Fitch Rates Dallas-Fort Worth Airport Revenue Refunding Bonds Series 2014A 'A'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to approximately $203 million joint revenue refunding bonds, series 2014A, issued by the cities of Dallas and Fort Worth, Texas for Dallas - Fort Worth International Airport (DFW). In addition, Fitch has affirmed approximately $6.0 billion in outstanding DFW joint revenue improvement bonds at 'A'. The Rating Outlook is Stable.
KEY RATING DRIVERS
SIZABLE TRAFFIC BASE SUBJECT TO CONCENTRATION AND CONNECTING EXPOSURES: DFW is located in a strong primary market area that generates strong demand for air service. DFW has a base of 30.1 million total enplanements, of which 12.8 million are categorized as origination/destination. Further, DFW's favorable central geographic location provides for a well-balanced traffic profile for both domestic and international passengers. The bankruptcy situation of DFW's leading carrier, American Airlines, (82% of enplanements) as well as the efforts for American to merge with US Airways has not impacted operations. Fitch will continue to monitor both of these developments. Revenue Risk - Volume: Midrange.
STRONG RATE SETTING MECHANISM: The current airline use agreement (which runs through 2020) allows for timely recovery of costs within all airline cost centers. The agreement also provides for adequate cash flow generation to meet all funding requirements under the bond documents as well as funding for renewal and replacement. Airline costs are currently low for a large-hub airport at $7.20. However, they will steadily increase over the next five years as airport capital spending is funded, even under conditions of traffic growth. Revenue Risk - Price: Stronger.
LARGE SCALE CAPITAL PROGRAM WITH RELIANCE ON ADDITIONAL BORROWINGS: Much of the $2 billion terminal renewal and improvement program as well as another $2.2 billion of airport improvements will be funded by up to $2 billion of additional borrowings. While there have been some recent modest upward revisions to the TRIP budget, Fitch currently does not see this development as a material credit concern; however, prudent management of capital spending and borrowings will be critical to credit maintenance. Infrastructure Development and Renewal: Midrange.
FIXED RATE, LOW COST CAPITAL STRUCTURE: All of DFW's debt is issued in fixed rate mode with generally conservative debt amortization. Aggregate general airport debt is projected to peak at $6.5 billion in 2014 and approximately 30% - 50% of future debt service is expected to be paid from passenger facility charges (PFC). Debt Structure: Stronger.
STABLE BUT MORE LEVERED FINANCIAL POSITION: Debt service coverage and liquidity metrics have been sound. In fiscal 2013 (ended Sept. 30), debt coverage was 1.53x combined (including the use of rollover coverage funds) with more than 611 days cash on hand. High leverage remains a concern as debt per enplanement is around $200 in fiscal 2013 and $468 per origination enplanements.
Enplanement Declines: Losses in total enplanements that signify a change in American's total support at DFW (15% - 25% reduction from current levels).
Lack of Adequate Revenue Growth: Flat or declining airline and non-airline revenue for multiple years.
Borrowing Beyond the Current Plan: Significant additional borrowing beyond the airport's current plan.
The bonds are secured by an irrevocable first lien on gross revenues generated by the operations of DFW, as well as PFC revenues to the extent they are specifically pledged to an individual series of bonds.
Net proceeds of the series 2014A bonds will be used to refund previously issued series 2003 bonds with maturities from 2014 -2032. Expected present value savings is estimated at $7.8 million, or 3.75% of refunded bonds. The 2014A bonds will be fixed rate obligations with final maturity of Nov. 1, 2032.
Fiscal 2013 operating data indicates positive trends in enplanements, up 3.4% over the prior year, with growth in both domestic and international passengers. Connecting passengers remain the dominant component of traffic representing 58% of total passengers. American Airlines, including American Eagle and its recently merged US Airways, account for an 82% market share of traffic. Even through the recent bankruptcy period followed by the merger with US Airways, American has demonstrated a strong commitment to the Dallas-Ft Worth market and is expected to remain a vital hub for its global network. The elimination of flight restrictions at nearby City of Dallas' Love Field airport later in 2014 may create more competitive dynamics between the two regional airports, particularly for air services at major domestic markets.
Financial performance under the current airline agreement is healthy evidenced by stable debt service coverage levels and strong reserve balance. The ongoing capital programs, including the $2 billion Terminal Renewal and Improvement Program, have resulted in a much higher leverage position in recent years. Still, the program is expected to enhance non-airline revenues while airline costs should be competitive to many of the hubs operated by other major network carriers.
For additional information on DFW, please see the Fitch release 'Fitch Downgrades Dallas-Fort Worth Airport to 'A'; Outlook Stable'; dated April 5, 2013 available at 'www.fitchratings.com'.
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
Rating Criteria for Airports