Fitch Rates Miami-Dade County, FL's Aviation Revs 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'A' rating to Miami-Dade County, Florida's approximately $538 million aviation revenue and revenue refunding bonds series 2015A&B, issued on behalf of the Miami-Dade County Aviation Department (MDAD). Fitch also affirms the county's $5.57 billion parity aviation revenue bonds at 'A'. The Rating Outlook is Stable.

KEY RATING DRIVERS

RATING RATIONALE: The rating reflects the airport's strong position in the south Florida market for both domestic and international air service. Miami stands-out as one of nation's strongest international gateway airports with a dominant position for Latin American and Caribbean air services. The airport's capital program is essentially complete while the financial metrics have exhibited stability in recent years. Leverage is at the upper end for U.S. airports but is expected to remain at levels consistent with the current rating.

Revenue Risk - Volume: Midrange

LEADING INTERNATIONAL GATEWAY AIRPORT: MIA is a well-positioned, leading international gateway airport serving the growing Latin American market. Despite shifting trends in the aviation industry and competition from nearby Fort Lauderdale Airport, overall traffic activity remains robust with approximately 20.2 million enplanements. The passenger base is well-balanced for both origination/destination (O&D) and connecting passengers as well as international and domestic operations. American Airlines maintains a sizable connecting hub at Miami serving 67% of total passengers. American's recently completed merger with US Airways removes the near-term uncertainty over the carrier's future service decisions. The Miami air travel market is well anchored and the airport has a solid franchise for significant traffic activity.

Revenue Risk - Volume: Stronger

RESIDUAL RATE SETTING: All of the airport's costs are adequately covered by the use agreement rate-setting mechanisms. The current agreement extends until 2017. While airline costs have been relatively high, with the estimated cost per enplanement (CPE) slightly above $20 for fiscals 2013 and 2014, updated CPE forecasts indicate stability at current traffic levels based on the combination of improving non-airline revenue trends as well as lower post-construction operating costs.

Debt Structure Risk: Stronger

CONSERVATIVE DEBT STRUCTURE: All of the airport's debt are fixed rate obligations and amortize with mostly level debt service through final maturity in 2045. Most of the debt service reserves are funded with cash and investments.

Infrastructure Development/Renewal Risk: Stronger

CAPITAL PROGRAM COMPLETION: Substantially all of the previous $6.5 billion capital program has been expended aside from a small amount of carryover projects and the overall budget has remained intact over the past several years. MDAD is now starting a more modest, multi-phase and demand-driven terminal optimization program, with the first phase through 2018 sized at approximately $650 million. Only modest additional borrowings are foreseen over the near term.

HIGH LEVERAGE AND MODEST COVERAGE: Airport debt levels (approximately $290 per enplanement and 12x net debt/CFADS) in conjunction with past financings for a terminal-driven capital program are very high. Leverage should slowly moderate over the next five years but still remain elevated at 11x - 12x. Debt service coverage ratios (DSCRs) on a historical basis are stable at close to 1.54x but are supported by fund balance transfers and debt service offsets from passenger facility charge deposits.

PEERS: Peers of Miami Airport would include other major hubs and international gateway airports, such as Dallas-Ft. Worth (DFW, rated 'A' by Fitch) and Chicago O'Hare (rated 'A-'). Each of these airports has sizable traffic bases, significant hubbing operations and large debt burdens to support capital programs. Both DFW and O'Hare airports currently have higher leverage in the 15x-16x range but lower CPE levels (DFW at $7.20 and O'Hare at $14.15).

RATING SENSITIVITIES

Negative - Material losses or increased volatility in aviation activity, considering the particular exposure to Latin American economies and the operations of American Airlines, could result in rating pressure.

Negative - Operating costs that trend materially above current forecast parameters also leading to upward revisions to airline costs weaken credit quality.

Negative - Development of a new capital program that results in raising leverage metrics would pressure the rating.

Positive - Expansion of the traffic base or carrier mix diversification that leads to improved financial and cost flexibility may lead to a positive rating development.

SECURITY

The bonds are secured by net revenues of the county's Port Authority Properties (PAP), the main asset of which is MIA.

