CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms Palm Beach County, Florida, Department of Airport's approximately $110.1 million of airport system revenue bonds outstanding at 'A'. The Rating Outlook is Stable.
KEY RATING DRIVERS
MEDIUM HUB WITH DIVERSIFIED CARRIER BASE: Palm Beach International Airport (PBIA) served 2.8 million enplanements in fiscal year (FY) 2012 (ending Sept. 30), of mainly origination and destination (O&D) traffic. This represents a decline of 3.8% year-over-year compared to FY 2011 and 20.0% lower than the 2005 peak of 3.5 million enplanements. Enplanement declines are partially offset by the airport's affluent service area with favorable demographics and above average wealth levels, although Fitch notes Palm Beach County has experienced a high unemployment rate in recent years. PBIA features a well-diversified carrier mix with no single airline exceeding 25% of enplanements.
Revenue Risk - Volume: Midrange
MODERATE HISTORICAL COST PROFILE: The airport's cost per enplaned passenger (CPE) remains comparable to peers at $7.76 for FY 2012. The airport forecasts the CPE level to remain flat through FY 2014 and then decline to the $5 - 6 range starting in FY 2015 when annual debt service requirements drop substantially.
Revenue Risk - Price: Midrange
CONSERVATIVE DEBT STRUCTURE: All of PBIA's debt is in fixed rate with debt service payments declining by 60% starting in FY 2015 and then remaining relatively flat through maturity.
Debt Structure: Stronger
LOW LEVERAGE AND STRONG LIQUIDITY: PBIA's net debt-to-cash flow available for debt service (CFADS) of 2.28 times (x) is low relative to peers. In FY 2012, the airport's debt service coverage ratio (DSCR) decreased to 1.70x from 1.73x. The airport maintains a healthy level of $48.7 million in unrestricted cash, equivalent to 439 days cash on hand, as well as $79.5 million in restricted cash.
Debt Service and Counterparty Risk: Stronger
MODERATE INFRASTRUCTURE PLAN: The five-year capital improvement plan (CIP) is modest at $55.5 million and will be largely funded through airport improvement program (AIP) grants with no additional borrowing planned. The remainder is to be funded with passenger facility charge (PFC) monies, as well as minimal local proceeds.
Infrastructure Renewal and Development: Stronger
RATING SENSITIVITIES
--Shifts in the airport's traffic profile due to the elevated dependence on leisure-oriented traffic as well as competitive environment in the south Florida region;
--Adjustment to rate setting approach in upcoming use and lease negotiations;
--Material changes in the financial profile in terms of rate leverage, coverage, or liquidity.
SECURITY
Airport system revenue bonds are revenue obligations of the county payable from and secured by the county's irrevocable pledge of all net revenues available for debt service and all funds and accounts established by the bond resolution.
CREDIT UPDATE
The airport benefits from an affluent service area with strong economic fundamentals. Palm Beach County is currently rated 'AAA' on its general obligation debt. While traffic activity has been impacted, PBIA is expected to maintain a base of enplanement activity at the airport that is consistent with the current rating level. After enplanements remaining relatively flat in FY 2011 increasing by only 0.2%, enplanements declined 3.8% in FY 2012 largely attributable to industry-wide consolidation and seat capacity reductions. Passenger traffic for the first four months of FY 2013 is up 1.4%.
Despite the recent traffic performance trends and softening of passenger-related revenues, the airport's finances remain solid and are supported by a healthy balance sheet with a low debt burden coupled with a strong liquidity position. In FY 2012, the airport maintained 439 days cash on hand and a low debt per enplanement ratio of approximately $39. The airport's sound balance sheet and low leverage should help to mitigate a slow traffic recovery and provide a degree of financial flexibility appropriate for the rating category. Additionally, airport management has taken measures to counterbalance traffic losses in order to operate within a more constrained financial profile. Operating expenses decreased by a further 3.4% in FY 2012 following a cut of 4.7% in FY 2011.
Fitch developed forecast scenarios on the premise that traffic levels may experience different levels of stresses over the next several years. In both cases, the DSCR is expected to decline in FY 2013 and FY 2014, but remain well above the 1.40x level. Similar to the airport's forecasts, the base case projects minor enplanement growth at 1.0%. Under such scenario, the CPE declines to the high $5 range in FY 2015 while the DSCR eclipses 3x. Fitch's stress case assumes more extensive traffic declines to a level of 2.5 million enplanements resulting in CPE falling to only the high $6 range and DSCRs in the mid 2x range. The airport also maintains the ability to apply PFCs, PFC interest income, and environmental operating fees collected annually towards DSCR calculations, which would result in appreciably higher levels of coverage compared to the indenture reported calculation.
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' (Nov. 5, 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=789728
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