Fitch Affirms Hillsborough County's Tampa Int'l Airport Senior & Sub Revs

NEW YORK--()--Fitch Ratings has affirmed its 'A+' rating on approximately $296 million of outstanding airport revenue bonds, issued on behalf of Tampa International Airport (the airport) by the Hillsborough County Aviation Authority (the authority). Fitch has also affirmed its 'A' rating on $157 million of airport subordinated revenue refunding bonds. The Rating Outlook is Stable for all of the bonds.

The airport also has $99 million in parity senior bonds which are privately placed, and are not rated by Fitch.

KEY RATING DRIVERS:

The ratings reflect the airport's strong O&D position in the Tampa and Central Florida market, providing stability through the recent downturn. The airport benefits from stable coverage in the 1.5x range and reasonable CPEs in the $5 range. While a sizable capital program is underway with additional borrowing planned, leverage is expected to remain at levels consistent with the current ratings.

Revenue Risk Volume: Midrange

Traffic Influenced by Carrier Decisions and Competition: The airport's sizable origin and destination (O&D) market, comprising nearly 90% of enplanements, is underpinned by a strong leisure base, and the airport is served by a diverse mix of legacy and low cost carriers (LCCs). It faces some competition from nearby Florida airports, and its enplanements have been slower to recover than peers. The five-year enplanement CAGR through 2014 is nearly flat at 0.3%, however, recent year trends are positive.

Revenue Risk Price: Midrange

Cost Recovery Framework Key to Master Plan Borrowing: The airport's current use and lease agreement covers one third of airport costs and is dependent on significant non-airline revenues to maintain low airline cost per enplanement in the $5 range. However, the airport benefits from extraordinary coverage protection, allowing it to levy additional charges to airlines in the event that net revenues are insufficient to meet debt service covenants. Fitch will evaluate the protections afforded under the agreement should airport costs rise as capital spending occurs, even under conditions of traffic growth.

Infrastructure and Renewal: Midrange

Large Capital Plan Partially Debt Funded: The deferral of the north terminal development project due to lower activity levels has resulted in a three phase CIP to reduce traffic congestion (2013-2018), prepare the existing terminal for future growth(2018-2023), and to expand the main terminal (2023-2031). Prudent management of capital spending and borrowings will be critical to rating maintenance.

Debt Structure: Stronger (senior); Midrange (sub)

Conservative Debt Structure: Nearly all of the airport's debt is issued in fixed rate mode with 40% of the currently outstanding debt scheduled to mature in less than five years. With the airport's new dual lien debt structure, currently 28% of outstanding debt is on the subordinate lien. Up to $375 million in additional GARB and PFC-supported borrowing across the two liens is expected to complete phase one of the airport's Master Plan capital improvement program (CIP), with an additional $190 million in borrowing expected for phase 2.

Financial Metrics

Historically Stable Financial Position May Face Pressure: The airport's 2013 net debt-to-cash flow available for debt service (CFADS) of 4.1x is comparatively low, though leverage is expected to rise to 10x due to borrowing associated with the CIP. The airport's debt service coverage ratio (DSCR) remains lower than pre-recession periods but has slowly risen to 1.56x in fiscal 2013, and is expected to rise to the 1.6x range for 2014 (ended Sept. 30).

Peers

The airport's peers include other south Florida airports with similar market characteristics, such as Greater Orlando Aviation Authority (rated 'AA-' by Fitch) and Broward County Fort Lauderdale (rated 'A'), with GOAA's higher rating reflecting a stronger liquidity position, lower leverage, and stronger all-in coverage metrics.

RATING SENSITIVITIES:

Negative: Material changes to enplanements that signify increased competition from nearby airports or weaker economic conditions could pressure credit quality.

Negative: An increase in leverage to support the capital program without commensurate increases in revenues or reduced operating expenses for a sustained period may lead to rating pressure.

Negative: Should senior and all-in coverage fall below 1.4x and 1.3x respectively, or should future borrowing result in an overall increase in leverage above current plans, the ratings may be pressured. Similarly, should heavier borrowing on one of the two liens change the balance of the capital structure, a greater notching differential between the rated liens may result.

