NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to the Metropolitan Washington Airports Authority's (the authority) approximately $242.74 million series 2013A, 2013B, and 2013C airport system revenue refunding bonds. Fitch has also affirmed the authority's approximately $5 billion outstanding airport revenues bonds at 'AA-'.
Approximately $80 million of the bonds being issued are for new money purposes while the balance will refinance outstanding authority bonds for debt service savings.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Strong Market Position of Dual-Airport System: The rating reflects the authority's large overall traffic base anchored by a strong underlying economic region and complementary service offerings at Dulles (IAD) and National (DCA) airports, providing a diverse offering of domestic and international services. Following the recent recession, enplanement declines at IAD have been offset by solid growth at DCA and the system has recorded slight growth in 2011 and 2012. Revenue Risk-Volume: Stronger
Favorable Rate Setting Approach: The in-place airline agreement provides for a manageable cost structure considering the combined domestic and international profile, enhanced by an extraordinary coverage protection trigger on airline rates. While costs per enplanement at DCA have been stable in recent years at approximately $13, airline costs have risen dramatically to well over $20 at IAD to support a substantial rise in capital investment costs. Nevertheless, Fitch believes the relatively high airline charges at Dulles are reasonable given the high proportion of international traffic at the airport. Revenue Risk-Price: Stronger
Largely Conservative Capital Structure: Approximately 81% of the authority's debt is in conventional fixed rate mode, and 64% of the variable rate obligations are hedged through swap agreements. Debt Structure: Stronger
Stable Finances but Elevated Leverage Position: The authority's borrowing program results in an elevated leverage position as indicated by the 10.7x net debt/cashflow available for debt service (CFADS) and $240 debt per enplanement metrics. While the debt service coverage ratio (DSCR) has trended to a lower 1.35x in fiscal 2012 and are expected to remain largely unchanged in future years, the liquidity position is favorable at 530 days cash on hand. Debt Service Counterparty Risk: Mid-range
Major Capital Needs Addressed: The authority's $5 billion CCP program is nearing completion and requires only minimal additional borrowings in the near to medium term. Major upgrades and renovations have been completed at both airports, resulting in modern facilities and an overall good condition of infrastructure. Infrastructure Development/ Renewal: Stronger
RATING SENSITIVITIES
--Significant or unanticipated changes in the airport's current traffic base or shifts in ongoing commitments from its leading carriers could weaken credit quality.
--Additional leveraging above current expectations due to revisions in the size and scope of the capital program may pressure the rating.
--An inability to manage the overall airport system cost profile along with adequate debt coverage metrics could affect the credit profile.
SECURITY
The bonds are secured by the net revenues of the authority.
CREDIT SUMMARY
The authority's two airports have performed well in terms of enplanement activity during the recent recession, supported by the authority's sound economic catchment area and the complementary nature of the dual-airport system structure. System-wide enplanements increased by a modest 0.4% in 2012, which followed similar growth of 0.5% in 2011. The number of enplaned passengers at DCA increased by 4.5% in 2012 but was offset by a traffic reduction at IAD resulting from lower domestic enplanements, partly offset by higher international traffic. For the first three months of 2013, system-wide enplanement growth was 2.1% over the same period in 2012, with 11.2% enplanement growth at DCA offsetting a 5.5% decline in enplanements at IAD.
The authority generated a 1.35x DSCR in 2012, which is slightly above the authority's 2011 forecast of 1.3x. Under Fitch's coverage calculation methodology of treating passenger facility charges (PFC) as revenues rather than debt service offsets, the DSCR was 1.31x. The 2012 financial results demonstrate a continuation of the recent trend of reduced coverage levels when compared to historical levels.
As detailed in forecasts developed to go along with this issuance, the authority's base case coverage levels will remain closer to the 1.30x range. This forecast took into account 1.7% annual growth in traffic between 2013 and 2018 and management of expenses to a 3% per annum growth rate. Alternatively, if PFCs are treated as revenues instead of being used to offset annual debt service, coverage levels fall to the 1.28x-1.31x range through 2018.
Fitch reviewed an additional case with stressed enplanement levels at both airports. At DCA, it was assumed that enplanements declined 8.3% annually in 2014 and 2015 from forecast 2013 levels and remained flat thereafter. With respect to IAD, the case assumes enplanements decline 11.5% and 13% from the expected 2013 level in 2014 and 2015, respectively, and remain flat thereafter. In this scenario, coverage levels would remain at or near 1.30x with minimal impact to airline costs. As a result, debt service coverage levels drop to 1.25x system-wide and CPE levels climb above $18 and $44 levels at DCA and IAD, respectively. Fitch believes this sensitivity case would not be a likely scenario given local market strength; however, it does indicate the authority's thinner financial cushion with coverage ratios remaining close to the rate covenant level, even under the authority's baseline financial forecast.
The airport's CPE levels are largely in-line with previous forecasts. The authority reported a $25.01 CPE at IAD in 2012 but is expected to reach the $28.00 range after 2013 and remain near or above this level through 2018. CPE levels at DCA were $12.79 in 2012 and are forecast to increase at a lesser rate to $14 by 2018.
The authority's 2001-2016 capital construction plan is nearing completion. The total plan is estimated at approximately $5.1 billion of which $3.17 billion was funded with previously issued bonds. As a result of the significant level of past borrowings applied to the capital program, Fitch views the current 10.7x net debt to CFADS to be somewhat elevated for an 'AA' category airport. However, Fitch notes that this metric is expected to evolve to a more moderate 8x level over the next several years, even when factoring an additional debt issuance in 2014 of approximately $177 million.
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. 27, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance - Effective Aug. 16, 2011 to July 12, 2012
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=695600
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=794157
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