis, American contributes about 30% of the airport's annual operating revenues.

Fitch notes that since the American bankruptcy filing event, the airline has essentially maintained a relatively stable level of operations at DFW. While new domestic and international destinations have been announced for DFW, the airport is likely to experience flat to slightly negative growth for fiscal 2012.

Fitch views DFW as an airport with an important role in the national aviation system and has a favorable geographic location to support its standing as a Midwestern transportation hub. Still, the connecting traffic base is exposed to the decisions of American at DFW airport. Within the Dallas-Ft. Worth region, DFW is the dominant airport although nearby Love Field airport does create a competitive situation for domestic origination/destination traffic. While Love Field has physical limitations for growth, the expiration of the Wright Amendment in 2014 does create more competition for non-stop destinations across the country. Fitch notes that even if American elects to reduce or completely discontinue its connecting operations at DFW, the O&D traffic base of nearly 12 million enplanements is relatively secure and there are limited options for relocating traffic volume of this size.

The multi-year TRIP plan calls for an estimated $1.9 billion of expenditures at four existing concourses built in the 1970s. The financial plan anticipates much of the funding will come from existing and future borrowings. Additional capital needs separate from TRIP is at a similar spending level although the funding will be more balanced with debt, grants and airport funds. Thus, a key rating concern for DFW will be associated with the rising debt levels anticipated over the next several years, which will result in elevated rising cost and leverage metrics. DFW's debt is expected to peak at over $6 billion by 2016.

The cost per enplanement (CPE) is likely to double in several years from the $6.32 level in fiscal 2011. Similarly, the net debt to cashflow will rise over the 10 times level and the debt per enplanement is expected to approach $200 by fiscal 2015. Debt service coverage levels are expected to remain stable over the five year forecast period at 1.4x - 1.5x, including the use of rollover coverage funds.

In Fitch's view, the overall financial flexibility including the airline cost and debt service coverage stability will depend on both maintenance of current traffic performance as well as steady and timely growth in airline and non-airline revenues. In particular, revenue growth in terminal concessions and commercial development activities will be instrumental to preserving the airport's financial profile. Under stress-case traffic scenarios including the assumptions of reduced or discontinued hubbing, the CPE could rise to a less competitive $25 to $30 range which would be viewed as a cost level inconsistent with the rating.

For additional information on AMR Corp's voluntary filing, please see the Fitch press release 'AMR Restructuring to Boost Industry Revenue Fundamentals,' dated Nov. 29, 2011 also available on 'www.fitchratings.com'.

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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