NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'AA' rating to the Massachusetts Port Authority's (Massport) approximately $52.5 million of series 2016A refunding bonds and $181 million in series 2016B revenue bonds.
In addition, Fitch has affirmed the following Massport debt:
--Approximately $1.2 billion revenue bonds at 'AA';
--Approximately $53 million passenger facility charge (PFC) revenue bonds at 'A+'.
The Rating Outlook is Stable for all of Massport's debt.
The 'AA' revenue bond rating reflects Massport's strong financial performance anchored by Logan Airport's (Logan) resilient and growing demand for air travel within a strong Boston metropolitan service area and is further supported by relatively stable maritime activity. The Stable Outlook incorporates the view that airline costs, debt service coverage ratio (DSCR) and leverage metrics will remain solid relative to peers due to proven revenue generating capabilities of the authority's asset portfolio and manageable borrowing needs associated with Massport's mature capital program.
The affirmation of the 'A+' PFC revenue bond rating reflects the aforementioned credit strengths of Logan, proven ability of strong PFC collections, short debt tenor and low existing leverage that provides for high coverage levels offset by the limited revenue stream and its inherent volatility due to its direct correlation with passenger volume.
KEY RATING DRIVERS
Revenue Risk: Volume - Stronger
Very Strong Operational Profile: Strong economic underpinnings of the service area support healthy demand for the authority's transportation and commerce related business lines. Airport passenger trends continue to demonstrate solid positive growth, with 16.1 million enplanements in fiscal 2015 (ended June 30), despite the presence of regional-based traffic competition from nearby Manchester and TF Green airports. Logan enjoys a very high origination and destination (O&D, 94%) traffic base offered by a diverse mix of domestic and foreign flag airlines, augmented by the increasing presence of low-cost carriers.
Revenue Risk: Price - Stronger
Well-Structured Cost Recovery Framework: The leases and rate-setting approach with airlines and other commercial users of the aviation and maritime divisions allow for both strong recovery of costs and flexible control of facilities. Airline costs, at $13.78 per enplanement in fiscal 2015, have been stable in recent years although moderate increases are expected over the next five years.
Infrastructure Development and Renewal - Stronger
Manageable Infrastructure Needs With Minimal Borrowings: The authority maintains a strong infrastructure development program with manageable capital requirements (approximately $1.74 billion through fiscal 2020) and relatively moderate expectations with respect to future borrowings (about $900 million through 2020). The plan allows for adjustment in timing and scope of individual projects should that become necessary.
Debt Structure Risk - Stronger
Conservative Debt Profile: Following the issuance of the series 2016 new money bonds, nearly 92% of the authority's debt will be in fixed-rate mode with a descending debt service profile. All bond reserves are expected to be cash funded.
Financial Metrics:
Moderate Leverage and Strong Coverage: Debt levels were moderate relative to the airport's fiscal 2015 enplanement base ($84 per enplanement) and net debt/cash flow available for debt service (CFADS) ratio of 3.3x was favorable. Days cash on hand (DCOH) at 324 days was adequate for the rating level while the authority's debt and liquidity policies are viewed positively. Massport's general revenue bond DSCR has been consistently at or above 2.0x over the last five years with 2.49x coverage in fiscal 2015. Future coverage ratios should remain at similar levels.
Substantial PFC Debt Coverage: A sizable O&D air traffic market supports a large annual PFC collection base in excess of $65 million. The existing debt provides a low leverage level and a very short maturity period through 2017. Fiscal 2015 DSCR on the PFC backed debt was 3.11x while the final payment is expected to be partly paid off with funds set aside in the debt service reserve fund.
Peers:
Comparable highly rated airport sector peers include Los Angeles International Airport and San Francisco airports. Both are international gateway, large hub facilities and have strong revenue risk profiles supported by large enplanement levels and competitive airline costs coupled with strong financial metrics. Massport compares favorably to other consolidated entities with airport and port operations, such as Port of Seattle.
RATING SENSITIVITIES
Negative - Traffic Base: Elevated volatility in aviation and maritime operations that leads to deteriorating financial metrics.
Negative - Costs: Increased costs that contribute to a deterioration of coverage levels (below 2x on a sustained basis) and liquidity margins to levels inconsistent with the rating category.
Negative - Leverage: A material increase in the capital program size or borrowing needs, beyond current expectations.
Positive - Not likely given Massport's ongoing borrowing needs and expectation that financial metrics are not likely to measurably improve over the next several years.
