NEW YORK - (Business Wire) Fitch Ratings affirms Northwest Arkansas Regional Airport Authority's underlying $70 million outstanding senior lien series 2003 and 2004 bonds at 'BBB'. The bonds are secured by net revenues generated at the airport plus the collection of passenger facility charge (PFC) monies. The bonds are also secured by certain restricted fund balances held by the airport authority, currently totaling $6.5 million. The Rating Outlook on all liens of debt is Stable. The 'BBB' rating reflects the airport's stable origination and destination traveler base and role as the only viable option for air service within the demographic area, the air trade area's strong business traveler component due to the large corporate presence, the airport's low cost structure, and its history of steady enplanement growth resulting in stable financial performance. The rating also reflects the airport's liquidity position of approximately $23 million representing 33% of the authority's outstanding debt. Of the total liquidity available, roughly $13.4 million is specifically set aside to cover debt service shortfalls after payment of operating and maintenance expenses. Credit concerns center on moderate dependence on revenue and passenger growth to support sizeable increases in near-term debt service obligations, and the authority's capital structure of which 40% is variable rate debt that is exposed to letter of credit renewal. The rating also incorporates the inherent vulnerability associated with a small enplanement base as the loss of a single flight could put more negative pressure on revenue streams.
Year-to-date enplanements are down 7.1% from fiscal year (FY) 2008 levels, a trend the authority expects to continue through the end of FY 2009, given weak load factors and reduced frequencies. Despite the current environment, Allegiant announced new service at the airport including new service to Las Vegas, Los Angeles and Orlando. Service at the airport consists of 15 direct destination routes, and a diversified mix of both short-haul and long-haul flights. Through 2008 enplanement trends at the airport were positive, demonstrating a 4.9% compound annual growth rate from 2003-2008. The region's growing employment base, population and wealth indicators resulted in a substantial increase in demand for air service. As a result, the airport benefits from diverse service offerings relative to its size to both leisure and business markets. Growth projections within the region are projected to temper, reflecting the maturing nature of the region as well as the economic environment's impact on suppliers and retailers within the service area.
Financial margins have been healthy at the airport but may be pressured in the near term given the authority's 40% increase in annual debt service obligations in 2011. Annual debt service climbs from approximately $5 million to $7 million and remains at that level through 2020. In the absence of a strong near-term recovery, financial performance will be stressed. Fitch notes that the authority's low cost structure and sound liquidity position provide some financial cushion against a slower pace of recovery. Financial performance for FYs 2004-2008 has been stable, and similar financial results are projected for 2009. Prior to fiscal 2004, the airport was dependent upon federal grants to help cover all obligations. In 2008, the airport reported a debt service coverage ratio (DSCR) of 1.52 times (x), including PFC revenue. In 2009, the authority expects a marginally lower DSCR of 1.45x as a result of enplanement declines, representing the first time that coverage has dropped below this level since fiscal 2004.
PFCs have traditionally contributed a minimum of $2 million to the revenue base. The airport's cost structure remains competitive. In 2008, the cost per enplanement (CPE) was $4.81, slightly higher than the airport's CPE levels in the preceding years, and 2009 is projected to be $5.24 despite the decrease in passenger activity.
In 2008, the airport entered into a new use and lease agreement which uses standard compensatory methodology on the terminal side and a residual calculation on the airfield side. The agreement remains in effect through January 2014. In the past, the airline use and lease agreement did not permit airport management to set rates at levels to cover the true operations and maintenance costs and debt service.
The airport's capital plan focuses on concourse expansion and the possible construction of an airport access road in the near- to medium-term. Possible funding sources for the concourse expansion include use of approximately $10.5 million in entitlement funds, with the remainder to be paid on a pay-as-you-go basis; however, sources and uses for the overall capital plan have not yet been defined. Given the authority currently retains sizeable entitlement fund balances and on an annual basis receives ample external grants and aid, the need for future bond financing is minimal.
The application of the following criteria was used to derive the rating of the above referenced bonds:
--'Rating Criteria for Infrastructure and Project Finance', dated Sept. 29, 2009;
--'Airports Rating Criteria Handbook for General Airport Revenue, PFC and Letter of Intent Bonds' dated March 12, 2007.
Both are available on the Fitch Ratings web site at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings, New York
Vanessa E. Roy, 212-908-0508
Mike McDermott, 212-908-0605
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com
