Fitch Rates Alaska Int'l Airport Sys (AK) VRDBs, Ser 09A 'AA+/F1+'; Assigns Und. L-T 'AA-'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+/F1+' rating to the $50,000,000 State of Alaska, Alaska International Airport System variable rate demand revenue refunding bonds (VRDBs), series 2009A (AMT)(the bonds). In addition, Fitch assigns an underlying long-term rating of 'AA-' to the series 09A bonds and affirms the outstanding underlying long-term ratings on approximately $597 million airport system revenue bonds at 'AA-'. The Rating Outlook on the underlying long-term rating is Stable.

The underlying long-term 'AA-' rating reflects the airport system's natural geographic advantage from being located on the great circle route, a diverse group of cargo operators (36 in total) with the two largest representing approximately 25% of cargo operations and its solid cash position of nearly 700 days cash on hand. Long term credit challenges are centered on the more volatile nature of cargo operations, and the overall international and domestic economic slow down. The Stable Rating Outlook reflects Fitch's expectation that management will adjust rates in June of 2009 (the system's fiscal year end) to maintain debt service coverage consistent with the 'AA' rating category in the face of declining cargo volume. Continued erosion in the airport systems cargo traffic beyond the 13% budgeted and/or a lack of action to adjust rates and charges could result in financial metrics that are inconsistent with the underlying rating.

The long-term 'AA+' rating assigned to the bonds is based jointly on the underlying rating assigned to the revenue bonds of the Alaska International Airport System (AIAS) and the support provided by State Street Bank and Trust Company (State Street) (currently rated 'AA-/F1+' by Fitch) which will issue a letter of credit (LOC) for the bonds. The short-term 'F1+' rating is based solely on the LOC.

The long-term 'AA+' rating is based on Fitch's methodology which considers the joint probability of the failure of both a rated obligor and a bank LOC provider. The methodology results in a rating that is up to two notches higher than the stronger of the two credits if the following conditions are met: (1) both entities have a rating of 'A' or higher; (2) the transaction is structured such that payments from both the municipal issuer and the bank are in the flow of funds and both entities would have to fail to perform before the bonds defaulted; and (3) the credit of the bank and the rated obligor have no more than a medium degree of correlation. In this instance, Fitch has determined that there is a low degree of correlation which results in a long-term rating of 'AA+'. If either the underlying rating or the rating of State Street were downgraded to 'A-' or lower, the joint probability could no longer be applied and the long-term rating for the respective series of bonds would then reflect the higher of the two ratings.

State Street is obligated to make payments of principal of and interest on the bonds upon maturity and redemption, as well as the purchase price for tendered bonds while the bonds bear interest in the Daily or Weekly Rate Modes. The LOC provides full coverage of principal plus an amount equal to 35 days' interest at a maximum rate of 12% based on a year of 365 days and purchase price for tendered bonds. The ratings on the Bonds will expire upon the earliest of: (a) Jan. 6, 2012, the initial stated expiration date of the LOC, unless such date is extended; (b) upon any prior termination of the LOC; or (c) upon defeasance of the bonds. The underwriter for the bonds is Merrill Lynch & Co. The bonds are expected to be delivered on or about Jan. 6, 2009.

The bonds initially bear interest at a weekly rate mode, but may be converted to a daily, commercial paper, long term, or fixed rate mode. While the bonds bear interest in the weekly rate mode, interest payments will be made on the first business of each month, commencing Feb. 2, 2009. Holders may tender their bonds on any business day, provided the registrar and remarketing agent is given at least five days' prior notice of the purchase.

The bonds are subject to mandatory tender as follows: (1) During the commercial paper mode: on the business day after the last day of each interest period; (2) on each mode change date (except changes between the daily and weekly rate modes and during the long term mode, on the first day of the following interest period;(3) on the business day prior to the substitution of any Credit or Liquidity Facility; (4) on the business day prior to the stated expiration date of any Credit or Liquidity Facility; (5) during the daily, weekly, commercial paper or long term modes, on the business day that is five days after the registrar's receipt of notice from the credit facility issuer or liquidity facility issuer that an Event of Default under the Reimbursement Agreement has occurred and requesting a mandatory tender or that the credit facility or liquidity facility will not be reinstated; (6) on an interest payment date, at the election of the State of Alaska if the fifth supplemental resolution is amended and the amendment requires bondholder consent. Optional and mandatory redemptions provisions also apply to the bonds.

Bond proceeds will be used to refund the State of Alaska, Alaska International Airport System, variable rate demand revenue refunding bonds, series 2006C (AMT).

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.