NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' long-term rating to $186 million of airport subordinated revenue refunding bonds, series 2013A, issued on behalf of Tampa International Airport (the airport) by the Hillsborough County Aviation Authority (the authority). In addition, Fitch has affirmed its 'A+' rating on approximately $541 million of outstanding airport revenue bonds.
Approximately $413 million of the authority's outstanding revenue bonds are secured by net revenues of the airport system, with the remaining $128 million secured by a first lien on passenger facility charge (PFC) revenues and a back-up pledge of airport system net revenues. Following the refunding, $32 million in senior double-barreled PFC debt will remain outstanding, with the remaining PFC-supported debt being on the subordinate lien.
The Rating Outlook is Stable for all of the bonds.
KEY RATING DRIVERS:
Traffic Influenced by Carrier Decisions and Competition: The airport's sizable origin and destination (O&D) market, comprising nearly 90% of enplanements, is underpinned by a strong leisure base, and the airport is served by a diverse mix of legacy and low cost carriers (LCCs). It faces some competition from nearby Florida airports, and its enplanements have been slower to recover than peers with a negative five-year CAGR of 2.6%. However, enplanements for the first 10 months of fiscal 2013 are up 1.1% through July 2013. Revenue Risk Resilience: Midrange.
Cost Recovery Framework Key to Master Plan Borrowing: The airport's use and lease agreement (AUL, through 2015) covers just 32% of airport costs, and it is dependent on significant non-airline revenues, making up 75% of total operating revenues, in order to maintain airline cost per enplanement low, in the $5 range. However, the airport benefits from extraordinary coverage protection, allowing it to levy additional charges to airlines in the event that net revenues are insufficient to meet debt service covenants. 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: Midrange.
Conservative Debt Structure: Nearly all of the airport'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, the subordinated debt issuance naturally involves the introduction of a dual lien debt structure. Around $877 million in additional borrowing across the two liens is expected between 2014 and 2020 in the context of phase one of the airport's Master Plan capital improvement program (CIP), with approximately $186 million in refunding bonds and $332 million in new money bonds expected to be issued on the subordinate lien. 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, though leverage is expected to increase to 10x due to borrowing associated with the CIP. Debt service coverage ratio (DSCR) remains lower than pre-recession periods but has slowly risen to 1.52x in fiscal 2012 (ended Sept. 30). Debt Service and Counterparty: Midrange.
Large Capital Plan Partially Debt Funded: The deferral 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(2018-2023), and to expand the main terminal (2023-2031). Prudent management of capital spending and borrowings will be critical to rating maintenance. Infrastructure and Renewal: 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.
--Should senior and all-in coverage fall below 1.4x and 1.3x respectively, or should future borrowing result in an overall increase in leverage above current plans, the ratings may be pressured. Similarly, should heavier borrowing on one of the two liens change the balance of the capital structure, a greater notching differential between the rated liens may result.
--Should negotiations regarding further subordination of the SunTrust note result in a riskier profile for the overall debt structure, ratings of the two liens may be affected.
SECURITY:
Senior revenue bonds issued by the authority are payable solely from airport revenues derived from the operation of the airport system (Tampa 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. Pledged PFCs are limited to 125% of PFC-eligible debt service.
Subordinate revenue bonds are payable from airport system net operating revenues after payment of operating expenses and senior lien debt service. PFCs which are not available to pay senior lien debt service are available to pay PFC eligible debt service on the sub lien.
TRANSACTION SUMMARY:
Hillsborough County Aviation Authority is issuing $186 million in subordinated revenue refunding bonds, series 2013A (AMT). Proceeds will be used to refund outstanding Tampa International Airport revenue bonds, series 2003A, and to repay $89 million under the authority's $130 million revolving credit agreement with SunTrust Bank. All bonds are fixed rate, with a final maturity of 2030. In addition to the issuance of the 2013A subordinate bonds, the authority is refunding $121 million in 2003B, 2003C, and 2003D bonds, as well as $5 million of the SunTrust loan via a direct placement that will be on parity with the senior lien. Through these refundings, the authority expects to realize approximately $22 million in net present value savings on existing debt, and to reduce annual debt service by an average of approximately $2.5 million a year for the next seven to 10 years.
Approximately $116 million of the authority's revolving credit agreement with SunTrust Bank is outstanding and will be largely refunded with the proceeds of senior and subordinate issuances in 2013. The authority is currently in negotiations with the bank to increase the line of credit to $200 million, reduce the interest rate and move the facility to a third lien position behind the rated senior and subordinated debt. Fitch views this loan arrangement as a facility primarily for interim funding of capital expenditures and, given the lack of an external liquidity facility, the authority is expected to prudently manage its draws and refinancings.
Beyond the current refunding transaction, the authority is planning considerable borrowing in the context of its master plan-driven capital improvement plan. The 2013 master plan update includes three phases and totals $2.5 billion, allowing the existing main terminal building to accommodate up to 34.7 million passengers, and delaying construction of a new north terminal (expected in previous master plans once passenger volumes reached 25 million a year) to after 2020. Phase 1 (2014-2018) is estimated at $935 million, and largely consists of design and construction of a consolidated rental car facility (CONRAC) and automated people mover (APM) system connecting the terminal to parking, rental car facilities, and regional transportation networks. Phases 2 and 3, which run through 2031, include $1.5 billion of projects for expansion of existing terminal facilities.
Funding plans are in place for phase 1 of the plan, consisting of both refundings (described above) and new money transactions over the next two years. The new money issues slated for 2015 and 2016 will fund the APM System, CONRAC, south roadway, taxiway, and concession/terminal development projects. The authority currently plans on raising bonds to cover $877 million of the $919 million in non-authority funded project costs, with revenues for debt service coming from airport revenues as well as from PFC and CFC revenues (currently levied at $4.50 and $2.50 respectively). The majority of new issue debt (roughly 70%) is expected to be issued on the senior lien. With this borrowing plan, all-in net debt to CFADS is expected to rise to 10x from the current level of 4x, though under Fitch's base case this falls off to the 7x range within five years.
The airport, located approximately five miles west of the City of Tampa's central business district, has experienced slower enplanement recovery 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. Enplanements for year-to-date (YTD) fiscal 2013 (10 months through July) are up 1.1%.
Meanwhile, total operating revenues and expenses have been flat since fiscal 2007. CPE remains competitive at the $5 level, and is expected to increase only modestly in coming years. The DSCR fell to a low of 1.38x in fiscal 2010, following years in which it ranged from 1.6x-1.9x. In fiscal 2012 DSCR reached 1.52x, and is projected to rise to 1.55x in fiscal 2013. Under various sensitivity cases reflecting the full borrowing program for the first phase of the master plan, coverage on the senior lien falls to the 1.4x range, while all-in coverage dips to 1.3x. Should coverage fall meaningfully below these levels, or should the gap between the liens widen, the rating may change.
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 expected levels under the CIP will be key to maintenance of credit quality.
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=803814
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.