Fitch Affirms Hartsfield-Jackson Airport's (GA) Car Rental Facility Bonds at 'A-'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the 'A-' rating on College Park, Georgia's approximately $185 million 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 (ATL or the airport). The Rating Outlook is Stable.

The 'A-' rating reflects a revenue stream supported by a sizable rental car market with demonstrated transaction growth over the six-year operating history and competitive customer facility charge (CFC) rates with flexibility for adjustments. The facility's stable financial performance, debt service coverage ratios (DSCR) exceeding 2x, and project leverage below 5x are further supporting factors. No further CFC rate increases are projected to be needed to maintain 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 million O&D passengers. Annual rental car transactions exceed 6.5 million, although the underlying activity and CFC collections have exhibited volatility in recent years. Airport traffic at ATL is highly dependent on Delta Air Lines' service (81% 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 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 six years to ensure adequate cash flow for debt service and operating costs.

Modern Infrastructure: Completed in 2009, the CONRAC should operate with minimal capital expenditures over the intermediate term. However, higher than forecast construction costs resulted in the project assuming a subordinate loan that will need to be paid for with surplus revenues. 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.

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.

Moderate Leverage, Healthy Senior Coverage: 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 6.5x net debt-to-cash flow available for debt service (CFADS). Senior DSCR levels are 1.85x from operating cash flows, and over 2x with the coverage account. The healthy DSCRs should allow for strong servicing of the subordinate loan and project operating and lifecycle costs.

Peer Group: Fitch-rated peers include Massport Boston-Logan ('A-'/ Stable Outlook) and Houston ('A-'/Stable Outlook). Massport reports higher coverage though has higher leverage and a CFC rate of $6.00. Houston reports lower coverage and higher leverage, but charges a lower CFC rate of $4.00. Atlanta's stable coverage, modest leverage, and competitive CFC rate support the rating.

RATING SENSITIVITIES

Negative: Any material negative changes in rental car demand or its volatility in the underlying O&D traffic base;

Negative: Higher than expected cost increases or unexpected additional borrowings that pressures the CFC rate in order to recover all project costs.

Positive: Given the narrow revenue stream taken together with ATL's financial profile and use of significant portions of residual cashflow to cover operating costs and other loan-related project obligations, upward migration is limited in the near term.

CREDIT UPDATE

ATL currently ranks as the world's busiest airport in number of total passengers, with over 47.3 million enplanements, including a strong O&D traffic base of 15 million enplanements and nearly 890,000 annual aircraft operations for FY 2014. 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.

Rental car transactions experienced growth above Fitch's previous base case projections of 1.5%. FY 2014 transaction days increased 2.5% with total transaction days of 6.50 million compared to 6.34 million transaction days in FY 2013. Fitch projects growth to continue in line with 1.5% through the forecast period given the strong enplanement base and local economy.

The CFC rate is currently set at $5.00 per day, and has been revised twice over the last six years. CFC revenues of $32 million for FY2014 provided coverage of 1.85x on the outstanding senior debt, excluding the coverage fund. When including the project coverage fund, equal to 26% of annual debt service, the coverage level from all pledged revenues was 2.11x. In recent years, coverage levels have been largely stable and notably higher than the recessionary low of 1.35x (without the coverage fund) observed in FY2009. Elevated coverage levels are important for rating maintenance given the need to apply excess cash flow after payment of the project debt to cover over $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 through the 2019 forecast period.

Fitch's base case, which assumes annual growth in rental car transaction days of 1.5%, in line with its 1.4% enplanement growth assumption for the airport, projects debt service coverage levels to remain above 1.82x throughout a five-year forecast period. Fitch's rating case models a 10% reduction in rental car transaction days in fiscal 2016 to account for their greater volatility than the underlying 5% loss in O&D traffic modelled into Fitch's rating case for the airport. Recovery of 2.5% is assumed thereafter for annual transaction days. Under this scenario, projected DSCR does not drop below 1.64x throughout a five-year forecast period. Overall, rental car transactions continue to experience stable growth with coverage supportive of the rating.

The car rental facility project was completed in late 2009 and has six 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.

SECURITY

The bonds are secured by payments received by the issuer from the city of Atlanta under an instalment 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.

Additional information is available on www.fitchratings.com

Applicable Criteria

Rating Criteria for Airports (pub. 13 Dec 2013)

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

Rating Criteria for Infrastructure and Project Finance (pub. 12 Jul 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

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Contacts

Fitch Ratings
Primary Analyst
Jeffrey Lack, +1-312-368-3171
Director
Fitch Ratings, Inc.,
70 West Madison Street, Chicago, IL 60602
or
Secondary Analyst
Seth Lehman, +1-212-908-0755
Senior Director
or
Committee Chairperson
Chad Lewis, +1-212-908-0886
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jeffrey Lack, +1-312-368-3171
Director
Fitch Ratings, Inc.,
70 West Madison Street, Chicago, IL 60602
or
Secondary Analyst
Seth Lehman, +1-212-908-0755
Senior Director
or
Committee Chairperson
Chad Lewis, +1-212-908-0886
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com