Fitch Affirms Charlotte, NC's Special Facility Bonds at 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed its 'A' rating on the City of Charlotte's approximately $59.3 million special purpose facility taxable revenue bonds (Consolidated Rental Car Facility Project bonds), issued on behalf of Charlotte Douglas International Airport. The Rating Outlook remains Stable.

RATING RATIONALE

The rating reflects the Charlotte Douglas International Airport's sizeable O&D market of more than 5 million enplaned passengers, its stable-to-increasing history of customer facility charge (CFC) collections and rental car revenues, and substantial projected debt service coverage projected to remain above 2.0x at the current $4.00 CFC collection rate. The project is on schedule to open in the spring of 2015.

KEY RATING DRIVERS

Stable Demand Profile: The consolidated rental car facility project at Charlotte Airport is under construction and will serve a sizeable metropolitan region, with historically over 2 million visiting origin and destination (O&D) deplanements.

High Degree of Rate-making Flexibility: The airport's current customer facility charge (CFC) rate of $4.00 is adequate to cover obligations, and further increases are currently not expected. Fitch views the current CFC rate as competitive across peers for a bond-financed car rental project. However, the airport may increase rates at its discretion in the future if necessary and may also levy contingent rent on the rental car companies.

Modern Infrastructure: Construction risk is largely mitigated by a guaranteed maximum price (GMP) contract, de-linking revenue collection from project completion, adequate cash reserves, and current progress of the project near completion. When completed, the new single-site rental location will have modern facilities with no additional parity debt required.

Strong Security Package: The structure is underpinned by a first lien on CFC monies and, if needed, contingent rent, a closed loop of funds, and cash-funded project reserves.

Manageable Leverage: The project's leverage is below 5.0x and results in strong free cash flow and healthy debt service coverage ratios through the life of the debt, at or near 2.0x excluding the use of any rolling coverage and cash funded reserve accounts.

Peers: Rated peers include CONRACs at Miami Airport (rated 'A-' by Fitch) and the Greater Orlando Aviation Authority (GOAA, rated 'A' by Fitch) due to similar market share distribution and financial metrics, with GOAA and Charlotte benefitting from lower overall leverage.

RATING SENSITIVITIES

--Negative: A considerable drop in rental car transactions in the range of 20-30% could adversely affect pledged revenue and coverage levels absent an increase in the CFC rate;

--Negative: Significant cost overruns during construction necessitating additional leverage or draws on existing reserves could pressure the rating, but are unlikely at this stage;

--Positive: Given the limited nature of the CFC revenue stream, the current rating is unlikely to migrate to a higher level.

CREDIT UPDATE:

The Charlotte CONRAC facility will benefit from the sizeable Charlotte enplanement market in excess of 5 million and the expansive number of markets served through the presence of the large American Airlines / US Airways ('B+'/Outlook Stable) hub. Airport traffic trends have been favorable. For the fiscal year ended June 30, 2013, O&D traffic increased 5% to 5.3 million enplaned passengers. Visiting O&D deplaned passengers grew at a similar 5.1% rate. For fiscal 2014, O&D enplaned traffic rose another 2.3%. Though deplanement statistics are not yet available for fiscal 2014, Fitch notes they have historically tracked broader O&D enplanement growth.

Resulting rental car trends at the airport have likewise been stable. Gross rental car revenues recorded from on-airport rental car companies grew 9.8% and 6.3% in fiscal years 2013 and 2014, respectively, while transaction days increased 4.6% and 1.1% those same two years.

Resulting revenues available for debt service have totaled approximately $10 million the last two years, compared to previous sponsor projections in the $9 million range, leading to debt service coverage ratios (DSCRs) including the fully-cash funded coverage account of 2.91x and 2.95x in fiscal years 2013 and 2014, respectively.

Fitch's base case projects only modest passenger traffic and rental car transaction day growth of 0.1% through 2017, leading to DSCRs in the 2.3x range. In Fitch's rating and sensitivity cases, which assume a large near-term shock in rental car transaction days followed by modest recovery thereafter, DSCRs remain in the 2.0x range.

Fitch continues to note that the limited nature of car rentals as the only revenue stream available to service debt as a limiting factor for the rating. Demand for car rentals is exposed to the variability of discretionary spending, more so during an economic downturn, which can affect both the number and duration of rental car contracts.

SECURITY

The series 2011 bonds are secured by a pledge of the CFC collections received or receivable by the city and, if necessary, any contingent rent paid by the rental car companies. In addition, the city has pledged the amounts on deposit in the CFC stabilization fund, rolling coverage fund, supplemental reserve fund, and debt service reserve fund, which combined currently total $9.8 million, or 2.2x maximum annual debt service payable through maturity.

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

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=893035

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Contacts

Fitch Ratings
Primary Analyst
Charles Askew
Associate Director
+1-212-908-0644
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Seth Lehman
Senior Director
+1-212-908-0755
or
Committee Chairperson
Saavan Gatfield
+1-212-908-0542
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Charles Askew
Associate Director
+1-212-908-0644
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Seth Lehman
Senior Director
+1-212-908-0755
or
Committee Chairperson
Saavan Gatfield
+1-212-908-0542
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com