Dépêches

Fitch Affirms Reno Tahoe Airport Auth's (Nevada) $31.2MM Revs at 'A'; Outlook Revised to Stable

Dépèche transmise le 1 mars 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'A' rating on approximately $31.2 million in outstanding Reno-Tahoe Airport Authority (RTAA), Nevada airport revenue bonds. The Rating Outlook is revised to Stable from Negative.

The revision of the Rating Outlook to Stable reflects better than expected traffic performance and what looks to be a rebound in enplanements with fiscal year (FY) 2011 year-to-date enplanements coming in 2.8% higher through December at Reno-Tahoe International Airport (RTIA). The decline in enplanements in 2009 and 2010 of 16.5% and 5.5% respectively was not as severe as Fitch had anticipated during its last review when enplanements were projected to decline 18% and 10% respectively. The revised Outlook also incorporates the RTAA's increasing financial flexibility as result of lower annual debt service requirements and RTAA's use of cash to defease $4.4 million of debt significantly reducing its annual senior lien debt service payments from $11.3 million in 2010 to $6.9 million in 2011. Given the drop in senior lien debt service to $2.5 million from 2012 through maturity in 2026 RTAA used cash in FY 2011 through its debt defeasance to eliminate a one-time bump in cost per enplanement (CPE). It is Fitch's understanding that RTIA will be borrowing an additional $30 million on a subordinate lien, meaning total debt service will be approximately $8.1 million annually. Even with the new borrowing RTIA's leverage remains low with a net debt to CFADS ratio of approximately 1.12 times (x).

The 'A' rating reflects the following:

--RTIA is the only commercial airport in Northern Nevada and has an air service area that spans across Northern Nevada and includes some California counties near the Nevada-California border. Socio-economic fundamentals of the surrounding region are weak contributing to enplanement volatility in recent years. The airport's significant leisure travel base leaves it susceptible to declines in discretionary income. Carrier concentration is high with Southwest Airlines (Southwest) representing over 50% of enplanements.

--RTIA's hybrid airline use and lease agreement runs through June 30, 2015 giving RTIA greater financial stability. RTIA management responded to the downturn proactively by cutting costs to mitigate declines in revenue. RTIA maintained relatively low CPE at $6.26 despite drop in enplanements.

--The airport has a strong balance sheet position with excellent liquidity levels (549 days cash on hand as of June 30, 2010) that is bolstered by solid financial operations and strong non-airline revenues.

--Annual senior lien debt service declines by more than $8.8 million (77%) from FY 2010 to FY 2012 providing RTIA with significant financial flexibility.

--Minimal capital requirements ($45 million budget) over the next five years.

SECURITY:

The bonds are secured by the net revenues of the RTIA.

CREDIT SUMMARY:

The RTAA operates two airports, RTIA and Reno Stead Airport. RTIA is classified by the Federal Aviation Administration (FAA) as a medium-hub airport (according to the latest FAA statistics, it is the 64th busiest in the nation, serving 3.78 million passengers a year) and is located four miles southeast of Reno's central business district on 1,400 acres of land.

RTIA has a monopoly position in Northern Nevada, with its nearest competitors being Sacramento International Airport (115 miles away), Oakland International Airport (180 miles), San Jose International Airport (190 miles), San Francisco International Airport (200 miles), and Las Vegas McCarran International Airport (350 miles).

The RTAA plans to issue $30 million of subordinate notes in 2011 via private placement. The notes will be used to fund a portion of RTIA's $45 million renewal plan. The notes are projected to mature in six years and will be issued in two separate single note securities approximately 50/50 (2011A notes and 2011B notes). Approximately 50% of the debt service will be paid from pledged passenger facility charge (PFC) revenues while the other 50% will be backed by general airport revenues. The 2011A notes will have a fixed interest rate while the 2011B notes will have a variable rate structure. Annual D/S on the subordinate notes is projected to be flat at approximately $5.5 million.

RTAA's balance sheet is an important offset to the airports large leisure base and more volatile operating activity. Unrestricted cash was $43.8 million in fiscal 2010, down from $48.4 million in fiscal 2008. RTAA has very low leverage with its unrestricted cash balances representing a very high 133% of its current outstanding long-term debt. This will drop to approximately 68% with the subordinate notes. RTIA's debt per enplanement is approximately $32 with the subordinate notes which is consistent with RTIA's peer group. Net debt to cash flows available for debt service (CFADS) is currently negative since unrestricted cash exceeds debt outstanding, and will be approximately 1.12x with the subordinate notes.

For planning purposes associated with the subordinate note program, management has enplanements growing at a modest 1% annually through 2016. Southwest has been a long, stable presence for the market since it initiated service in the 1990s. Southwest currently represents about 54% of RTIA's enplanements in fiscal 2010. The Alaska Air Group (Alaska Airlines and Horizon), United Airlines, American Airlines, SkyWest, and US Airways each represent between 7%-9% of enplanements, provide good access to various locations, and connect Reno-Tahoe to the carriers' respective hubs as well as several smaller regional markets. Delta Air Lines represents 4.9% of enplanements.

Operating revenues were $44.5 million in fiscal 2010 down from $48.9 million in 2008 as enplanements declined 21.1% over this same period. Operating expenses in 2010 were $31.1 million down from $31.9 million in 2008 as result of expense cuts in response to the enplanement declines. Both operating revenues and expenses grew at an average annual rate of 3% since 2005. Approximately 32% of RTIA's total operating revenue is supported by the airlines. Non-airline revenues comprise the remaining 68% of total operating revenues. The largest share of non- airline revenues is auto rentals and parking which each comprise 20%, followed by non-terminal rents at 10%, gaming revenues at 5%, and miscellaneous revenues accounting for the remainder. Net operating income was down to $13.4 million in 2010 from $15.2 in 2008. On average net operating income has grown 3% annually since 2005. RTIA's CPE in fiscal 2010 was $6.26 up from $5.52 in 2008, growing 9% on average annually since 2005. CPE is expected to rise to approximately $7.05 for fiscal 2012 and should remain under $9.00 over the next five years. Pledged revenues available for debt service provided coverage ratios that ranged from 1.53x to 1.79x between 2006-2009. Coverage declined to 1.36x in 2010 as result of lower enplanements and increasing debt service requirements. Coverage is projected to be in excess of 4.0x beginning in 2012 and beyond as senior annual debt service drops to $2.5 million.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 16, 2010);

--'Rating Criteria for Airports,' (Nov. 29, 2010).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745

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