CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' underlying long-term rating on approximately $594 million of outstanding airport revenue bonds issued on behalf of Tampa International Airport (the airport) by the Hillsborough County Aviation Authority (the authority).
Approximately $444 million of the authority's outstanding revenue bonds are secured by net revenues of the airport system, with the remaining $150 million secured by a first lien on passenger facility charge (PFC) revenues and a back-up pledge of airport system net revenues.
The Rating Outlook is Stable for all of the bonds.
Fitch expects to continue its review of the authority's credit in the next few weeks, in anticipation of a refunding transaction and upcoming debt restructuring. The authority is expected to provide Fitch with the details of its latest Master Plan and related borrowings, along with forecast assumptions and impacts to financial flexibility. Fitch will analyze the scope and timing of planned investments identified in the Master Plan to assess overall cost and execution risk. With regards to the planned refundings, Fitch will focus its analysis on the new debt structure with an expectation for multiple liens and distinct revenue pledges. The carriers' obligation for cost recovery under a revised debt structure will also be reviewed.
KEY RATING DRIVERS:
TRAFFIC INFLUENCED BY CARRIER DECISIONS AND COMPETITION: The airport benefits from a sizable O&D market (nearly 90% of enplanements) and is served by a diverse mix of legacy carriers and low cost carriers (LCCs). However, the airport faces some competition from nearby Florida airports, and its enplanement levels have been slower to recover than peers with a five-year annual decline of 2.6%. Revenue Risk Resilience: Midrange.
COST RECOVERY FRAMEWORK KEY TO MASTER PLAN BORROWING: The airport benefits from significant non-airline revenues (75% of total operating revenues) which contribute to its low cost structure in the $5 range. The use and lease agreement (AUL, through 2015) covers 32% of airport costs. Fitch will evaluate the protections afforded under the AUL given that airport costs are anticipated to rise as capital spending occurs, even under conditions of traffic growth. Revenue Risk Price: Strong.
CONSERVATIVE DEBT STRUCTURE: Nearly all of Tampa's debt is issued in fixed rate mode with more than half of the currently outstanding debt scheduled to mature in less than five years. However, additional leverage related to the Master Plan capital improvement program (CIP) will be issued beginning in 2014. Debt Structure Risk: Strong.
HISTORICALLY STABLE FINANCIAL POSITION MAY FACE PRESSURE: The airport's net debt-to-cash flow available for debt service (CFADS) of 4.1x and debt per O&D enplanement of $80 are comparatively low but these are anticipated to measurably increase with the borrowing associated with the CIP. Debt service coverage levels remain lower than pre-recession periods but have slowly risen to 1.52x in fiscal 2012 (ended Sept. 30). Debt Service Risk: Midrange.
Large Capital Plan Partially Debt Funded: The deferment of the North Terminal development project due to lower activity levels has resulted in a three phase CIP to reduce traffic congestion (2013-2018), prepare the existing terminal for future growth, and to expand the main terminal. Prudent management of capital spending and borrowings will be critical to rating maintenance. Infrastructure Risk: Midrange.
RATING SENSITIVITIES:
--Material changes to enplanements that signify increased competition from nearby airports or weaker economic conditions could pressure credit quality.
--An increase in leverage to support the capital program without commensurate increases in revenues or reduced operating expenses for a sustained period may lead to rating pressure.
SECURITY:
All revenue bonds issued by the authority are parity bonds and are payable solely from airport revenues derived from the operation of the airport system (Tampa International Airport and three general aviation airports) after the payment of operation and maintenance expenses. Available PFC revenues are included in the definition of revenues and eligible PFC-project bonds are paid from a first lien on available PFC revenues with a back-up pledge of airport net revenues.
CREDIT UPDATE:
Tampa International Airport is located approximately five miles west of Tampa's central business district with enplanement levels slower to recover than peers. From fiscal 2007 to fiscal 2010, enplanements declined 3.5% annually, but fiscal 2011 marked the first increase since the recession began, with 0.6% growth. Fiscal 2012 continued the trend, albeit with just 0.7% growth to 8.44 million enplaned passengers. Further, enplanements for year-to-date (YTD) fiscal 2013 (eight months through May) are up 1.8%.
Meanwhile, total operating revenues and expenses have been flat since fiscal 2007. Estimates for fiscal 2013 YTD indicate revenues are in line with budget, operating expenses are 4% below budget, and cost per enplanement (CPE) will be $5.15 instead of the budgeted $5.23 level. The debt service coverage ratio (DSCR) fell to a low of 1.38x in fiscal 2010, following years that ranged from 1.6x-1.9x. In fiscal 2012 DSCR reached 1.52x and is projected to rise to 1.55x in fiscal 2013.
In Fitch's view, the authority's overall financial flexibility demonstrated by CPE, DSCR, and leverage will depend on two areas: maintenance of current traffic performance and steady and timely growth in airline and non-airline revenues. Continued stability in operating and financial performance and leverage at or below current levels will be key to maintenance of credit quality for the senior lien.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);
--'Rating Criteria for Airports' (Nov. 27, 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=796267
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