Dépêches

Fitch Affirms St. Louis, MO Lambert-St. Louis Int'l Airport Revs at 'BBB'; Outlook to Stable

Dépèche transmise le 10 février 2012 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms St. Louis, Missouri's $805.5 million outstanding airport revenue bonds at 'BBB'. Lambert-St. Louis International Airport (the airport) also has $29.5 million of series 2011A&B refunding bonds that are not rated by Fitch.

The Rating Outlook is revised to Stable from Negative reflecting a building trend of stable traffic trends after a period of volatility due to combined effects of the service reductions from American Airlines and the economic downturn. The Outlook revision also reflects the strength of the new use and lease agreement which utilizes a hybrid rate methodology backstopped by full residual for revenue shortfalls.

KEY RATING DRIVERS:

SOLID UNDERLYING MARKET ANCHORS DEMAND DESPITE HUBBING CONTRACTION: Lambert-St. Louis International Airport is the primary air service provider for the St. Louis MSA with limited competition within the metropolitan area. The airport's traffic profile has shifted in recent years and currently serves primarily as an origination and destination (O&D) airport which represents 86% of their total enplanement with an enplanement base of 6.28 million.

STRONG AIRLINE USE AGREEMENT IN PLACE: The updated airline use agreement, which runs through 2016, provides a hybrid compensatory rate setting approach but also recovers all necessary operating and debt service costs through a residual-oriented financial backstop.

FINANCIAL FLEXIBILITY STABILIZING BUT LIMITED: Some financial limitations exist due to high leverage and modest coverage levels. Net debt to cash flow available for debt service (CFADS) equals to 9.38 times (x) while debt service coverage is maintained at 1.25x in FY2011. The airport has adequate liquidity with 489 days cash on hand (DCOH).

INFRASTRUCTURE DEVELOPMENT: Modest five-year capital improvement plan (2011-2016) totals $260.2 million, 46% of which is grant funded. No additional borrowing is needed, but Fitch anticipates some withdrawals from the airport development fund to complete projects which may potentially impact the airport's liquidity position.

WHAT CAN TRIGGER A RATING ACTION:

Management's inability to control expenses in the event that enplanement levels underperform updated forecasts.

Weaker trends in traffic levels, financial flexibility, or airline costs.

SECURITY:

The bonds are secured by the net revenues generated through the operations of the airport. In addition, the airport may pledge certain passenger facility charge (PFC) revenues for eligible projects.

CREDIT UPDATE:

Recent enplanement figures indicate improvement as noted by eight out of the last nine months of positive traffic growth when compared to the same period in 2010. Overall, traffic has grown 1.7% in calendar year 2011. While American Airlines has reduced service in recent years and is expected to continue that trend for at least through 2012, Southwest and Delta Airlines have continued to expand services at the airport. American Airline's market share has markedly decreased to 18% in 2011 from 44% in 2008. Southwest is currently the largest carrier with 45% market share while Delta has significant presence at 14%. Stability in enplanement levels may indicate the softening of American Airline's service reductions. Traffic consultant report expects a slight decrease in traffic for 2012 due to planned capacity cuts followed by slow growth thereafter.

The airport's new use and lease agreement, which went into effect on July 1, 2011, utilizes a hybrid rate methodology while allowing the airport to charge an 'additional airline requirement' to cover revenue shortfalls (or permits sharing of surpluses) necessary to meet rate covenant requirements. The additional airline requirement, which is expected under the airport's current financial forecast, is allocated 50% to the airfield cost center and 50% to the terminal cost centers. This methodology allows for full cost recovery and is viewed favorably from a credit perspective by Fitch. In addition, the new use agreement permits the airport to transfer up to approximately $13.7 million annually from the Debt Service Stabilization Fund (DSSF) to the revenue fund to mitigate rates and charges throughout the term of the use agreement (expires on June 30, 2016).

Under Fitch's base case scenario which assumes flat enplanement growth along with moderate expense growth, coverage is maintained at 1.25x while cost per enplanement (CPE) is kept in the $14 range after benefitting from the rate mitigation program. Fitch calculation of debt service coverage without the rate mitigation program is marginally above 1.0x. Prudent expense management is important to avoid an increase in CPE in the event that enplanement levels do not meet expectations.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);

--'Rating Criteria for Airports' (Nov. 28, 2011).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832

Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656970

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