NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A-' rating on College Park, Georgia's approximately $194.3 million of outstanding series 2006A and 2006B revenue bonds. The bonds were issued to finance the construction of a consolidated rental car facility (CONRAC) and automated people mover (APM) maintenance facility at Hartsfield-Jackson Atlanta International Airport (Hartsfield-Jackson, or the airport). The Rating Outlook is Stable.
The rating reflects a revenue stream supported by a sizable rental car market with growth in transactions, a demonstrated five-year operating history, competitive customer facility charge rates with flexibility for adjustments, and stable financial performance including rising fund balances, debt coverage exceeding two times and project leverage moderating to below five times. No further CFC rate increases are projected to be needed to maintain or grow current coverage levels given the flat debt service profile. Volatility in rental car utilization and use of significant portions of residual cashflow to cover operating costs and other loan related project obligations constrain the rating.
KEY RATING DRIVERS
Strong Rental Car Market with Some Volatility: A sizable underlying local market supports a high level of rental car transactions with 15.7 million O&D passengers. Annual rental car transactions exceed 6.3 million, although the underlying activity and CFC collections have exhibited volatility in recent years. Airport traffic at Atlanta is highly dependent on Delta Air Lines' service (79% of total enplanements), and thus rental car demand would be exposed to the carrier's operating decisions.
Adequate Rate Setting Flexibility: Imposition of the rental car customer facility charge (CFC) has been effective since 2005 and covers all car rental operators whether located on-airport or off. The CFC is assessed without cap or sunset by an ordinance of the Atlanta City Council. The CFC rate, currently $5.00 per day, has been increased twice over the past five years to ensure adequate cash flow for debt service and operating costs.
Strong Security Package and Sound Reserves: The project structure is underpinned by a first lien on CFC monies and, if needed, contingent rent levied to the rental car operators. While the secured revenue stream is narrow in its nature, dedicated project reserves are robust including a cash funded debt service reserve that is supplemented by a debt coverage account, renewal/replacement reserve, and surplus fund.
Elevated Project Leverage but Healthy Coverage on Senior Bonds: The project's overall leverage, including the revenue bonds as well as a $71.8 million internal subordinated loan with the airport, equates to approximately 7 times (x) net debt to cash flow available for debt service (CFADS). Still, senior debt service coverage levels are 1.8x from operating cash flows, and over 2x with the coverage account. The healthy debt service coverage ratios should allow for strong servicing of the subordinate loan and project operating costs.
Modern Infrastructure: The completion of the project negates construction risk with minimal capital expenditures over the intermediate term. The original project faced higher total costs than initially planned and resulted in the project assuming a subordinate loan. The car rental project support is enhanced by facility agreements which were signed by all rental car companies serving the airport. These agreements extend to the end of the maturity of the outstanding bonds.
Demand Shifts: Any material changes in rental car demand or its volatility in the underlying O&D traffic base;
Costs and Leverage: Higher than expected cost increases or unexpected additional borrowings that pressure the CFC rate in order to recovery all project costs
The bonds are secured by payments received by the issuer from the city of Atlanta under an installment purchase agreement between the two entities. The sole source of revenue pledged by Atlanta for the payments are receipts generated by the imposition of a daily CFC levied on all rental car contracts issued by rental car operators at Hartsfield-Jackson.
Atlanta's Hartsfield-Jackson currently ranks as the world's busiest airport in number of total passengers, with over 47.5 million enplanements, including a strong O&D traffic base of 15.7 million enplanements in FY 2013. The sizable local economy, which over the long term has performed well in terms of population increases and business activity, sustains the overall demand for local air service and related rental car activity. Reflecting the strong business orientation of the market is the presence of several major corporate headquarters facilities in the Atlanta metropolitan area.
Rental car transactions are rebounding at a robust rate with 21% total growth in rental transaction days since 2010. Fiscal 2013 growth was sound at 3.7% bringing transaction days to 6.34 million. Fitch projects growth to continue, albeit at a more moderate 1%-2% through the forecast period given the continued enplanement growth experienced at the airport. Still, the volume of rental car demand is volatile as Fitch notes that car rental transaction days declined by 15% from 2008 to 2010 even though passenger traffic reductions were at a far lesser scale.
The CFC rate is currently set at $5.00 per day, and has been revised twice over the last five years. CFC revenues of nearly $32 million for FY 2013 provided sound coverage of 1.83x on the outstanding senior debt, excluding the coverage fund. In recent years, the coverage levels have been largely stable and improving. When including the project coverage fund, equal to 25% of annual debt service, the coverage level from all pledged revenues was 2.09x. Elevated coverage levels are important for rating maintenance given the need to apply excess cash flow after payment of the project debt to cover $8 million-$10 million of project-related operating expenses as well as principal and interest payments for the $72 million internally-funded project completion loan. The subordinate loan is assumed to be interest-only until 2016 with amortization beginning in 2017.
Currently, project reserves are quite strong at over $54 million, including the CFC surplus fund with $27 million. Further, no additional CFC rate increases are assumed to support cash flow requirements given the flat debt service profile. Fitch's base case, which assumes annual growth in rental car transaction days of 1.5%, projects debt service coverage levels to remain at or above 1.80x from cash flow alone throughout a five-year forecast period. Fitch's rating case, which assumes a double-dip recession where rental car transaction days fall 10% in FY 2015 followed by annual recovery of 2.5%, projects debt service coverage levels to not drop below 1.65x from cash flow alone throughout a five-year forecast period.
The car rental facility project was completed in late 2009 and has over three years of successful operations. All rental car companies serving Hartsfield-Jackson operate out of this facility. Ahead of the date of completion of the project, the car rental companies executed long-term facility agreements that require a number of payment obligations, such as privilege fees, operating and maintenance fees, and transportation system fees, in addition to the collection of the CFCs. Only the CFCs are pledged to the rated project bonds.
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