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Fitch Rates Houston Airport, TX Rfdg Bonds 'A+' & Affirms Outstanding Sub Lien Revs; Outlook Stable

Dépèche transmise le 22 juin 2011 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' rating to the city of Houston, TX's $450 million airport system subordinate lien revenue refunding bonds, series 2011A and 2011B, issued on behalf of Houston Airport. Fitch also affirms its 'A+' rating on $2 billion of outstanding airport system subordinate lien revenue bonds. The Rating Outlook on all subordinate lien bonds is Stable.

The airport also has approximately $450 million of series 2009A senior lien revenue bonds outstanding; Fitch does not rate the airport's senior lien revenue bonds.

Rating Rationale:

--Broad economic base of the primary service area supporting over 24 million annual enplanements, with strong historical demand for air carrier service at both Houston Intercontinental (IAH) and William P. Hobby (Hobby) airports.

--Historically strong financial results evidenced by coverage levels at or above 1.7 times (x), with sound reserve balances with 720 days cash on hand in 2010.

--Rising but relatively competitive airline costs, with limited future debt requirements to support the airport system's capital program.

--Credit concerns include the dominant positions held by Continental Airlines (Continental) at IAH and Southwest Airlines (Southwest) at Hobby, with exposure to fluctuations in enplanement levels due to 49% connecting traffic and the compensatory nature of the system's largest cost center. Continental is rated 'B-' with a Positive Outlook and Southwest is rated 'BBB' with a Negative Outlook by Fitch. However, Fitch does not expect the recent merger of United and Continental as well as the proposed Southwest acquisition of AirTran to have material near-term impacts to the service levels at the airport system.

--The airport system has relatively elevated debt levels compared to its peers, with 10.5x net debt/CFADS in 2010. Fitch expects declines in margins and coverage levels in the near term projection period, in part due to increasing debt service requirements.

Key Rating Drivers:

--Healthy margins and coverage levels as senior lien debt service comes online will be integral in maintaining the current rating.

--Fitch recognizes that recent changeovers in management bring considerable experience and knowledge to the Houston Airport System, and expect that the airport will continue to manage its cost profile while executing on its current capital plan.

--The ability to maintain service and traffic levels despite recent mergers by the system's two biggest carriers will also affect the rating going forward.

Security:

The bonds are secured by a subordinate lien on the net revenues generated from the operations of the airport system that includes the two primary commercial aviation facilities, IAH and Hobby airports.

Credit Summary:

As a system, the Houston airports combined have shown reasonable resilience through the economic downturn. After exhibiting average growth rates of 3.2% through the decade leading up to the downturn, in fiscal 2009, both IAH and Hobby lost passengers (declines of 8.2% and 8.8% respectively). For fiscal 2010, IAH saw enplanements increase by 1.3% while Hobby saw more robust recovery of 5.7% to near-peak levels. At IAH, the recovery of international enplanements was more robust than that of domestic enplanements (5.6% for international vs 0.3% for domestic). For the first ten months of fiscal 2011 (July 2010 - April 2011), Hobby enplanements are up 7.4% over the same period a year prior; at IAH enplanements are up 0.2% over the same period a year prior. Systemwide, enplanements are up 1.5%. Management expects 2% enplanement growth for fiscal 2011 systemwide.

For the first nine months of fiscal 2011, total operating revenues were $303.2 million, up 0.6% over the same period for 2010. The increase is largely due to higher retail concessions and car rental revenues. On the cost side, for the first nine months of fiscal 2011 operating expenses increased 2.2% to $174.9 million due to higher salary expenses and higher third-party contract costs. These results compare favorably to the airport system's 2011 fiscal plan, which anticipated a 1.1% decrease in operating revenues and a 2.4% increase in operating expenses for 2011.

Airport unrestricted cash reserves have remained strong with $483 million of unrestricted fund balances in December 2010, equivalent to 720 days cash on hand and covering 20% of total long-term debt. Some use the airport's internal liquidity will be drawn on for capital spending in upcoming years. The updated five-year capital improvement program (CIP) for 2012 through 2016 totals approximately $874 million, above the 2011-2015 projections of $535 million. The additional projects are largely demand-driven. Key differences include inclusion of the terminal B improvement project, phases 2 and 3; additional expansion projects for terminal D; and additional parking enhancements.

Phases 2 and 3 of the terminal B improvement project are currently slated to be constructed in 2017 - 2018, with completion in 2021. Building upon the $56 million Phase 1 from previous plans, phases 2 and 3 will likely be bond funded (backed with PFC revenues), with issuance not expected until the end of the CIP period. Depending on demand levels, the project may shift beyond the current CIP window. The 2012 - 2016 plan also includes an additional $81 million for terminal D improvements, which the airport system will use for improving international facilities, introducing A380 capable gates, and enhancing terminal capacity. The project will likely be funded with Airport Improvement Fund moneys. Finally, the 2012 - 2016 plan includes funding for various parking improvements at both Hobby and Intercontinental. These projects are demand driven, and are likely to be funded with Airport Improvement Fund moneys.

For additional information, please refer to Fitch's press release 'Fitch Revises Houston Airport's (Texas) Outlook to Stable; Affirms 'A+' $2B Sub Lien Revs', dated Feb. 11, 2011.

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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