NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'A+' rating on the City of San Antonio, Texas' $240.4 million general airport system revenue bonds (GARBs) and the 'A' rating on $165.9 million passenger facility charge (PFC) subordinate lien bonds. The Rating Outlook on both the GARBs and PFC bonds is Stable.
KEY RATING DRIVERS:
--Diverse Carrier Mix Supported by Growing and Diversifying Local Economy: The airport is served by a diversified group of carriers between discount and legacy carriers with no carrier accounting for more than 37% of the market. The airport serves a strong origination and destination (O&D) passenger base with 92% of enplanements. Proximity of Austin 77 miles to the northeast hampers the airport's ability to grow regional market share.
--New Airline Use and Lease Agreement Provides Stability to the Airport: The airport recently approved a hybrid airline use and lease agreement which has a revenue sharing component that rolls into the next fiscal year. With extensions at both the airport's and the airlines option the agreement has the potential to run through September 2020. The new agreement can lend to some revenue and operating margin volatility as reductions in non-airline revenue would not be covered through additional airline charges. Still, the rate setting methodology provides for a cost per enplanement (CPE) that is modest at $8.94 within the airport's goal of keeping it below $10.
--Conservative Debt Structure: The airport's debt is 100% fixed rate debt with declining amortization requirements. Debt service reserves are funded with a combination of cash and surety bonds from Assured.
--Historically Stable but Improving Financial Performance: Fiscal year (FY) 2010 operating revenues grew 3% consistent with the increase in enplanements for the year. The airport's financial performance has improved in large part due to additional airline charges that recover higher costs and a more equitable revenue sharing. Airline revenues were up 64% in fiscal 2011 compared to fiscal 2010. Leverage, coverage, and liquidity metrics are consistent for the rating level with net debt to cash flow available for debt service (CFADS), 9.17; debt service coverage ratio (DSCR): 1.77 times (x); and days cash on hand (DCOH) of 187.
--Limited Capital Program with no future GARB or PFC borrowing Planned: Having recently opened new Terminal B and renovation of Terminal A expected to get underway shortly the airport's capital plan is fairly modest with no future GARB or PFC borrowing currently anticipated. The airport is in the initial planning stages of a potential consolidated rental car facility which would be financed via a customer facility charge (CFC).
WHAT COULD TRIGGER A RATING ACTION
--Significant changes in the level of O&D traffic generated in the San Antonio economy.
--Material changes in the airport's currently diverse carrier mix and potential loss of market share to nearby competing airports.
--Dramatic increase in the airport's cost structure that is unable to be passed along to carriers and significantly alters the Airport's financial matrix.
SECURITY
The GARBs are secured by a first lien on the revenues generated by the airport system, which includes San Antonio International Airport and Stinson Municipal Airport, a general aviation facility. The PFC/subordinate bonds are secured by a senior lien on PFC revenues and a subordinate lien on general airport revenues.
TRANSACTION SUMMARY
Enplanements increased 1.5% in fiscal year 2011 (FY'11) to 4.08 million driven largely by the economic growth in the local service area. The FY'11 growth follows an increase of nearly 3% in FY'10 as the airport continues to rebound from the recent recession. Originating enplanements historically represent more than 90% of total activity at the airport, indicating that passenger volume is influenced more by local and national economic trends than the scheduling decisions of any particular airline. Based on historical growth patterns, the airport currently projects enplanements will grow at an annual rate of 2.2% through 2016, reaching nearly 4.6 million enplanements in 2016. The projected enplanement growth could be aggressive if forecasted economic development does not occur.
The airport continues to enjoy a diverse mix of low cost carriers (LCCs) and network carriers with the largest market share held by Southwest Airlines, which accounts for 37% of total enplanements (40% with the AirTran merger), followed by American Airlines with 18%, Delta Air Lines at 16%, Continental 10%, and United 7%. Several new flights have recently been added to Mexico with Mexico based VivaAerobus starting service to Monterrey and Interjet starting service to Mexico City.
The City Council recently approved a new airline use and lease agreement with the airport's carriers. The initial term is from November 2010 through September 2015 with an additional two-year option by the carriers and an additional three-year option period by the city. The maximum term is through September 2020. The agreement includes a revenue sharing component that rolls into the next fiscal year. In addition, the airlines have formed San Antonio Airline Consortium (SAAC) to perform certain maintenance and janitorial services. The airport estimates SAAC will save approximately 15% on O&M costs over a three year period while the airlines estimate an additional cost of approximately $1 on CPE.
The airport has historically maintained sound debt service coverage on both its outstanding GARBs and the subordinate lien PFC, with FY'11 coverage at 1.77x on the senior and 2.03x (PFC only) and 3.26x (PFC with subordinate revenues). However, the subordinate lien PFC coverage is a bit overstated as it includes PFC funds on deposit. Excluding the PFC funds and interest earnings, the FY'09 coverage would be 1.31x (PFC only) and 2.53x (PFC with subordinate revenues). Going forward, the airport expects to use PFC deposits on-hand to pay a portion of GARB debt service which will lower PFC coverage ratios. Under the airport consultant's updated base case coverage on senior lien GARBs is projected to increase slightly to 1.9x in 2014, while the budget covenant on the subordinate lien debt from PFC's is projected to decline to 1.57x (PFC only) and 2.8x (with sub-revenues).
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 16, 2011);
--'Rating Criteria for Airports' (Nov. 29, 2010).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745
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