Dépêches

Fitch Confirms Credit Assessment of New Orleans Aviation Bd's (LA) Car Rental Project Bnds

Dépèche transmise le 29 octobre 2009 par Business Wire

NEW YORK--(BUSINESS WIRE)--The New Orleans Aviation Board (NOAB) posted a preliminary official statement for the proposed $97.985 million New Orleans Aviation Board (NOAB) Gulf Opportunity Zone CFC Revenue Bonds (Consolidated Rental Car Project) Series 2009A (Non-AMT) that includes a reference to a September 30, 2009 credit assessment provided by Fitch Ratings. Fitch confirms that it provided a credit assessment of 'BBB-'. This credit assessment was based on information provided to Fitch through Sept. 30, 2009. Any updated information or structural changes related to this proposed financing since the effective date of this credit assessment have not been reviewed by Fitch.

Fitch's analysis included a review of: a draft copy of the preliminary official statement; an air traffic report prepared by Ricondo & Associates, Inc.; a financial feasibility report prepared by Unison Consulting, Inc.; and transaction legal documents that include the CFC Resolution, the Initial Facilities Leases, and the CFC Master Revenue Bond Trust Indenture. Fitch applied the CFC financial model and cash flow structure to analyze the effect of stress case scenarios for traffic, rental car transactions, and revenue, and resulting effects on debt service coverage and other key financial ratios.

It is Fitch's understanding that NOAB expects to issue approximately $100 million of fixed-rate revenue bonds secured by a first lien pledge of customer facility charge (CFC) revenues levied on daily rental car transactions at the New Orleans Louis Armstrong International Airport. NOAB will use the proceeds to finance the construction of a consolidated rental car project with an estimated project cost of $116.5 million. The project will be located adjacent to the airport terminal and includes a three-level garage with ready/return spaces for nearly 1,800 cars as well as four service centers. Fitch's analysis assumed that the proposed bonds will have principal maturity payments through 2040 as well as level debt service payments ranging from $7.4 million to $8.9 million per year.

The credit assessment considered the following credit attributes:

--New Orleans Louis Armstrong International Airport is the principal airport in the region with a strong monopoly position for local air traffic;

--Solid underlying origination and destination market, with tourism and convention business driving fundamental demand and need for rental car operations;

--Satisfactory legal structure including pledge of rental-car-based CFC revenues, contingent rent, and supplemental facility charges. Rate covenant, additional bonds test, and reserve requirements are largely consistent for credits secured by this revenue stream;

--CFC has been established and is currently being collected for nearly one year. Future collections are not dependent on the completion or operation of the proposed consolidated rental car facility project;

--The principal rental car operators have signed to a facilities lease for the consolidated rental car project (CONRAC).

Offsetting these strengths are the following risk factors:

--Narrow revenue stream with somewhat limited economic or financial flexibility given that the current $6.20 daily CFC rate is already set at amongst the highest in the U.S. --Adjustment of the CFC rate or imposition of contingent rents could have adverse effects on rental car demand in the New Orleans market;

--Proposed debt level is high relative to size of the airport's overall rental car operations - May be potential need to increase project debt should other identified funding sources such as projected CFC receipts or external airport funds fall short of current financial plan;

--Exposure to construction related risks could potentially impact the overall financing plan and cost structure;

--Funding of reserve maintenance fund is dependent on surplus CFC cash flow;

--New Orleans rental car market is dependent on the tourism and convention business and therefore faces competitive threats from other transportation modes available at the airport, particularly for users whose destination is the New Orleans central business district;

--The airport faces periodic severe storms that could affect rental car transactions and cash flows, creating pressure on financial performance;

--Ability to meet debt service obligations as well as anticipated credits for operator ground rents and facility operating costs will be challenged in the event transaction growth assumptions fail to materialize;

--Fitch stress case scenarios indicate that additional declines in rental car transactions up to an additional 20% from current levels would likely necessitate increases to the CFC rate to meet coverage requirements.

Based on the information provided, Fitch was of the opinion that the structure of the debt offers investment-grade flexibility to deal with base case assumptions as well as certain downside events. Downside risks include one or a combination of the following: a further decline in rental car transactions of up to 20% from current 2009 estimate levels, increases in construction costs or changes in funding availability that necessitates an increase to the par size of the project bonds, and limitations of CFC ratemaking flexibility due to political or rental car demand implications.

As part of credit assessment analysis Fitch reviewed NOAB's traffic assumptions as well as the rental car base and sensitivity case flows prepared by Ricondo & Associates and Unison Consulting, respectively. Fitch also developed alternative rental car transaction scenarios to gauge cash flow and debt service coverage strength.

Year over year through June 2009, enplanement traffic and rental car transactions were down approximately 7% and 17%, respectively. The consultant's base case rental car transaction scenario assumed a total 15.5% total decline in calendar year (CY) 2009 rental car transactions followed by annual recovery rates ranging from 1.8% to 4.4% through 2018. At the current $6.20 daily CFC rate, debt service coverage ratio will remain at or above 1.25 times (x) in each year during the forecast period, without including the coverage fund balance. For most years, the ground rental and O&M credits can be made in full from surplus funds. Under a no-growth scenario throughout the same forecast period, the minimum coverage ratio would drop to 1.10x and the rental car operators would be receiving limited credits for other CONRAC costs. Under additional Fitch stress scenarios, assuming up to a 20% additional transaction decline in 2010 followed by modest 2% annual recovery rates thereafter, cash flow results indicate that higher CFC rates will be needed to meet the rate covenant tests.

The application of the following criteria was used to derive the credit assessment of the above referenced bonds:

--'Rating Criteria for Infrastructure and Project Finance,' dated Sept. 29, 2009;

--'Airports Rating Criteria Handbook for General Airport Revenue, PFC and Letter of Intent Bonds,' dated March 12, 2007.

Both reports are available on the Fitch web site at www.fitchratings.com.

Additional information is available at www.fitchratings.com.

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