NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following Fort Wayne International Airport Air Trade Center Building Corporation, IN bonds:
--$10.3 million taxable first mortgage refunding bonds, series 2011 at 'AA+'.
The Rating Outlook is Stable.
The bonds are secured by semiannual lease rental payments paid by the Fort Wayne-Allen County Airport Authority (authority) pursuant to a master lease between the authority and the Fort Wayne International Air Trade Center Building Corporation (corporation). The rent is payable from unlimited ad valorem taxes levied by the authority on all taxable property within Allen County (the county) which is coterminous with the authority boundaries. The rent payments are subject to abatement for any period that the leased premises are not available for use and occupancy. The authority maintains rental interruption insurance.
KEY RATING DRIVERS
REGIONAL HUB; TAX BASE STABILIZATION: Allen County is an industrial, agricultural and business center for northeastern Indiana. County taxable values have been increasing over the past three fiscal years, a strong display of taxbase stabilization.
VERY MODEST PROPERTY TAX LEVY: The authority's property tax levy for operating, building and debt service constitutes less than 2% of the total property tax levy within the county, including the city, county and other overlapping entities. This provides revenue flexibility as even sizable changes in the authority's tax rates only marginally affect overall taxes.
SOLID FINANCES; LIMITED, CRITICAL OPERATIONS: The authority's finances are well-managed supported a compensatory cost structure, user fees and property and other tax revenues. Airport operations are small in scale but essential to the area as the nearest alternative airport is over 100 hundred miles away.
ABATEMENT RISK: Rental payments are subject to abatement if the leased premises are not available for use. This risk is mitigated by the master lease requirement that the authority maintain rental value insurance equal to two years of rent payments and property damage insurance at 105% of replacement cost.
The rating is sensitive to shifts in fundamental credit characteristics including the strong financial performance and a stable local economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The authority operates two airports in Allen County; the Fort Wayne International Airport (airport) and Smith Field, a much smaller general aviation reliever airport. The airport's central location in northeastern Indiana affords access to major cities in the midwest, southwest and Florida. As the nearest airport is over 100 miles away, the airport provides critical airline service to the region. Airport activities include passenger and cargo service and general aviation operations. The airport is also home to the 122nd Fighter Wing of the Indiana National Guard.
DIVERSE LOCAL ECONOMY SHOWS RECOVERY
Fort Wayne serves as the commercial center for north central Indiana. The area economy includes a significant manufacturing sector as well as healthcare and government. Manufacturing employment dropped significantly during the recession but has been recently driving gains in employment. One of the largest employers is General Motors (GM) who operates a major plant within the county employing approximately 3,900, up nearly 20% from 2012.
County unemployment levels, at 6.2% in February 2014, compare favorably with the state and national averages. Growth in employment is outpacing that of the labor force. County wealth indices are on par with the state averages but trail the national benchmarks.
STABILIZING TAX BASE
Assessed valuation has experienced modest increases since 2010, signaling stabilization of the county's taxbase. The $13 billion tax base is diverse and the top 10 taxpayers account for 9.2% of total valuations. Officials expect the tax base to continue to stabilize or even increase slightly over the next few years, a projection which Fitch believes is reasonable given recent economic trends.
SMALL AIRPORT WITH INCREASED ENPLANEMENT ACTIVITY
Airport operations are modest with enplanements averaging just under 300,000 annually for the past 10 years. Cargo/freight service is provided by three carriers including Federal Express and United Parcel Service. Airport activity slowed considerably during the past economic downturn as indicated by a 44% decline in landing weights and a 7% drop in passenger counts between fiscals 2007 and 2010.
More recent statistics suggest that a rebound may be in progress. The rebound is led by cargo carriers, which increased from five carriers in 2010 to nine in 2013; passenger landing weights have declined slightly since 2011. Enplanements grew 5% in fiscal 2013, the largest annual growth over the past five years.
FAILURE OF CARGO FACILITY LESSEE TRIGGERS DEBT SERVICE LEVY
The outstanding bonds refunded a 1998 issue which financed the construction of a cargo facility. The authority expected the cargo carrier leasing the facility to cover debt service costs. The carrier declared bankruptcy and vacated the cargo facility in 2008 and the authority has since been levying property taxes for debt service. The authority is currently in negotiations with a tenant for the facility.
Financial management has been sound supported by a compensatory cost structure built into the airline agreements as well as user fees and taxes. Operations are mostly self-supporting with tax revenues used to fill any revenue gaps and cover debt service. Unaudited fiscal 2013 operations report a $3.1 million operating surplus (after transfers), representing 17.9% of operating expenses. This is the authority's fifth consecutive year of positive operating results, as the authority increased operating revenues while maintaining tight controls on spending.
Fiscal 2013 unrestricted net assets are robust accounting for 167.4% of expenses less depreciation and interest. Liquidity levels are ample with fiscal 2013 unrestricted cash and investments cover 20 months of operations, excluding depreciation. The authority is budgeting a deficit for fiscal 2014, driven by cash funding of capital expenditures, but year-to-date results indicate actual results may be better than budgeted expectations.
Debt levels are low to moderate with overall debt burden at 2.8% of market value. Principal amortization is very rapid with all bonds fully retired within seven years. The authority's capital plans are manageable and are primarily funded with federal and state grants. There are no plans to issue additional bonds.
RISING BUT MANAGEABLE PENSION COSTS
The authority participates in two plans administered by the Indiana Public Employees Retirement System (PERS); one a defined benefit and the other a defined contribution plan. The authority's defined benefit plan is underfunded, with a funded ratio estimated at 45%, assuming Fitch's 7% discount rate. However, the plan is small and the unfunded liability is modest at $4.8 million or less than 1% of taxable market value.
The remaining amortization period as of Dec. 31, 2013 was 15 years for the defined benefit plan over which time the authority's cost will increase. The authority contributed 95% of the annual required contribution (ARC) in 2013, up from 92% in 2012. Carrying costs are modest with debt service, pension annual required contribution and other post-employment benefits (OPEB) expenses representing 6% of operating expenses. The authority should be able to absorb increases in pension costs since carrying costs are currently low. The authority has not begun prefunding the long-term OPEB liability, and covers these expenses on a pay-go basis.
LEASE PAYMENTS SUBJECT TO ABATEMENT
The bonds are subject to a master lease between the airport authority and the building corporation. The leased property consists of an air cargo hub facility composed a 240,000 square foot sortation building, maintenance building, an administrative building and other site improvements. Semi-annual rent paid by the authority corresponds to debt service on the bonds. Payments are made directly to the trustee and deposited into the debt service account. Typical of Indiana leases, rent payments are subject to abatement if all or part of the leased project is not usable but requirements for property damage up to 105% of value and rental interruption insurance equal to two years debt service partially offset this risk.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, and Financial Advisor.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria