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Fitch Affirms Manchester, NH's Airport Revenue Bonds at 'A-'; Outlook Stable

Dépèche transmise le 29 avril 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the City of Manchester, New Hampshire's outstanding $201.4 million of fixed-rate revenue bonds for Manchester Airport at 'A-'. The Rating Outlook is Stable.

RATING RATIONALE:

The 'A-' rating reflects:

--The airport's position as the sole airport in New Hampshire with commercial landing capabilities, serving a stable and wealthy service area (City of Manchester, NH is rated 'AA+' by Fitch). Still, meaningful competitive pressures exist, particularly from the increased low cost carrier presence at nearby Boston Logan airport.

--Robust liquidity position with over 500 days cash on hand (DCOH) which partially mitigates the airport's declining debt service coverage ratios (DSCR) and relatively high debt burden ($156/enplaned passenger), including some variable rate exposure .

--Active management of operating costs despite decreasing enplanement levels in recent years.

--Modest capital improvement plan (CIP) size and relatively new airfield and terminal infrastructure, with no additional debt issuance expected in the near term.

--Recent sustained declines in enplanements and related airline and non-airline revenues, with traffic down 13% and 15% for 2009 and 2010 respectively. Though declines in 2011 have been more moderate, the first nine months of the fiscal year are down a further 6%.

--Despite a 100% origination and destination (O&D) passenger base, the airport has relatively high carrier concentration, with Southwest Airlines and US Airways representing 58% and 18% of market share respectively.

KEY RATING DRIVERS:

--The airport has an elevated dependence on traffic supported non-airline revenue sources. Thus, further erosion in traffic volumes could lead to an unsustainable cost profile and will likely result in negative rating action.

--Given the limited prospects for growth over the next few years, management's ability to continue to actively control its expense profile is critical to maintain financial flexibility and credit quality.

SECURITY:

The airport revenue bonds are special obligations of the city payable from net revenues and pledged funds generated from operations at Manchester Boston Regional Airport.

CREDIT SUMMARY:

Through the recent recession the airport has experienced multi-year declines in enplanements. Following a decline of 13% in fiscal 2009, enplanements decreased a further 15% in 2010. Monthly enplanements have been declining year over year since June 2008, with year to date fiscal year 2011 is showing a 5.7% decrease. Although declines in recent months have not been as steep (April 2010 marked a 1.1% decline over enplanement levels a year prior), the airport has not yet demonstrated clear signs of recovery. Competition for air service in the New England area remains high as low cost carriers from neighboring Logan airport continue to pressure the airport's traffic levels. Southwest, the airport's main carrier which currently accounts for 58% of enplanements, has also been offering service out of nearby Logan airport since August 2009; should the airline modify its service offerings in favor of Logan, Manchester's service levels and associated revenues may be negatively affected. However, airport management has represented that its carriers have reiterated their commitment to maintain service levels at the airport.

Fitch expects enplanements to remain relatively flat to current levels and does not anticipate any near term rebound in enplanement levels given current market conditions. Increasing fuel prices may also impact air carriers' willingness to add additional service going forward. Fitch notes that current enplanement levels are consistent with those last seen in fiscal 2000. Given the airport's reliance on traffic-supported non-airline revenues, particularly from parking, further declines in enplanement levels in coming years will likely warrant negative rating action. Management has made considerable efforts to contain its operating expense profile in recent years, with expenses down 9% and 8% in 2009 and 2010 respectively, and down another 2%-3% for 2011 year to date. Continued careful management of expenses will be important in coming years given lower enplanement levels and the airport's debt burden going forward.

Despite a 15% decline in enplanements in fiscal year 2010, the hybrid agreement along with non-airline revenues has provided a cushion for operating revenues which have only declined by 7.6%. Management has contributed efforts to stabilize parking revenues which represent 46% of operating revenues through the acquisition of the only off-airport competitor and increasing short term parking rates. Since 2006, the airport has been faced with a declining debt service coverage ratio from 2.58 times (x) in fiscal year 2006 (FY2006) to 1.76x in FY2010 (coverage per indenture definition). Fitch's alternate calculation which does not include coverage account funds and treats passenger facility charges (PFCs) as revenues rather than an offset to debt service shows a lower coverage of 1.18x. Cost per enplanement (CPE) in FY2010 is $7.76 which is significantly lower than competing airports Logan and TF Green. However, CPE is likely to increase further in the near term given sluggish recovery in enplanement levels. Debt per enplaned passenger is $156 which is relatively high compared to peer airports. No additional debt is expected in the near term. The size of the CIP is modest at $62 million, 92% of which will be grant funded.

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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