NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed its long-term 'A-' rating of Massachusetts Port Authority's (Massport or the authority) approximately $211.5 million special facility revenue bonds series 2011A (tax exempt) and 2011B (federally taxable). Bond proceeds were used to finance construction of a consolidated car rental facility (ConRac) at Boston Logan Airport (Logan). The Rating Outlook is Stable.
Key Rating Drivers:
Large O&D Base With A Diverse Rental Car Company Market: Massport serves a strong economic base, and is the dominant air transportation facility for the New England air service market. High origination/destination (O&D) traffic supports both ongoing demand for air travel and a high level of rental car transactions with nearly 14 million enplaned O&D passengers.
Concession Agreement Sets High Barriers to Entry & Provides Pricing Flexibility: The 15-year ConRac concession and lease agreements apply to all nine rental car companies expected to service Logan passengers. The customer facility charge (CFC) rate of $6.00 per day is uniformly charged to both on- and off-airport rental car companies and provides room for adjustment if projections are missed. The leases include a contingent rent provision allowing for additional rent to be collected from project tenants in order to meet obligations in the event of a shortfall in revenue which Fitch views favorably. However, the CFC revenue stream supporting the ConRac bonds is somewhat narrow, with direct reliance on car rental transaction activity to generate pledged revenue.
Protections in Place through Construction: Structural protections and project controls are in place to mitigate construction and associated delay risks. The ConRac facility is being built using construction manager at-risk agreements coupled with guaranteed maximum price (GMP) terms. To date construction is on-time and on-budget.
Strong Financials but Somewhat Elevated Leverage: The project benefits from strong net senior debt service coverage of 2.48x in fiscal 2012 (ended June 30), combined with strong levels of ongoing reserves, providing the ability to withstand operational stresses. The project has somewhat elevated senior leverage with net debt to cash flow available for debt service (CFADS) at 6.4x. CFC bonds represent about 60% of total sources for the project.
Rating Sensitivities
--Material declines in rental car activity supported by the O&D component of the airport's traffic base could weaken credit quality;
-- An inability to complete the ConRac project on time and within the cost parameters agreed upon may pressure credit quality;
--A failure to maintain sound coverage metrics for the senior lien ConRac bonds as well as adequate CFC cash flow generation to meet all obligations would pressure the rating.
Security:
Series 2011 bonds are secured by a pledge of the CFC collections received or receivable by the authority and any contingent rent paid by the rental car companies as well as insurance proceeds and condemnation awards. In addition, the authority has pledged the amounts on deposit in the project fund, debt service fund, and reserve funds created under the terms of the CFC trust agreement.
Credit Update:
The ConRac project involves development of a consolidated facility in the southwest service area (SWSA) of the airport to integrate airport-related rental car operations and facilities into one making for more efficient operations. Transportation from the airport terminals to the ConRac will be served by a unified shuttle bus system. The facility will include a four-level 1.2 million square-foot garage that can hold up to 3,200 rental car parking spaces, a customer service center and four rental car service and storage areas.
Construction began in June 2011, and is currently on-time and on-budget. Massport expects that the ConRac will open in September 2013 and the project will be closed out in September 2014. Fitch notes that the long-term nature of the 15-year concession agreement with the rental car operators, which takes effect on the project date of beneficial occupancy (DBO) and is co-terminus with the lease agreement, is viewed as a credit strength.
The CFC debt is secured by a somewhat narrow revenue stream that is contingent upon strong performance in rental car activity. The current $6 per day CFC rate is relatively high when compared to other airports with CFC secured stand-alone bonds. No additional CFC rate increases are planned over the medium term.
Fiscal 2012 visiting O&D enplanements grew by 2.7% reaching 6.6 million, building on an increase of 9.0% in fiscal 2011. Transaction days at the facility stood at 4.8 million, up 9.7% in fiscal 2012. Fiscal year-to-date through March, transaction days are up 2.5%. Transaction days have historically demonstrated a higher degree of volatility than O&D enplanements through economic cycles. However, Fitch notes that the authority has the ability to ensure that all obligations are met by charging a contingent rent to tenants and/or by increasing CFC rates in addition to all the reserve funds supporting the project.
Transportation Infrastructure Finance and Innovation Act (TIFIA) did not approve the authority's application for a $75 million loan that was expected to reduce the CFC and Massport's equity portion of the project and to replace Massport's planned subordinated $26 million loan for the Green Bus depot. As a result, the original funding sources remain the same; however, management now projects the subordinated loan to be $5 million or less due to stronger than originally expected CFC collections. A final decision on the loan amount is expected to be made in early 2014.
Fiscal 2012 senior debt service coverage was a strong 2.48x on a net revenue basis and 2.78x including the rollover and supplemental funds. Under Fitch's base case forecast that assumes flat to moderate growth through fiscal 2017, net senior debt service coverage is projected to be in the 2x range. Under Fitch's rating case scenario that assumes a 12% reduction in transaction days and no recovery thereafter, net coverage is estimated in the 1.7x range.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Jul. 12, 2012);
--'Rating Criteria for Airports' (Nov. 28, 2012).
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=695600
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=789102
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