SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed Reno-Tahoe Airport Authority's (RTAA) approximately $23.7 million of senior outstanding airport system revenue bonds at 'A'. The Rating Outlook is Stable. RTAA also has approximately $15.6 million in series 2011 subordinate lien notes outstanding that are not rated by Fitch.
RATIONALE
The rating reflects the airport's monopolistic position in northern Nevada, serving a primarily leisure and business market with an enplanement base that continues to experience volatility. In addition, the airport has relatively high carrier concentration, with Southwest Airlines carrying the majority of passengers. RTAA's healthy balance sheet offsets some of the risks embedded in the nature of the enplanement base. RTAA's leverage ratio is currently well below peers with more unrestricted cash than debt outstanding, and RTAA's currently high debt service coverage ratio (DSCR) of 3.77x provides significant added financial flexibility, although this will reduce with expected debt issuance for capital purposes.
KEY RATING DRIVERS
SMALL HUB WITH VOLATILITY AND SOME CONCENTRATION: Reno Tahoe International Airport (RTIA) had 1.76 million enplanements in fiscal year (FY) 2013 (ending June 30), a decline of 1.4% year-over-year compared to FY 2012. Airline concentration risk exists as Southwest Airlines represents 53.8% of enplanements, down from 54.3% in FY 2012 with further declines expected.
Revenue Risk - Volume: Weaker
LOW HISTORICAL COST PROFILE AND STABLE FRAMEWORK: The airport's cost per enplaned passenger (CPE) remains low relative to peers at $6.39 for FY 2013, increasing to the $8.00 range for FY 2014. RTAA has a use and lease agreement through FY 2015 that provides the airport with a large cost recovery base, providing sufficient cushion to volume declines.
Revenue Risk - Price: Midrange
MODERATE INFRASTRUCTURE PLAN WITH NEW DEBT: The five-year capital improvement plan (CIP) is modest at $145 million and will be largely funded through FAA grants, series 2011 subordinate notes, new senior bond issuance and passenger facility charge (PFC) monies, as well as minimal local proceeds.
Infrastructure Renewal & Development: Midrange
STABLE DEBT STRUCTURE: All of RTIA's senior debt is fixed rate with debt service payments flat at approximately $2.5 million through maturity. The subordinate notes mature in 2017 and have no refinance risk.
Debt Structure: Stronger
LOW LEVERAGE AND STRONG LIQUIDITY: RTAA's senior net debt-to-cash flow available for debt service (CFADS) is negative and well below peers. In FY 2013, the airport's senior lien DSCR decreased to 3.77x from 4.06x in FY 2012 while subordinate DSCR decreased to 3.05x from 3.27x in FY 2012. The airport maintains healthy liquidity with $41.6 million in unrestricted cash and 6.1 million in O&M Reserves as of FY 2013, equivalent to 504 days cash on hand.
RATING SENSITIVITIES
Factors that could lead to a negative rating action include:
--TRAFFIC DECLINES: Continued volatility in enplanement levels leading to meaningful dilution of existing debt service coverage levels or resulting in CPE rising to above $10;
--FINANCIAL METRICS: Additional leverage that would measurably increase debt metrics closer to 4.0x net debt/CFADS or sustainably dilute senior coverage much below 2.0x DSCR;
--LIQUIDITY AND COSTS: Inability to control costs, maintain revenues, or retain balance sheet liquidity to preserve historical levels of financial flexibility.
SECURITY
The bonds are secured by the net revenues of RTIA.
CREDIT UPDATE
RTIA has a monopoly position in northern Nevada, with its nearest competitors being Sacramento International Airport (115 miles away), Oakland International Airport (180 miles), San Jose International Airport (190 miles), San Francisco International Airport (200 miles), and Las Vegas McCarran International Airport (350 miles). RTAA's balance sheet is an important offset to the airports large leisure base and more volatile operating activity.
Revenues were $43 million in FY 2013, up from $42.7 million in FY 2012. However, airline revenues declined 6.3% primarily driven by an 8.2% drop in terminal building rental revenue due to a reduction of the average terminal rental rate. Offsetting this decline, other non-operating income rose to $1.4 million in FY 2013, up from $0.4 million in FY 2012 due to the implementation of a $1.25 rental car customer facility charge (CFC). Operating expenses in FY 2013 were $34.6 million, up 2.1% from $33.8 million in FY 2012. Approximately 29% of RTIA's total operating revenue is supported by airlines. Non-airline revenues comprise the remaining 71% with the largest share derived from auto rentals and parking which account for 34% of total revenues.
RTIA's CPE in FY 2013 was $6.39, down from $6.81 in FY 2012. CPE is expected to rise to approximately $8.13 in FY 2014 and should remain under $9.00 over the next four years.
As a result of Southwest's reduction in service across its smaller hub operations, RTIA has experienced a decline in enplanements which is expected to continue through FY 2014. Management has been working aggressively with a marketing incentive program to attract new carrier services. Along with several new services to begin this year, Fitch believes the airport is able to sufficiently mitigate the effects of further Southwest reductions if they occur. RTAA's financial position remains relatively strong given high unrestricted cash balance and low net debt.
The authority had borrowed $5.4 million of the $15 million available on the series 2011B subordinate lien notes in FY 2013 for their capital plan. RTIA also anticipates borrowing $27 million of senior bonds for a proposed southwest air cargo ramp, as cargo ramp capacity is currently at capacity as a result of the recently added AmeriJet cargo service. The bonds will be fully backed by PFC revenues and are planned for issuance in FY 2016, with debt service commencing in FY 2018 after the subordinate notes mature.
The RTAA operates two airports, RTIA and Reno Stead Airport. RTIA is classified by the Federal Aviation Administration (FAA) as a small-hub airport and is located four miles southeast of Reno's central business district on 1,400 acres of land.
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'(Dec. 13, 2013).
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=725296
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834608
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