NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the ratings of Clark County, Nevada, Airport System (the airport) as follows:
--$188.2 million of senior lien revenue bonds at 'A+';
--$1.56 billion of subordinate airport revenue bonds at 'A';
--$1.07 billion of passenger facility charge (PFC) airport revenue bonds at 'A';
--$93.2 million of jet aviation fuel tax/junior lien revenue bonds at 'A-'.
The Rating Outlook on all of the airport's bonds is Stable. Fitch maintains ratings only for county airport debt issued through 2008.
RATING RATIONALE:
The above ratings reflect:
--The airport's large passenger base of nearly 20 million enplaned passengers, although traffic levels have underperformed and exhibited increasing volatility during the current recessionary period;
--Broad aviation service through a diverse mix of legacy, low-cost, and international carriers;
--A historically sound financial profile demonstrated by healthy debt service coverage ratios (DSCR) and moderate liquidity levels;
--A renewed airline use agreement that began in fiscal 2011 and contains favorable residual based cost recovery terms;
--A diverse mix of revenue sources that has enabled the airport to maintain moderate airline charges ($7.54 per enplanement in fiscal 2010), although airline costs are projected to rise to over $12 per enplanement over the next three years;
--A tourism dependent service area that is demonstrating notable stress in the current economic downturn leading to a relatively large and potentially sustainable downward trend in passenger traffic;
--The airport's large $3.1 billion capital program that has more than doubled the airport's debt burden over the past three years;
--The expected pressures on airline charges as these fixed costs are factored into the airport's budget. Fitch also views the debt structure combined with the aggressive use of derivative instruments to pose potential long-term uncertainties to debt interest costs and financial counterparty risks.
KEY RATING DRIVERS:
--Maintenance of the current traffic base in light of challenging local and national economic conditions;
--Execution on the current capital plan without the need for additional borrowings;
--Management's ability to take steps to stabilize debt interest costs particularly if interest rates begin an upward trend;
--Maintain airline cost levels that will still be attractive to carriers in this sensitive, leisure-oriented market.
SECURITY
Senior lien bonds are secured by a first lien on net revenues generated from the airport system, the principal asset of which is McCarran International Airport (McCarran, or the airport). Subordinate lien debt is secured by net revenues on a subordinated basis to the senior debt and by available PFC collections. The PFC airport system revenue bonds are secured primarily by pledged portions of PFC revenues as well as a backup subordinate net revenue pledge. Jet aviation fuel tax revenue bonds are secured with jet fuel tax revenues and a pledge of airport revenues junior to the liens securing the senior and subordinate bonds. All liens are open to additional leveraging subject to their respective additional bonds tests.
CREDIT SUMMARY
Las Vegas is a well-established and premier, tourist-based destination market. However, the weak economic climate over the past three years has not only had an impact on discretionary spending but has also affected the area's employment base, housing market, and commercial development. All of these factors are influential variables to traffic activity at McCarran. After several years of robust growth rates, enplanements were flat in fiscal 2008 followed by consecutive declines of 12% and 3.6% in fiscal years 2009 and 2010, respectively. With unemployment rates in the metropolitan area reaching nearly 15% coupled with pressures in gaming revenue, convention attendance, and general discretionary spending, Fitch believes that a measurable near-term traffic improvement is unlikely.
Reductions in passenger activity have affected the airport's ability to sustain positive growth in non-airline revenue sources, such as PFCs and concessions. Since 2008, the decline in non-airline revenues has contributed to the need to raise airline rates and charges to absorb costs, particularly those related to the airport's growing debt burden. Fitch notes that airport management has aggressively taken action to reduce operating costs, which has helped keep airline costs reasonable at approximately $7.50 per enplanement. Overall airport debt levels are amongst the highest for a large-hub U.S. airport at about $240 per enplanement. Fitch's calculation of net debt to cash flow available for debt service (CFADS) is also high at 20.2 times (x) but is expected to decline closer to 12x as charges to carriers are increased by over 60% above current levels to recover debt costs. Some financial flexibility is noted given that the airport maintains a liquidity position of approximately $135 million in unrestricted current assets, translating to about 246 days cash on hand.
Historically, the financial profile of the airport has been well managed. Operating revenues have generally been well balanced between airline and non-airline funds with airline payments representing a moderate 40% of total operating revenues. Non-airline revenues are more diversified than at many other U.S. airports including a blend of gaming receipts, terminal concessions, parking, and other transportation based receipts. Given the predominantly leisure component of Las Vegas airport traffic, maintaining moderate airline costs is viewed as a critical factor to maintaining service levels. For fiscal 2010, excluding rolling coverage funds, the debt service coverage ratio for senior lien bonds was 2.3x while the coverage ratio for subordinated lien bonds was only 1.26x. Under indenture-based calculations that permit rolling coverage accounts, the coverage of senior and subordinate lien bonds was 2.57x and 1.60x, respectively. The airport forecasts a 1.5% continued traffic reduction in fiscal 2011 followed by growth ranging from 1.9% to 3.6% per year, and generating total coverage of senior and subordinate debt of about 1.30x to 1.40x through fiscal 2015. Debt service on the PFC bonds should be adequately covered from annual PFC collections based on these traffic assumptions although a repeated decline in traffic may require use of airport general revenues. The jet aviation fuel tax collections are not expected to meet future annual debt service requirements based on recent receipts. Fiscal 2010 coverage levels were slightly under 1x and the jet aviation fuel tax bonds can access the airport's general revenues subject to payments on senior and subordinate obligations.
The airport's capital program is primarily focused on the construction of a new $2.4 billion, 14-gate terminal (T-3) that will be completed by July 2012. Much of the terminal and other airfield improvements were debt funded over the past three years with total issuance of $2.6 billion. A key component of the original debt structure plan included nearly $1 billion of debt to be sold with the commitment of insured bonds and forward starting swaps. Given the market and credit disruptions that began in 2008, the airport now has derivative-type swaps that are not serving as traditional interest rate hedges for specific variable rate bond issues. Further, in April 2010, the airport terminated five step-down coupon swaps equal to $693.3 million of notional par and engaged in $408.2 million of new swaps. In total, the airport retains 22 outstanding swap transactions with notional amounts of nearly $2.5 billion, of which nearly $930 million is classified as variable-to-variable basis swaps. Based on Sept. 30, 2010 financial reports, the associated termination values on the entire swap portfolio exceed $180 million, thus making it a challenge for economical swap terminations under current market conditions. Approximately 75% of the entire notional par is engaged with Citigroup Financial Products Inc. (rated with an IDR of 'A+', and a Stable Outlook by Fitch) as the counterparty.
In recent years, the airport has faced ongoing litigation exposure related to a number of inverse condemnation cases and has either paid or negotiated settlements of approximately $200 million. Future obligations related to this legal matter are still uncertain and Fitch will monitor whether future events warrant concerns over the airport's financial position.
Clark County owns the Las Vegas McCarran International Airport as well as four general aviation airports, and these facilities are operated and maintained by county's department of aviation. Major existing facilities include four runways and two terminals that hold 104 gates for domestic and international use.
Additional information is available at www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', dated Aug. 16, 2010;
--'Rating Criteria for Airports', dated Nov. 29, 2010.
Applicable Criteria and Related Research:
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
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