Dépêches

Fitch Downgrades $120MM Houston Airport (Texas) Special Facilities Revs to 'A-'; Outlook Stable

Dépèche transmise le 14 août 2009 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings downgrades the underlying rating to the city of Houston, TX's $120.3 million airport system special facilities taxable revenue bonds, series 2001 (the Consolidated Rental Car Project bonds) to 'A-' from 'A'. The Rating Outlook is Stable.

The downgrade reflects an elevated risk profile as a steep reduction in rental car transactions at Houston Intercontinental Airport's (Intercontinental or IAH) consolidated rental car facility will likely necessitate draws on project fund balances to meet debt service coverage in 2009. Through the first six months of 2009, rental car transactions and customer facility charge (CFC) collections are each down 18.5% as compared to the prior year. Should the contraction in rental car transactions remain at the current level through the remainder of 2009, total CFC collections will be only $9.6 million to $9.7 million (down 14%-15% from 2008 levels) at the current CFC rate of $3.00 per day. With expected debt service requirements in 2009 at nearly $10.7 million, an estimated draw of up to $1.0 million from the project's Facility Improvement Fund (FIF) or Coverage Fund may be required. Debt service coverage, without taking into account rolling coverage from the use of reserves, would fall to less than 0.9 times (x) in 2009. Comparatively, CFC collections were slightly over $11.3 million in 2008 and generated 1.07x coverage. At this time, no change in the CFC rate is anticipated through the end of 2009.

Balances in the FIF and Coverage Fund are $11.8 million and $3.17 million, respectively, and would be sufficient to cover CFC shortfalls even under very stressful car rental activity conditions. Balances in the coverage fund or draws from the FIF to the project's revenue fund may be utilized for compliance of coverage tests. Still, given that the project lacks a cash-funded debt service reserve fund (currently served by a reserve surety policy with Financial Guaranty Insurance Company), strong ongoing fund balances in the FIF will be an important credit consideration at the current rating level. If the airport does not realize a healthy recovery in origination/destination (O&D) traffic (down approximately 12% for fiscal 2009), which is a key driver and correlates closely to rental car transactions, or if the CFC rate is not increased in a timely and sufficient manner, weakness in coverage levels could continue and may result in additional draws on project reserves. This scenario would indicate further weakness in credit quality and could possibly result in a lower rating. The rating remains stable as Fitch believes that management, together with its airport consultant for the consolidated rental car project, will make conservative assumptions on rental car transactions and will effectuate an appropriate CFC rate to bring annual CFC revenues to a level that meet debt service requirements.

The 'A-' rating reflects the sizable underlying O&D market to support the local car rental market, an adjustable CFC rate structure with a current rate level that is modest to both the cost of car rental as well as the CFC rate charged at other large hub airports, good protections against revenue leakage from non-participating car rental companies, and limited near-term capital expenditure requirements. Credit concerns include the limited nature of the revenue stream, the demonstrated sensitivity of rental car transactions to air traffic performance, and the dominant position held by Continental Airlines (Continental, Issuer Default Rating 'B-', Outlook Stable by Fitch) at IAH which can expose passengers to the service decisions of the carrier at the airport.

The series 2001 Consolidated Rental Car Project bonds financed a 250-acre consolidated rental car facility at Intercontinental and are supported by CFCs imposed on automobile renters at the airport. The rental car complex, opened in August 2003, also includes a bus maintenance facility and fueling station and currently serves all eight rental car operators serving IAH. The CFC can be adjusted and is currently set to $3.00 per rental car contract day. Over the past eight years since the CFC has been levied at IAH, the CFC rate has ranged from $3.00 to $3.50 per day. This fee represents less than 8% of a typical daily base rate on rental cars.

Intercontinental serves as the primary commercial airport for the metropolitan area with over 19 million enplanements and Houston-based Continental operates its largest hub at the airport, accounting for 87% of passenger traffic. O&D traffic typically captures almost half of IAH's total enplanements. A sizable local economy, which has historically performed well in terms of population increases and business activity, sustains the overall demand for local air service and related rental car activity. Reflective of the strong business orientation of the market, is the presence of several major corporate headquarters facilities in the Houston metropolitan area.

Rental car demand fluctuated over the past decade, reflecting the economic downturn in the 2000 to 2002 period followed by healthy air travel growth over the 2004 to 2008 period. Rental car activity at the airport peaked in 2007 at about 3.77 million total transaction days and remained largely unchanged in 2008. However, total transaction days are down 18.5% through the first six months of 2009, which is double the level of total traffic losses at IAH and 50% more than the traffic losses in the O&D component. Original forecasts for 2009 indicated a much milder 7.7% reduction in rental car transaction days in calendar year 2009. Thus, the actual rental car and CFC collection performance based on year-to-date figures represents a credit concern. Recovery of rental car transactions or appropriate adjustments to the CFC rate will be important to rating maintenance given the current level of debt service requirements.

Historically, the annual CFC collections provided at least 1.0x coverage on the outstanding debt. With the coverage fund sized at 25% of maximum annual debt service, coverage with rolling reserves was typically in the 1.3x to 1.4x range. CFC surplus funds held in the FIF are maintained at nearly $12 million. Including the combined FIF and coverage account, but excluding the debt reserve met with a surety policy, total cash balances translate to about 13% of the outstanding debt. Future coverage levels will likely depend on an increase in the CFC rate. Under conservative rental car transaction scenarios, including a 20% annual loss in 2009 followed by an additional 5% reduction in 2010, sufficient debt service coverage levels can be met at a CFC rate of $3.75. Should the rental car transaction losses be less severe or if a recovery begins to take place, a lower CFC rate would be needed for a minimum 1.0x level of coverage without the use of rolling reserves. Fitch notes that the CFC rate under a stress case scenario would still be competitive to those charged at other major airports that also have consolidated rental car facilities financed as special revenue debt obligations secured solely by CFC revenues.

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