NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded Columbus Regional Airport Authority (CRAA), Ohio's approximately $85.7 million senior lien airport revenue bonds to 'A+' from 'A'. The Rating Outlook is revised to Stable from Positive.
The upgrade reflects Fitch's expectation for continued maintenance of very low leverage and strong coverage levels (in excess of 2x), coupled with moderate airline costs of under $10 per passenger even as the authority pursues its $194 million capital program. No additional parity debt is expected over the next decade. CRAA's healthy financial position and contractual framework should allow the airport to maintain solid financial results in future years despite limited growth prospects. The airport's close proximity to competing facilities limits additional upward rating movement.
KEY RATING DRIVERS:
Diversified O&D Traffic Base with Volatility: Port Columbus International Airport's (Port Columbus) air trade service area supports a 99% origin and destination (O&D) oriented traffic base. The airport maintains a well diversified mix of low cost and legacy carriers, led by Southwest at 34% of 3.2 million enplanements in 2011. The airport faces some measure of competitive risk and has a traffic base of approximately 3.2 million enplanements, the same level as 1996.
Strong Cost Recovery Provisions: Under the current hybrid airline use agreements (through 2014), CRAA has strong cost recovery provisions and prudent carrier revenue sharing arrangements that require maintenance of least 2.0x debt service coverage or at least one year's worth of operating expenses. Given the proximity of several airports, Fitch recognizes that there may be some competitive pressure on the airport's cost per enplaned passenger (CPE) (at $7.67 in 2011), but the terms of the agreements are intended to maintain cost competitiveness.
Manageable Capital Spending: CRAA's five-year capital improvement program (CIP) does not assume any issuance of additional senior parity debt; the authority has voiced its intention to utilize a subordinated revolving credit facility to fund a portion of its short-term capital needs. There is a high reliance on passenger facility charges (PFC) and internal funds to support the CIP but volume sensitivity is mitigated by ample reserve balances that mitigate small changes in volume.
Low Leverage and Healthy Coverage: CRAA's robust liquidity ($85.5 million or 543 days cash on hand) supports extremely low levels of financial leverage (debt burden of $27 per enplaned passenger and a -0.4x net debt/cash flow available for debt service). Senior debt service coverage is strong (2.46x in 2011) and is projected to remain above this level for the medium term.
Conservative Debt Structure: CRAA maintains all fixed-rate debt with a level debt service profile of approximately $8.4 million through 2023 that declines through maturity in 2027. Fitch notes that the proposed subordinated variable-rate bank loan would expose the airport to minor refinance risk.
WHAT COULD TRIGGER A RATING ACTION
--Traffic declines that leave the airport with a structural reduction in passenger volume.
--Additional leverage or the erosion of internal liquidity and coverage levels as the upgrade is due to superior financial metrics that are offset by a competitive and low growth service area.
--Growth in expenses that leads to reduced margins and coverage levels.
SECURITY
The bonds are secured by the net revenues generated by the operations of Port Columbus and Bolton Field.
CREDIT UPDATE
While the enplanement base has been stable over a longer period, CRAA experienced some volatility in traffic in the recent years, largely due to the entry and exit of Skybus and JetBlue airlines in 2008 coupled with the economic downturn. Enplanements were down an aggregate 17.5% between the peak in 2007 and 2011 and are up 2.6% through the first three months of 2012, reflecting milder winter months. A return to traffic growth remains uncertain, but the airports high O&D base and low leverage somewhat offset this concern.
In 2011, operating revenues increased 4.5% from 2010 to $71 million. This was largely due to higher parking revenues (59% of non-airline revenues). Airline revenue (35% of total operating revenues) growth was somewhat tempered by larger airline credits that offset airline rate increases. Operating expenses increased 8.3% from 2010 to $51.4 million, reflecting increased benefits and salary costs. Operating expense growth exceeded the growth in operating revenues between 2007 and 2011; expenses grew at a compounded annual growth rate (CAGR) of 3.6% vs. 0.3% operating revenues CAGR. Management has adopted various cost containment measures and expects more moderate increases going forward. Cost control is critical to maintaining financial flexibility and credit quality going forward.
Net revenues, as defined by the indenture, provided 2.46x debt service coverage in 2011. When the non-pledged PFCs available to support eligible debt service are included as revenues in the coverage calculation (about $2.8 million annually), coverage goes up to 2.81x in 2011. Coverage levels are expected to remain healthy but decrease due to additional airline credits for the inline baggage system. Management anticipates maintaining coverage of at least 2.00x (net of PFC supported debt service) by managing revenue sharing with the airlines, as per the terms of the airline agreement.
CRAA's five-year CIP includes estimated $194 million for replacement and renovation of the two runways and a terminal rehabilitation at Port Columbus, which will be funded with internal liquidity (46%), passenger facility charge (PFC) revenues (31%) and grants (23%). The authority is in the process of securing a variable rate bank loan; a revolving line of credit that expires in December of 2018 is expected to support about 35% of the airport's CIP costs that will be repaid annually with a combination of letter-of-intent (LOI) moneys (35%), PFCs (43%) and internal liquidity (22%). The loan will have a subordinated pledge of general airport revenues.
Rickenbacker International Airport operates primarily as an all-cargo airport. Presently the operations of Rickenbacker are not included in the definition of revenues for the indenture that governs the authority's outstanding bonds. Projects at Bolton and Rickenbacker increase the overall CIP to $258 million; majority of Rickenbacker's projects are deferrable pending available funding.
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
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