TRANSACTION SUMMARY

The county intends to issue approximately $538 million in parity aviation revenue and revenue refunding bonds for the purposes of generating debt service savings and to fund a small portion of new capex requirements. The bonds are expected to be issued in fixed-rate mode with a final maturity in 2045. The 'A' rating on the refunding bonds is consistent with the affirmed rating on MIA's outstanding parity aviation revenue bonds.

MIA's enplanement activity continues to demonstrate growth with an increase of 1.7% in fiscal 2014 to 20.2 million enplanements. The first six months of fiscal 2015 indicates additional positive growth of 2.4%. The overall passenger traffic growth rates appear to be stabilizing from the stronger rates seen several years ago, although Fitch notes that the overall traffic resiliency reflects the relative strength of international traffic, particularly to Latin American markets that have close economic and cultural ties to the Miami metropolitan area. Expanded services from American are also a result of increased gate availability at the airport's North Terminal facility. The airport is served by a diverse mix of airlines, including 11 scheduled domestic carriers, 42 scheduled foreign flag airlines, and 26 all-cargo carriers. Miami's leading role for international operations is not only relevant for passenger operations but for air cargo as well. Miami currently ranks in the top two positions for U.S. airports in terms of nonstop international destinations and international air cargo tonnage.

Fitch still views future traffic stability as an ongoing risk consideration given the high concentration of traffic from American's operations and some exposure to Latin American economies. American and its affiliate American Eagle collectively represents 67% of MIA's total passenger traffic and support a key part of the airport's domestic and international traffic operations. American's market share of total passenger traffic has remained mostly stable over the past several years and Fitch does not expect the recent American merger with US Airways to have material changes to the operational activities.

In addition to general economic conditions, both domestic as well as international across Latin American (Latam) regions, MIA's base of service also faces ongoing competitive threats to its domestic O&D traffic from nearby Ft. Lauderdale Airport (FLL). FLL currently has a much lower cost profile and is served by a broader diverse mix of domestic legacy and low-cost carriers. FLL has been undergoing a substantial expansion and redevelopment on both its airfield and terminal facilities, which could create a more challenging environment for MIA with regard to sustaining the traffic growth off its existing passenger traffic base. FLL's more recent growth has been in certain markets in the Caribbean and Latam regions, which may raise the competitive landscape more than has been the case in the past.

Taking into consideration the airport system's residual rate-setting methodology, financial operations have been largely stable over the past several years with debt service coverage holding in the 1.45x to 1.55x range, taking into account Improvement Fund transfers. Airline revenues account for about 50% of total revenues and have increased measurably in recent years to support the airport's growing cost base. However, non-airline commercial revenues have also risen in conjunction with the rising traffic levels. Otherwise, coverage is typically at or near the 1.20x-1.25x range net of the use of such transfers.

MIA's approximately $5.7 billion in senior-lien debt translates to approximately $290 per enplanement based on the 2014 traffic base but no additional debt is planned over the next several years in order to complete the funding of the current capital program. Estimated net debt-to-CFADS for fiscal 2014 is high for large hub airports at 12x but will ultimately moderate. Airport unrestricted fund balances at about $273 million in FY2014, or 258 days cash on hand, have been largely stable but somewhat constrained given the residual airline agreements.

Fitch notes that the airport's current $6.5 billion capital program is substantially complete and remains at about the budget estimates indicated over the past several years. At this time Fitch views the capital program risk to the credit profile to be minimal although the airport recently launched a new multi-phase terminal optimization program. The first phase is currently budgeted at $650 million, with additional borrowings to fund just less than half of the costs. Airport CPE was $20.54 in fiscal 2014, a modest increase from $20.39 in fiscal 2013. These levels are generally high even for international gateway airports. However, the updated CPE forecast report for the 2015 financing indicates a stable outlook for airport costs. The combination of rising passenger levels, growing non-airline revenues, and containment in operating costs results in CPE rising to less than $22-$23 by 2020. Earlier forecasts assumed CPE levels rising to $30 and higher over the same time period.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984675

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Contacts

Fitch Ratings
Primary Analyst
Seth Lehman, +1-212-908-0755
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Jeffrey Lack, +1-312-368-3171
Associate Director
or
Committee Chairperson
Alberto Santos, +1-212-908-0714
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Seth Lehman, +1-212-908-0755
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Jeffrey Lack, +1-312-368-3171
Associate Director
or
Committee Chairperson
Alberto Santos, +1-212-908-0714
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com