Fitch Rates Cleveland, Ohio's Airport System Revs 'A-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A-' rating to Cleveland, Ohio's approximately $241 million series 2012A senior lien fixed-rate airport system revenue bonds, and affirms the airport's remaining outstanding $628 million senior lien airport system revenue bonds at 'A-'. The Rating Outlook is Stable.

The airport system consists of Cleveland-Hopkins International Airport (the airport) and Burke Lakefront Airport.

Key Rating Drivers:

Concentration in Carrier Mix to Serve Traffic Base: High dependence on sustained operational service from United Continental Holdings (UAL, Fitch IDR of 'B' with a Stable Outlook), with 70% of market share in 2010. This is somewhat offset by origination and destination (O&D) passenger traffic (72% of the airport's 4.7 million total enplanements in 2010) and minimal competition for air service within the Cleveland metropolitan area. However, overall enplanements have dropped over 15% over three consecutive year period. Future traffic activity provided by UAL may be at further risk following the expiration of a service-level-based settlement agreement between UAL and the State of Ohio Attorney General.

Above-Average Cost Profile: UAL serves as the largest single source of the airport's operating revenues (at 38%); thus, the airport's above-average cost structure ($13.08 cost per enplanement [CPE] in 2010, estimated at $14.44 for 2011) is highly sensitive to continued changes in the carrier's operating strategy. Near-term service and revenue protections are mitigated through contractual minimum flight level commitments through both the settlement agreement that runs through 2015 and long-term special facility lease agreements.

Improved Capital Structure: The system has a relatively conservative debt structure consisting of approximately 86% fixed-rate debt and 14% unhedged variable-rate bonds, with reduced exposure to counterparty performance and basis risks as a result of the upcoming refunding and swap terminations.

Strong Liquidity and High Debt: There is strong balance sheet liquidity (more than 650 days of cash on hand) in conjunction with elevated levels of financial leverage. Debt per enplanement will be $188 and net debt/cashflows available for debt service (CFADS)) will be at 8.5 times (x) when series 2012B bonds are issued.

Modest Capital Program: The airport's five-year capital improvement program (CIP) is estimated at $164 million and does not include any future borrowing plans.

What Could Trigger a Rating Action:

--Significant changes in UAL's operations at the airport, particularly a reduction in or elimination of connecting traffic. Traffic changes can also be affected by uncertainties in the economy and the air travel industry;

--Increases in the airport's cost structure resulting in both a less competitive CPE and a similar deterioration of financial flexibility and coverage of debt;

--Material changes in the airport's future debt needs.

Security:

The bonds are secured by a first lien on the net revenues of the city of Cleveland's airport system.

Transaction Update:

The current transaction consists of the issuance of an estimated $241 million in airport system revenue bonds, non-AMT. Proceeds will be used to currently refund the airport's outstanding series 2000A bonds and to pay related costs of issuance. The 2012 issuance will be in fixed-rate mode, and will not extend the maturity of the refunded bonds. The airport expects to achieve present value savings of 3% or better through the refunding. The series 2012A bond debt service is expected to be supported by general airport revenues and a portion of the debt service is anticipated to be paid with available passenger facility charge (PFC) revenues.

For additional details on the airport and its operations, please refer to Fitch's press release dated Oct. 25, 2011, titled ' Fitch Rates Cleveland, Ohio's Airport System Revs 'A-'; Outlook Stable', available at 'www.fitchratings.com'.

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. 29, 2011).

Applicable Criteria and Related Research:

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656970

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832

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