CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to Lee County, Florida's approximately $33 million airport revenue refunding bonds series 2015. Fitch has also affirmed the 'A' rating on $261 million of outstanding parity airport revenue bonds issued on behalf of the Southwest Florida International Airport (SWFIA). The Rating Outlook remains Stable.
KEY RATING DRIVERS
The airport's rating reflects a well-balanced mix of major carriers serving a leisure-focused service area with an enplanement base that has started to rebound following several years of decline. In addition, the rating reflects SWFIA's solid financial metrics with competitive cost per enplanement (CPE) levels, in the $7 range, and moderate leverage. The rating is further supported by a five-year airline use and lease agreement (AUL), as well as manageable capital needs and robust liquidity compared to its peers within the rating category.
Revenue Risk - Volume: Midrange
Tourism-Based Traffic: SWFIA serves an origination and destination (O&D) enplanement base of approximately four million passengers, with considerable dependence on discretionary leisure traffic. The airport enjoys a diverse carrier mix with no airline holding more than a 25% market share and low cost carriers collectively representing nearly half of all enplanements. SWFIA faces little competition in the region with the nearest comparable airport 125 miles away.
Revenue Risk - Price: Midrange
Standard Cost Recovery Framework: The airport is able to recoup a majority of its costs under the current hybrid AUL. However, because 57% of its operating revenue is non-aviation based, SWFIA's financial performance is exposed to enplanement volume and management's ability to contain costs. CPE is expected to remain competitive.
Infrastructure Development and Renewal: Stronger
Manageable Capital Program: The five-year capital improvement plan (CIP) totals $165 million, funded from a mix of grants, passenger facility charges (PFCs), and surplus funds with no additional borrowing anticipated. All projects are demand-driven and could be scaled back or deferred if enplanement growth does not materialize, with some projects having already been deferred over recent years.
Debt Structure: Stronger
Conservative Debt Structure: The airport's debt is fixed rate and fully amortizing, with aggregate level debt service of approximately $25 million annually through 2033.
Financial Metrics
Moderate Leverage, Strong Liquidity: The airport's net debt-to-cash flow available for debt service (CFADS) of 4.4x, post-refunding is reasonable for a medium hub airport. Forecast debt service coverage ratios (DSCRs), taking in to account PFC transfers, of 1.4x are supported by relatively strong financial flexibility based on extremely robust balance sheet liquidity of $116 million in unrestricted cash, equating to 714 days cash on hand (DCOH) as of March 31, 2015.
Peer Group: The airport's peers include Palm Beach County (PBI), Florida (rated 'A'/Stable Outlook by Fitch) and Jacksonville (JAX), Florida ('A'/Stable Outlook). Traffic and CPE levels are similar among the airports while PBI and JAX have lower leverage and stronger coverage. However, in Fitch's view, SWFIA's high liquidity mitigates this variance.
RATING SENSITIVITIES
Negative - Traffic Base: Significant declines or volatility in the enplanement base could pressure the rating if financial flexibility is stressed;
Negative - Operating Performance: An inability to maintain and grow non-aviation related revenue while managing cost escalation;
Negative - Coverage Support: A sustained use of extraordinary coverage to maintain the rate covenant;
Positive: The airport's size and traffic profile, reflecting inherent vulnerabilities related to leisure travel, restrict the likelihood of a higher rating at this time.
TRANSACTION SUMMARY
The airport is issuing its series 2015 bonds to currently refund its series 2005 bonds for debt service savings, estimated to be approximately $4.3 million, or 11.5% of refunded par. The maturity and amortization profile will remain consistent. Pricing is anticipated in early June.
CREDIT UPDATE
Enplanement levels at the airport continue to grow from their post-recession low in fiscal 2012 as tourism levels rebound and airlines continue to add or increase route frequencies to various destinations. Total annual enplanements have grown 8.5% from 2012 - increasing 3.5%, to four million, in fiscal 2014 alone. Furthermore, this upward trend has continued in to fiscal 2015, as enplanements are up an additional 5% through the first six months of the year. Moderate enplanement and population growth are projected to continue in the near future; however, the airport remains vulnerable to discretionary spending related to the travel and leisure industry.
The airport's overall operating performance is also experiencing an upward trend. Net operating revenue in fiscal 2014 grew 3% while non-aviation revenue grew 6.5%, resulting in 3% higher non-aviation revenue yield per enplanement, of approximately $13.18. Revenue related to the airport's rental cars, rental car facility and parking, which account for 40% of net operating revenue, grew 5% in fiscal 2014, and remains a strong revenue generator for the airport. As noted in last year's press release, management continues to phase in various deferred maintenance items in light of stronger revenue performance, which led to a 1.6% increase in fiscal 2014 operating expense. The airport's operating margin moderately improved to 25%. It should also be noted that the airport fully paid off its series 2010 PFC bank loan in December 2014.
Fitch's base case scenario assumes five-year enplanement, revenue and expense growth rates of 2.2%, 1.5% and 1.8%, respectively. Coverage levels, with PFC transfers, are maintained above 1.4x, while CPE remains in the low $7 range. Fitch's rating case stresses enplanements by 5% in fiscal 2016 followed by a moderate recovery in fiscal 2017 and a stable traffic base thereafter, resulting in a flat growth rate over the five-year period. The case further assumes that non-aviation revenue follows enplanements and that the airport passes through some additional cost to the airlines in order to compensate for this shortfall, resulting in CPE levels in the high-$7 range. Additionally, given the decrease in enplanements, the rating case also assumes that the airport again shelves some deferred maintenance items to manage costs, for an annual expense growth rate of 2.2%. Under this scenario, a small amount of extraordinary coverage would be required in fiscal 2019 to maintain 1.25x coverage. Leverage in both the base and rating case evolves down to the mid-3x level.
SECURITY
The bonds are secured by a pledge of the net revenue of SWFIA's operations and certain funds under the bond resolution. PFCs are not pledged under the bond resolution but such receipts can be transferred to reduce debt service requirements and to stabilize rates to airlines. The airport also has the ability to impose an additional airline charge through the extraordinary coverage protection provision to support the rate covenant.
For further information related to the series 2015 issuance, please refer to Fitch's forthcoming pre-sale report, to be published mid-May.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and 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=984375
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