SUMMARY OF CREDIT
The series 2016 fixed-rate bonds are scheduled to price on or around July 12. Bond proceeds will finance elements of the authority's capital program and refund various outstanding revenue bonds. The new money portion of the 2016 bond issue will have a final maturity in 2046, or one year beyond the current debt maturity profile.
The series 2016A bonds will be used to refund part of the existing outstanding debt while the series 2016B bond proceeds will finance elements of the authority's capital program. The bonds will be issued in a fixed rate mode with a final maturity in 2046, or one year beyond the current debt maturity profile.
Logan remains the centerpiece of Massport's properties, generating approximately 84% of total operating revenues in fiscal 2015. The maritime properties generate the bulk of the remaining operating revenues. Logan served over 16 million enplaned passengers in fiscal 2015, a 4.7% improvement over fiscal 2014. Domestic enplanement expansion from low cost carriers continues to be the leading contributor to growth while international enplanements also contributed with an 11.7% rise over fiscal 2014.
Infrastructure improvements over the past decade, both at the airport as well as access roadways into Logan, have served to make the airport a more attractive facility. The improvements have enhanced Logan's competitive position relative to nearby airports in Connecticut, Rhode Island and New Hampshire. The O&D orientation of the market, currently around 94% of enplanements, attracts a diverse mix of carriers. JetBlue Airways led the market for airline passengers in fiscal 2015, accounting for 27% of total enplanements. This was followed closely by the combined American/U.S. Airways market, whose market share was about 22%, and Delta and United each of whom constituted about 11%-15% of passenger traffic. This passenger airline mix is considered a strong positive operating attribute at Logan as it serves a large domestic travel base complemented by international gateway service among many foreign-flag carriers.
Port operations depend on a blend of container throughput, automobile processing, bulk cargo, and cruise passengers. While container and cruise volumes have performed well over the past decade, some volatility exists with respect to the bulk and automobile segments. In fiscal 2015, the port division generated $90.6 million in gross revenues, an improvement of 5.7%, although net revenues from this business line tend to be flat to marginally positive.
Massport has a proven track record of managing its infrastructure needs and its most recently developed five year capital program through 2020 of just under $1.74 billion will primarily focus on terminal facilities improvements and airport parking. The authority issued a separately secured bond financing (rated 'A-'/Outlook Stable), secured solely on a pledge of daily car rental customer facility charges (CFC) to cover project costs. Separately, there is approximately $973 million in projects expected to be funded solely from third-party developers and are not currently expected to require authority financial resources.
The 2016 bonds issuance will be used to fund Terminal E renovations and enhancements and partially fund Terminal B airline enhancements related to the consolidation between American and US Airlines. Planned future parity bonds issuances include approximately $725 million through fiscal 2020.
Financial metrics continue to demonstrate strength and resiliency as evidenced by DSCR of 2.49x and 2.65x, in fiscal 2015 and 2014, respectively. This performance may trend slightly downward due to higher debt service costs over the next few years but is expected to remain strong for a large hub airport. The authority's debt policy requires a minimum of 1.75x coverage, and it expects to maintain coverage during the program of 2.0x or above. Massport reported unencumbered liquidity of in excess of $362 million in fiscal 2015, representing 324 days cash on hand. Going forward, airport reserves may be pressured as a result of draws for the capital program, but management plans to maintain between 182 and 326 days of cash on hand.
Airline costs per enplanement (CPE) have stabilized since 2009 and were reported at $13.78 in fiscal 2015. Even under Fitch's rating case scenario of a mild downturn in traffic, the authority's favorable financial and cost metrics should remain intact. Under the rating case scenario, CPE levels are projected to range between $15-$19 through fiscal 2020. Rating case net debt to CFADS (currently at 3.4x) is projected to move higher into the 4x-5x range, which is a moderate ratio compared with many other large hub airports.
The bonds secured by the PFC collections mature in 2017. Pledged PFC collections totaled $66 million in fiscal 2015, generating 3.11x DSCR. The final years' scheduled debt service payment exceeds $55 million. The balloon payment is expected to be met by the use of the $19.8 million of investments held in the debt service reserve fund together with normal PFC collections. Currently, management does not anticipate additional borrowings secured on the PFC revenue stream before existing bonds mature.
SECURITY
Massport's revenue bonds are secured by the net revenues generated from port authority properties. This includes Logan International Airport and various maritime facilities within the Port of Boston. The PFC bonds are solely secured by the collection of passenger facility charges levied at the current rate of $4.50 per passenger.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Rating Criteria for Airports (pub. 25 Feb 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877676
Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1007979
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