CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB-' rating to Burlington, VT's (BTV) approximately $16.8 million series 2014A airport revenue refunding bonds. In addition, Fitch has affirmed its 'BBB-' rating on BTV's approximately $40.6 million outstanding airport revenue bonds. The Rating Outlook is Stable.
KEY RATING DRIVERS
The 'BBB-' rating reflects a volatile enplanement base serving a small regional market at BTV combined with limited operating and financial flexibility. BTV has a history of weak cash flow but recent strides have enhanced their financial profile as seen in recent improvement of net revenue generation, debt service coverage ratios and days cash on hand.
Revenue Risk-Volume: Weaker
PRIMARILY O&D TRAFFIC BASE WITH VOLATILITY: BTV is the primary air service provider for the Burlington metropolitan statistical area (MSA) with no domestic competition within 150 miles. Approximately 30% of enplanements are driven by demand from Quebec, Canada due to significantly cheaper fares. Enplanements are slightly over 617,000 and have declined 17% from a peak of 743,000 in the fiscal year ended (FYE) June 30, 2007.
Revenue Risk-Price: Weaker
ADEQUATE LEGAL FRAMEWORK WITH A LARGE SUBSIDY TO AIRLINE CARRIERS: BTV has a hybrid use and lease agreement on annual renewals that offers a substantial subsidy of approximately 40% from full recoverable costs towards terminal and landing fees. BTV's subsidy to carriers allows the cost per enplaned passenger (CPE) to remain moderate relative to peers at $5.88 for FY 2014 but adverse developments in either traffic activity or non-airline revenues could stress this rate -setting practice.
Infrastructure Development Renewal: Stronger
MANAGEABLE INFRASTRUCTURE PLAN: The five-year capital improvement plan (CIP) is modest at $72.5 million and is expected to be funded through grants with minimal local proceeds.
Debt Structure: Stronger
CONSERVATIVE DEBT STRUCTURE: All of BTV's senior debt is fixed rate with a level profile at approximately $4 million through maturity in 2028. The series 2014A refunding will reduce debt service requirements to approximately $3.8 million through 2028 and extend debt service payments into 2029 and 2030 of approximately $1.5 million. The debt also contains sound coverage tests and reserve requirements.
MODERATE LEVERAGE AND LOW LIQUIDITY: BTV's net debt-to-cash flow available for debt service (CFADS) is 6.77x, which is elevated for a small airport of its size. In FY 2014, BTV's senior lien debt service coverage ratio increased to 1.65x from 1.57x for FY 2013. Liquidity levels remain low but continue to improve with 145 days cash on hand (DCOH) at the end of FY2014.
RATING SENSITIVITIES
--TRAFFIC TRENDS: Material changes to passenger traffic levels, some of which are currently influenced by Canadian-based travelers, may pressure the rating;
--FINANCIAL METRICS: Inability to maintain debt service coverage ratios or unrestricted levels of fund balances consistent with recent performance may result in a lower rating;
--RATE SETTING: Execution of an airline rate agreement with strong cost recovery mechanisms would be supportive to the current rating;
--BORROWINGS: Given the current financial profile, additional leverage to fund future capital improvement programs may pressure the rating.
SECURITY
The bonds are special obligations of the city payable from a senior lien pledge from airport net revenues. The pledge of revenues includes a portion of passenger facility charges (PFCs) and industrial park revenues to be used for designated projects.
TRANSACTION SUMMARY
The series 2014A bonds will refund the series 2003A revenue bonds and extend the maturity two years. The primary reason for the transaction is to achieve debt service savings of $2.6 million in the current flat debt service schedule through 2028 and push the remaining $3.1 million in debt service to years 2029 and 2030 when there is currently no debt service scheduled.
See also 'Fitch Affirms Burlington, Vermont's $44MM Airport Revs at 'BBB-'; Outlook Stable', dated May 30, 2014, available on the Fitch website, for additional information.
SECURITY
The bonds are special obligations of the city payable from a senior lien pledge from airport net revenues. The pledge of revenues includes a portion of PFCs and industrial park revenues to be used for designated projects.
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. 12, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=923059
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