Fitch Rates Atlanta, GA Airport Revs 'A+' & Passenger Facility Revs at 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned ratings to revenue bonds issued by the City of Atlanta, GA on behalf of Hartsfield-Jackson Atlanta International Airport (ATL) as follows:

--Approximately $330 million of senior-lien airport general revenue bonds series 2014B and 2014C 'A+';

--$501.4 million of passenger facility charge (PFC) and subordinate lien revenue bonds series 2014A 'A'.

Fitch has also affirmed ATL's outstanding $1.87 billion parity general revenue bonds at 'A+' and $888.8 million PFC and subordinate lien revenue bonds at 'A'.

The Rating Outlook for all bonds is Stable.

KEY RATING DRIVERS:

STRONG TRAFFIC BASE AND KEY DELTA HUB: Atlanta maintains an established status as the busiest operating airport in the world with over 47.5 million annual enplaned passengers. Carrier concentration exists with Delta Air Lines (Delta, IDR 'B+'; Outlook Positive) at 78.8% of passenger traffic. However, Atlanta is the primary hub and corporate headquarters location for Delta. ATL is anchored by a large, local traffic base with 15.7 million O&D enplaned passengers for fiscal year (FY) 2013. Passenger traffic trends have been positive over the past four years, and there is limited competition from other regional airports. Revenue Risk: Volume Stronger

EFFECTIVE COST RECOVERY & STRONG NON-AIRLINE REVENUE SUPPORT: The airport operates with continued airline support evidenced by extension of the use agreements that provide compensatory rate setting. Atlanta's large traffic base generates significant PFC and non-airline revenues enabling airline costs per enplaned passenger at $3.70 in 2013 to be among the lowest for a major U.S. hub and international gateway. Revenue Risk: Price Midrange

DEBT STRUCTURE REMAINS CONSERVATIVE: All of the airport's aggregate revenue bonds are in fixed rate mode with conservative amortization profiles. Debt Structure: Stronger

WELL MANAGED CAPITAL SPENDING: Atlanta maintains significant airside and terminal infrastructure to support a major hub. City and carrier support for capital spending is evident. While $800 million of projects have been identified under the current capital program, no borrowings are anticipated over the next five years. Still, a new airport master plan that should be released later this year may identify additional projects that could require longer term future financings. Infrastructure development/renewal: Midrange

--FINANCIAL METRICS AFFORD FLEXIBILITY: The airport currently shows a very healthy financial position in terms of leverage (approximately 4.1x net debt/cashflow available for debt service), coverage levels (1.7x senior bonds and 2.6x of subordinate hybrid PFC bonds), and liquidity (over 1,100 days cash on hand [DCOH]).

RATING SENSITIVITIES:

--Material changes to current traffic levels, particularly the hubbing operations and commitment from Delta;

--Additional leverage to meet the needs of the capital program;

--Changes to the existing favorable airline cost and financial profile.

SECURITY:

The airport general revenue bonds are secured by a first lien on airport net revenues. A senior lien on PFC revenue and a subordinate lien on general revenues of the airport secure the PFC hybrid debt.

TRANSACTION SUMMARY:

The airport will issue over $830 million of refunding debt as fixed rate obligations for both the senior and subordinate/PFC liens. The refundings are intended to take advantage of debt service savings as well as to provide additional cash funding to the debt service reserve accounts. There will not be any debt maturity extensions as a result of these refundings.

ATL represents a major airport facility for the U.S. air transportation network, with significant direct air service to many U.S. and global destinations. With approximately 47.5 million enplanements and nearly 919,000 annual aircraft operations, ATL has been consistently ranked the most active airport in the world. Overall, connecting traffic contributes about 67% of total traffic and could lead to volatility in ATL's future business performance.

While the airport is served by 27 passenger carriers, including 20 scheduled domestic carriers and seven foreign flag airlines, there is a high degree of service dependency from Delta Air Lines. Delta and its affiliates accounted for about 79% of the airport's total enplanements in fiscal 2013, a relatively unchanged level in recent years even though the carrier has reduced its presence at its secondary hubs.

The next largest carrier, Southwest/AirTran (Southwest, IDR 'BBB'; Outlook Stable), serves a smaller but still relevant 14% of airport traffic. Southwest's recent integration with AirTran is resulting in reductions in both capacity and destinations at ATL in conjunction with a shift to more O&D traffic for the combined carrier. Still, Southwest is expected to maintain much of its current base of operations at ATL.

ATL's traffic levels have remained resilient but in-line with the relatively soft general growth in the aviation industry. Recent enplanement figures over the past four years have been trending in a modest positive direction. Fiscal 2013 indicated a 0.8% improvement. However, service reductions by Southwest have led to a 1.7% overall traffic drop at ATL through the first six months of fiscal 2014.

Atlanta is currently progressing successfully through a multi-year capital program. Evidence of program success is the completion of a new international terminal, which enhances international service capacity at the airport. Currently, Atlanta offers an expanding international traffic base for a U.S. airport with nearly 5 million international enplanements. Growth of international passengers has been significantly higher than those for domestic in recent years.

The combined debt level (general revenue plus PFC hybrid) represents a modest $58 per enplaned passenger (or $167 per O&D enplaned passenger). Based on the aggregate debt of the airport, the leverage in terms of net debt to cashflow available for debt service at 4.1x is considered below the peer group of large-hub U.S. airports. The airport expects no future borrowings for the funding of the current $800 million capital program but a new master plan may change this assumption. Other available funding sources include PFC pay-go collections, federal grants, and other airport funds.

ATL is supported by a well positioned financial profile that includes solid overall debt coverage levels of its senior lien general revenue bonds at 1.70x and substantial unrestricted cash reserves of $718 million in fiscal 2013. Airline costs per enplanement (CPE) are at the low-end for a large-hub airport at $3.70, even taking into account a 66% increase in aeronautical charges in fiscal 2013. Going forward, airline rates should remain relatively stable to the extent traffic levels remain unchanged.

Based on forecasts that contain reasonable growth assumptions, Fitch's base case scenario believes that coverage levels can remain healthy but will likely decline moderately to the 1.6x level. CPE levels are also expected to rise modestly to the $4.00 level. Separate from these direct costs that carriers pay to the airport, the all-in CPE is $1.50 to $2.00 above this base rate as it includes additional outside operator payments. The airport would be able to maintain reasonable CPE levels even under severe traffic stresses, although coverage ratios would be narrower.

The hybrid PFC bonds have a history of self-support from the PFC collections. Fiscal 2013 coverage from PFCs was 2.6x and is expected to remain over 2.0x of future maximum annual debt service based on forecasted traffic levels. There is still some risk to the PFC credit as coverage of the hybrid PFC bonds from PFC collections is to some extent dependent on the receipts derived from connecting traffic. Still, a subordinate lien on airport general revenues provides adequate risk mitigation. At current traffic levels, the airport collects PFC receipts in excess of $180 million annually.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);

--'Rating Criteria for Airports' (Dec. 13, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=823157

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Contacts

Fitch Ratings
Primary Analyst:
Seth Lehman, +1-212-908-0755
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Jeffrey Lack, +1-312-606-3171
Associate Director
or
Committee Chairperson:
Chad Lewis, +1-212-908-0886
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst:
Seth Lehman, +1-212-908-0755
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Jeffrey Lack, +1-312-606-3171
Associate Director
or
Committee Chairperson:
Chad Lewis, +1-212-908-0886
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com