CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms the 'A-' rating on Long Beach, CA's outstanding $119.75 million airport revenue bonds. The Rating Outlook is Stable.
KEY RATING DRIVERS
SMALL HUB WITH A CONCENTRATED TRAFFIC BASE: The Long Beach Airport (LGB) served 1.64 million enplanements in fiscal year (FY) 2012 (ending Sept. 30), of which 98% was origination & destination (O&D) traffic. This represents a 7.2% year-over-year increase compared to FY 2011. LGB is highly susceptible to JetBlue's concentration with 81% of market share in 2012 (Fitch Issuer Default Rating 'B' with a Stable Outlook).
Revenue Risk - Volume: Weaker
LOW HISTORICAL COST PROFILE: The airport's cost per enplaned passenger (CPE) was low relative to peers at $6.54 for FY 2012. The airport forecasts FY 2013 cost per enplanement (CPE) to be higher at $7.47. The airport utilizes an ordinance like approach for rate setting, which nets all non-airline revenues against annual debt service obligations.
Revenue Risk - Price: Midrange
CONSERVATIVE DEBT STRUCTURE: All existing long-term debt is fixed rate with a cash funded debt service reserve.
Debt Structure: Stronger
STABLE FINANCIAL PROFILE: The airport maintains adequate financial flexibility, with 361 days cash on hand (DCOH). The airport has an internal policy to maintain coverage at 1.5 times (x) and liquidity of 300 DCOH. Debt per enplanement is at $73 and leverage is slightly higher than peers at 9.3x net debt-to-cash flow available for debt service (CFADS). However, this is projected to decrease to 7x in FY2013 when rates and charges reflect the completion of the capital program.
Debt Service and Counterparty Risk: Midrange
LIMITED NEAR-TERM INFRASTRUCTURE NEEDS: The current capital improvement plan (CIP) totals $141.8 million through FY 2018, consisting primarily of runway and taxiway rehabilitation. There are currently no anticipated future borrowings expected.
Infrastructure Renewal & Development: Midrange
RATING SENSITIVITIES
--A downward trend in airport traffic, either as a result of economic factors or volatility in the aviation sector, may have a particularly negative effect on the airport given the reliance on enplanement-dependent passenger facility charges (PFCs) to cover roughly 45% of debt service requirements beginning in FY 2013;
--Should JetBlue exit or substantially retrench its presence at LGB, it is uncertain how the airport's enplanement base would recover, given that new and/or incumbent carriers could fill slots with smaller gauge aircraft;
--The airport's inability to maintain revenues to provide sufficient coverage on the elevated debt service could pressure the rating.
SECURITY
The bonds are secured by the net revenues generated at the airport.
CREDIT UPDATE
Noise ordinances currently restrict activity at LGB to 41 commercial air carrier slots but competition for the slots remains high. When airlines relinquished slots in the past (Horizon in 2009, Frontier in April 2011, and Allegiant in September 2011), the airport received significantly more applications for slots than are available. Despite shifting of air carrier slots and slot restrictions, traffic levels have remained steady at or above 1.4 million enplanements. Through the first five months of FY2013, enplanements are down 8.2% due to JetBlue repositioning some capacity to its growing Caribbean services. The airport estimates FY2013 enplanements to fall back to FY 2011 levels of 1.5 million.
FY 2012 DSCR with transfers declined to 2.46x from 4.71x in FY 2011 due to increasing debt service obligations. DSCR is expected to decline further to 1.76x in FY 2013 as debt service ramps up to maximum annual debt service (MADS). Without the use of rolling coverage, DSCR is projected to be approximately 1.51x in FY 2013, consistent with management's internal policy to maintain a 1.5x DSCR on a cash flow basis. CPE is expected to remain in the $7-8 range as debt service requirements increase to $8.1 million in FY 2013 and remain flat through maturity.
The airport is located between major business and tourist destinations between Los Angeles and Orange Counties, with convenient access to the major freeway links in Southern California. Long Beach Airport is owned by the City of Long Beach. The mayor and the city council of Long Beach serve as the board of directors and set policies for the airport. The airport director and airport staff oversee day-to-day operations.
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=789729
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