CHICAGO & NEW YORK - (Business Wire) Fitch assigns an 'AA-/F1+' rating to $125 million Raleigh-Durham Airport Authority (North Carolina) (the authority) variable-rate airport revenue bonds (the bonds), series 2008A (AMT). The bonds are expected to price on April 30th and close on May 1st. Banc of America Securities (Fitch rating AA, negative outlook) is the underwriter and remarketing agent for the bonds. Fitch also affirms approximately $465 million outstanding airport revenue bonds at 'AA-.' The Rating Outlook is Stable. The Series 2008A bonds are being sold simultaneously with $100,000,000 Series 2008B and $75,000,000 Series 2008C bonds. These two series will carry enhanced ratings of 'AA/F1+' based on letters of credit from Wachovia Bank and SunTrust Bank respectively.
The short-term 'F1+' rating is based on the liquidity support provided by Bank of America, N.A., in the form a standby bond purchase agreement (SBPA). The SBPA provides for the payment of the purchase price of tendered bonds during the daily and weekly rate modes in the event that remarketing proceeds are insufficient to pay the purchase price. The SBPA is sized to provide for the entire principal amount of the bonds, plus 35 days of interest at the maximum interest rate of 12% based on a year of 365 days. The SBPA will expire on April 30, 2011, unless extended, or upon the occurrence of other events of termination, according to their terms. Fitch's short-term rating on the bonds will expire upon any expiration or termination of the SBPA.
The bonds initially bear interest in the weekly rate mode. The bonds can be converted to a daily, long term, or bond interest term rate mode. While the bonds bear interest in the weekly rate mode, interest is payable on the first business day of each calendar month, commencing May 1, 2008. Holders of bonds bearing interest in the weekly rate mode may tender their bonds for purchase with prior notice. The bonds are subject to mandatory tender: (1) day next succeeding the last day of each bond interest term mode; (2) on the first day of each interest rate period; (3) on the fifth day preceding the expiration or termination of the SBPA; and (4) upon substitution of the SBPAs. The bonds are also subject to optional and mandatory redemption provisions pursuant to the terms of the documents.
The 'AA-' rating reflects the authority's strong financial position marked by high levels of unrestricted liquidity, strong operating margins and minimal debt needs. Credit strength is also provided by the strength of the service area, a diverse mix of airlines serving the airport and sound management practices. The airport has successfully petitioned for additional passenger facility charge authority and irrevocably committed $13-24 million in each year through 2014 for payment of debt service, which Fitch considers a strong credit positive. Fitch's rating assumes no additional revenue bond debt for the authority's Terminal C redevelopment project.
Credit concerns center on the timing and construction risks associated with Terminal C and the possibility of unanticipated reduction in airport liquidity levels should construction costs for the airport's capital improvement plan (CIP) prove to be higher than budgeted. The airport's approximate $870 million CIP (fiscal years 2007-2015) centers on the complete reconstruction of Terminal C ($570 million), renovation of Terminal A ($130 million), and a customer facility charge backed consolidated rental car center ($120 million).
While 96% of construction costs for Terminal C are secured under fixed-price contracts, increases in other elements of the airport's CIP, such as the Terminal A renovation, could result in lower levels of unrestricted liquidity. Fitch notes, however, that the authority has a demonstrated history of prudent financial and capital project management and that the airport's current CIP is modular and would be implemented in stages based on demonstrated levels of passenger demand.
The authority's management has resulted in successful cost containment, very firm compensatory leasing arrangements with the airlines and a strong non-airline revenue stream, particularly from parking. The airport's high percentage of non-airline revenues (66% in fiscal 2007) served to offset tenant airline costs and maintain an estimated cost per enplaned passenger of $3.60 in fiscal 2007, the same as the previous year. The airport's cost per enplaned passenger is expected to rise to a peak near $5.73 in fiscal 2012. The highest required debt service payment will be in 2013.
Net revenues in fiscal 2007 equated to a 57% operating margin and were sufficient to generate 2.2 times (x) debt service coverage. Coverage of maximum annual debt service through 2015, net of passenger facility charge revenue offsets to debt service, is expected to be at or above 1.84x. The authority held $113 million in cash unrestricted cash and investments at the close of fiscal 2007 as well as $40 million in debt service reserves and $53 million in PFC collections. Even while cash-funding elements of its capital improvement program through 2015 management expects to maintain approximately $100 million in unrestricted liquidity, of which $35 million will be held in an operating reserve account. This level of liquidity is a key credit factor as it provides the authority with the flexibility to cash-fund elements of its capital cost overruns and deal with unanticipated changes in the air service market.
The airport's air service area exhibits characteristics supportive of additional demand for air service at the airport, including high levels of per capita personal income, a large university population, and a lack of airport competition within a two-hour drive. Passenger traffic increased 1.5% in 2007 to reach 4.8 million enplaned passengers. The airport's consultant has forecasted total enplanement growth of about 3% per year through fiscal 2015, a rate slightly lower than the airport's five-year historical average annual growth rate in O&D passengers at about 4%.
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Fitch Ratings, New York
Peter Stettler, 312-368-3176, Chicago
Andrew Abramczyk, 212-908-0596
Marina Kaganovskaya, 212-908-0803 (short-term rating)
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