NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating on the city of Boise, Idaho's, approximately $11.2 million series 2012 and $25.2 million series 2011 airport revenue bonds. The Rating Outlook on all bonds is Stable.
KEY RATING DRIVERS:
SMALL BUT STRATEGICALLY LOCATED ORIGIN AND DESTINATION (O&D) AIRPORT: Boise Airport's (the airport; BOI) unique geographic position, lack of material competition, and 95% O&D traffic base of 1.3 million enplaned passengers mitigate the risk presented by the relatively small scale of operations.
Revenue Risk- Volume: Midrange
STRONG COST STRUCTURE: The airport's cost center residual methodology enables the airport to pass along the majority of its costs to the signatory air carriers to the extent non-airline-related revenues, including passenger facility charges (PFCs), are insufficient. Cost per enplaned passenger (CPE) remains low at $4.67 through three quarters of fiscal 2013 compared to the airport's peers - the median CPE for Fitch-rated small-hub airports equals $6.89 for fiscal 2012.
Revenue Risk - Price: Stronger
CONSERVATIVE DEBT PROFILE: All outstanding debt is fixed rate with flat debt service of $5.3 million through 2020, dropping to just above $800,000 in 2021 and remaining flat through maturity.
Debt Structure: Strong
VERY LOW LEVERAGE AND HEALTHY RESERVES: BOI demonstrates low levels of financial leverage, measured by a projected $28 per enplaned passenger for fiscal year-end 2013, healthy balance sheet liquidity, and extremely low projected net debt-to-cash available for debt service (CFADS) at 0.23x for year-end 2013.
Debt service coverage levels are strong, though lower than previous years, at 2.32x for fiscal year 2012 and projected 1.98x in 2013. PFCs serve to meaningfully offset gross debt service requirements. Eligible PFCs covered 80% of 2011 revenue bond debt service requirements in 2012, and BOI projects that 80% of debt service will be covered by PFCs through the forecast period.
Debt Service & Counterparty Risk: Strong
REVISED CAPITAL PROGRAM: Due to lack of demand for previously contemplated debt and PFC-financed projects, the airport has scaled down its previous $132.7 million 2012-2018 capital improvement plan to $50.7 million for 2014-2019. Most near- term projects are expected to be funded from federal Airport Improvement Program (AIP) grants or internal cash flow, and the city has no near-term plans to issue additional debt.
Infrastructure & Renewal: Midrange
RATING SENSITIVITIES:
--Continued Air Traffic Declines: Additional net reductions in service or capacity by individual airlines that lead to rising rates and charges could pressure the rating downward;
--Return to Growth: Stability in airport traffic operations over the next two to three years coupled with cost controls and/or revenue growth necessary to maintain low leverage and generate continued healthy debt service coverage would keep the Outlook at Stable;
--Increased Leverage: Additional debt issuances that would meaningfully dilute coverage levels would lead to negative rating action.
SECURITY:
The series 2011 bonds are secured by a net pledge of revenues of the airport and a legal pledge of PFC revenues. The city approved an amendment to the 2011 trust indenture in May 2013 allowing past PFC collections to be applied to future debt service coverage tests. As a result, 80% of the series 2011 bond debt service is eligible to be paid from PFCs, compared to 75% before the amendment. The series 2012 bonds are also secured by a net pledge of revenues of the airport but do not have the additional pledge of PFC revenues.
CREDIT UPDATE:
In November 2012, Boise issued parity revenue bonds for a parking facility project totaling $11.8 million. At the time of the rating last year, BOI, like many small hub airports across the country, was experiencing enplanement softening due to nationwide capacity refinements by most of the carriers. Enplanement declines totaled 4.7% for all of fiscal 2012. In 2013 through 11 months, traffic was down 1.4%, so the softening appears to be bottoming out as Alaska and Delta have backfilled some of the capacity left behind by Southwest. This decline was substantially in line with management's 1.5% loss projections. It should be noted that Boise is solidly 95% O&D, which underpins an established base of 1.3 million to 1.5 million enplanements.
The airport employs a residual framework to recover costs at the airport which has led to stable CPE levels in the $4-$5 range since 2010 despite the enplanement volatility. Management's budgeted 2012 CPE was $5.13, but it came in at $4.36. The rate covenant to establish rates and charges back to the carriers includes PFC revenues, so the airport is able to employ a larger revenue stream base to manage airline cost stability. Last year's capital improvement program called for a Concourse A expansion and terminal remodeling to be funded from PFCs ($12 million). These projects have been shelved until demand warrants. As a result, no PFCs are tied up in future capital projects and BOI can apply its current PFC cash balances and future collections towards debt service and the maintenance of low airline costs. The current PFC collection authorization should be fully collected by fiscal 2015. In Fitch's rating case, current balances and collections in fiscal 2014 and 2015 are able to pay P&I on the 2011 bonds as it comes due.
If BOI were to experience continued material enplanement declines that deteriorate nonairline revenues, Fitch would expect the airport to pass on enough costs to the carriers pursuant to the agreement to maintain debt service coverage ratios in the 2.0x range on a Fitch-calculated basis, which counts eligible PFCs (80% of 2011 debt service) as revenue instead of an offset to debt service. Considering the extremely low leverage (0.24x projected in 2013), this coverage should be sufficient to maintain the rating. Should coverage become significantly more diluted, negative rating action may result.
The airport is located about five miles southwest of downtown Boise, the capital and largest metropolitan statistical area (MSA) in the state of Idaho. It is owned by the city of Boise and has been operated by the City of Boise Department of Aviation since 1939 as a self-sustaining enterprise fund of the city.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Airports' (Nov. 27, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695600
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=805357
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