Positive: Given uncertainty surrounding the ongoing capital program, upward rating movement is unlikely at this time.

CREDIT UPDATE:

The airport, located approximately five miles west of the City of Tampa's central business district, has experienced somewhat slower enplanement recovery than peers. From fiscal 2007 to fiscal 2010, enplanements declined 3.5% annually, and fiscal 2011 marked the first increase since the recession began, with 0.6% growth. Fiscal 2012 and 2013 continued the trend, albeit with modest growth of 0.7% and 0.6% respectively to 8.5 million enplaned passengers in fiscal 2013. Enplanements for fiscal 2014 are up a healthy 2.1%, reflecting increased service at the airport.

Meanwhile, total operating revenues and expenses have been flat since fiscal 2007. CPE remains competitive just above $5, and is expected to increase only modestly in coming years. The DSCR fell to a low of 1.38x in fiscal 2010, following years in which it ranged from 1.6x-1.9x. In fiscal 2013 DSCR reached 1.56x, and it is projected to rise to 1.63x in fiscal 2014. Under various sensitivity cases reflecting the full borrowing program for the first phase of the airport's master plan (see below), coverage on the senior lien falls to the 1.4x range, while all-in coverage dips to 1.3x. Should coverage fall meaningfully below these levels, or should the gap between the liens widen, the rating may change.

The authority is undertaking considerable borrowing in the context of its master plan-driven capital improvement plan, with the next stage of borrowing in 2015. The master plan update includes three phases and totals $2.5 billion, allowing the existing main terminal building to accommodate up to 34.7 million passengers, and delaying construction of a new north terminal (expected in previous master plans once passenger volumes reached 25 million a year) to 2041. Phase 1 (2014-2018) is estimated at $943 million, with the largest projects being the design and construction of a consolidated rental car facility (CONRAC) and automated people mover (APM) system connecting the terminal to parking, rental car facilities, and regional transportation networks. Phases 2 and 3, which run through 2031, include $1.5 billion of projects for expansion of existing terminal facilities.

Funding is underway for Phase 1 of the plan; senior lien refundings and subordinate new money transactions took place in 2013. Additional new money and refunding issues are slated for 2015 and will fund the APM System, CONRAC, south roadway, taxiway, and concession/terminal development projects. The authority currently plans on raising bonds to cover $688 million of the $943 million in Phase 1 project costs, with revenues for debt service coming from airport revenues as well as from PFC and CFC revenues (currently levied at $4.50 and $5.00 respectively). Current plans anticipate $153 million in senior GARB debt, $215 million in subordinate PFC-backed debt, and $375 million in CFC-backed debt. With this borrowing plan, all-in net debt to CFADS is expected to rise to 10x from the 2013 level of 4x, though under Fitch's base case this falls off to the 7x range within five years. The airport has also received a $194 million FDOT grant, to be distributed between 2014-2018, which will cover several Phase 1 projects and will reduce borrowing requirements.

SECURITY:

Senior revenue bonds issued by the authority are payable solely from airport revenues derived from the operation of the airport system (Tampa and three general aviation airports) after the payment of operation and maintenance expenses. Available PFC revenues are included in the definition of revenues and eligible PFC-project bonds are paid from a first lien on available PFC revenues with a back-up pledge of airport net revenues. Pledged PFCs are limited to 125% of PFC-eligible debt service.

Subordinate revenue bonds are payable from airport system net operating revenues after payment of operating expenses and senior lien debt service. PFCs which are not available to pay senior lien debt service are available to pay PFC eligible debt service on the sub lien.

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

Applicable Criteria & Related Research:

-- 'Rating Criteria for Infrastructure and Project Finance' (July 11, 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=898674

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Emma Griffith, +1-212-908-9124
Director
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tanya Langman, +1-212-908-0716
Director
or
Committee Chairperson
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Emma Griffith, +1-212-908-9124
Director
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tanya Langman, +1-212-908-0716
Director
or
Committee Chairperson
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com