NEW YORK--()--Fitch Ratings affirms its 'A' rating on the City of Charlotte's series 2011 approximately $61.26 million special purpose facility taxable revenue bonds (Consolidated Rental Car Facility Project bonds). The Rating Outlook remains Stable.
Key Rating Drivers:
--Stable demand profile: The consolidated rental car facility project serves a sizeable metropolitan region, with historically over 2 million visiting O&D deplanements.
--High degree of rate-making flexibility: The airport's current customer facility charge (CFC) rate of $4.00 is adequate to cover obligations, and further increases are currently not expected. However, the airport may increase rates at its discretion in the future if necessary, and may also levy contingent rent on the rental car companies.
--Manageable leverage: The project's leverage at or near 3.5x net debt-to-cash available for debt service (CFADS) results in strong free cash flow and healthy debt service coverage ratios through the life of the debt at or near 2.0x excluding the use of any rolling coverage and cash funded reserve accounts.
--Strong security package: The structure is underpinned by a first lien on CFC monies and, if needed, contingent rent, a closed loop of funds, and cash-funded project reserves.
--Modern infrastructure: Construction risk is largely mitigated by a guaranteed maximum price (GMP) contract, de-linking revenue collection from project completion, and adequate cash reserves. When completed, the new single-site rental location will have modern facilities and no additional plans for parity debt.
What Could Trigger a Rating Action
--Material decreases in rental car demand, or volatility in the underlying O&D traffic base;
--Significant cost overruns during construction.
The series 2011 bonds are secured by a pledge of the CFC collections received or receivable by the city and if necessary, any contingent rent paid by the rental car companies. In addition, the city has pledged the amounts on deposit in the CFC stabilization fund, rolling coverage fund, supplemental reserve fund, and debt service reserve fund.
Charlotte's consolidated rental car facility is currently under construction across from the airport's passenger terminal. The facility will comprise the first three levels of a seven-level approximately 1.4 million square-foot garage that can hold up to 2,000 rental car parking spaces, a customer service center, and car service and storage areas (quick turnaround, or QTA). Construction began in November 2011, and is expected to conclude in fall 2014. The new parking deck is currently under construction and is 20% complete, including ready return spaces and the QTA facility. The airport has separate but identical concession agreements with all on-airport rental car operators, each with an initial 10-year term commencing on the date of beneficial occupancy. On-airport operators account for approximately 99.6% of all rental car transactions. The airport also maintains the right to charge a CFC to the current on-airport rental car operators should they move off-airport.
The consolidated rental car facility serves a sizeable metropolitan region, with historically over 2 million visiting O&D deplanements. O&D enplanements in fiscal 2011 were 6.7% higher than 2010, while visiting O&D levels were up 5.5%. City management has indicated tourism, food tax income, and hotel occupancy were all better than expected in 2011 and 2012. Rental car transactions at the Charlotte airport have performed well in recent years, with transaction days up 9.3% for fiscal 2011, and up 8.6% for fiscal 2012 (fiscal year ended June). Figures for 2012 are 7.5% above the forecast for contract days presented in the airport's feasibility analysis at time of issuance. July and August figures are also up, showing an 8% improvement over the same months in 2011. CFC revenues were up 5.5% in fiscal 2011 on a year-over-year basis, and are up a further 4.5% in 2012.
Regarding the recently announced merger between Hertz and Dollar/Thrifty, the airport has told the Federal Trade Commission (FTC) that it will cooperate with Hertz in complying with FTC conditions as to the approval of the Hertz acquisition of Dollar/Thrifty. As a part of this agreement, the airport will consent to an assignment by Hertz of the existing Thrifty concession agreement to Advantage Rent-a-Car. Advantage will take Thrifty's spot in the consolidated rental car facility and assume Thrifty's obligations under the concession agreement, including collection of CFCs and the obligation to pay a 10% concession fee. Thrifty will become an off-airport concessionaire, paying the airport a 10% concession fee but not a CFC. Management does not expect this development to result in a material change in CFC collections.
Charlotte Airport is located in Mecklenburg County, NC, and is operated by the City of Charlotte. The airport is located on approximately 6,000 acres and is situated approximately seven miles west from the downtown commercial business center. The airport is of strategic importance to US Airways, as it is the carrier's largest hub and has outperformed other large hub airports during the recent recession. The airport benefits from a sizeable underlying O&D traffic base of five million enplanements.
Additional information is available on 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 Airports, Nov. 28, 2011;
--'Rating Criteria for Infrastructure and Project Finance', July 12, 2012.
Applicable Criteria and Related Research:
Rating Criteria for Airports
Rating Criteria for Infrastructure and Project Finance