NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has removed the 'A' rating of Maryland Transportation Authority's (MdTA) approximately $62 million passenger facility charge (PFC) revenue bonds from Rating Watch Negative. Fitch has affirmed the 'A' rating on the PFC bonds. The Rating Outlook is Stable.
In addition, Fitch has affirmed the 'A-' rating on MdTA's approximately $191 million parking revenue bonds. The Rating Outlook is Stable.
The rating affirmation and a return to Stable Outlook for the PFC bonds reflect the changes in the proposed financing structure for the airport's runway improvement project that are expected to result in lower additional leverage and stronger financial metrics. Based on the revised plans for reduced additional borrowing (currently estimated at $170 million), PFC leverage is now estimated at a more manageable 4.5x and debt service coverage is estimated to dilute to a relatively strong 2.5x as compared to previous assumptions of 7x leverage and below 2x coverage ratios, when factoring in the additional debt. The bonds are expected to be issued in the fall of 2012.
KEY RATING DRIVERS
Stable but Concentrated Enplanement Base: Baltimore Washington International Thurgood Marshall Airport's (BWI Marshall) enplanement base has demonstrated a relatively strong resilience to the recent economic downturn. The large presence of low-cost carrier service as well as the overall economic strength of the Baltimore-Washington DC service area has anchored the traffic base. Concentration risk associated with Southwest (Southwest; IDR 'BBB' with a Stable Outlook by Fitch) service exists, and comprises 72% of total enplanements, but is mitigated to some degree by mostly origination and destination (O&D) base at 75% of total enplanements.
Narrow Revenue Streams on Both Liens: The airport's narrow parking revenue stream is somewhat offset by the airport's moderate flexibility to increase rates if necessary. In the case of the PFC revenue bonds, the narrow revenue stream and the limited flexibility provided by the PFC receipts represent the primary risk related to these bonds. PFC collections have been applied to more than 90% of passengers historically.
Manageable Capital Need with Future PFC Borrowing Expected: The airport's capital program, through fiscal 2018, includes a runway improvements project which is expected to be largely funded with a parity PFC bond issuance.
Moderate Levels of Financial Leverage: Net debt/cash flows available for debt service (CFADS) is estimated at a moderate 2.9x for the parking bonds. Currently, the PFC credit is estimated to have a low net debt/CFADS of 1.19x, but leverage will likely increase when factoring in the proposed PFC borrowing for the runway improvements project.
Robust Debt Service Coverage Levels: The airport has historically maintained strong coverage on both liens, with at least 2.37x coverage on the parking revenue bonds and at least 3.97x on the PFC revenue bonds over the last four years (through fiscal 2012).
WHAT COULD TRIGGER A RATING ACTION
--Additional leverage on both liens that would result in deterioration of debt coverage ratios to levels inconsistent with the current ratings. In particular, PFC debt service coverage below 2x and leverage in the 6-7x range would likely result in rating pressure.
--Increased volatility in the airport's traffic, and/or retrenchment by Southwest that would reduce coverage below 2x;
The PFC revenue bonds are secured solely by a first lien on the $4.50 charge assessed on all eligible enplaning passengers at the airport. The parking revenue bonds are secured by all revenues from all parking facilities at BWI Marshall payable to the Maryland Aviation Administration (MAA) by the parking concessionaire.
BWI Marshall's enplanements grew at a compounded annual growth rate (CAGR) of 1.9% between fiscal 2007 and 2012 reaching 11.3 million. Enplanements were essentially flat and in-line with management's projections growing at only 0.6% in fiscal 2012 over the previous year. The flat growth in enplanements was attributed to continued economic weakness and weather-related service interruptions due to Hurricane Irene in August 2011.
The airport's CPE, based on unaudited year-end results, is estimated at approximately $9.27 in fiscal 2012, below both Dulles and Reagan. The airport's favorable cost structure helps to offset concern regarding the presence of several competing airports in the service area.
The airport has 24,700 parking spaces. The parking rate structure introduced in December 2009 has yielded strong cash flow from parking operations, with debt service coverage of 2.82x in fiscal 2012, an increase from 2.78x coverage in fiscal 2011. The contract with the parking concessionaire, Maryland Parking Limited Partnership (MPLP), was executed in January 2011 and expires in December 2014. Occupancy levels average approximately 50%. The five operators of the off-airport parking lots have lower parking rates and occupancy rates.
As the airport currently levies the PFC at the maximum $4.50 rate, total revenues generated from the charge are dependent on the level of passenger traffic at the airport. PFC collections for fiscal 2012 totaled approximately $46.6 million, an increase of 3.5% from fiscal 2011, and provided 4.22x coverage. Under a stressed 10% reduction enplanement scenario and assuming the proposed bond issue will raise total debt service to about $17.9 million annually (after the series 2003 bonds mature), the minimum coverage is estimated to drop to a lower 2.5x over the medium term. Current estimates indicate that debt per enplanement figures could rise to the $20.5 range from the current low $5.50.
The airport's fiscal 2013-2018 capital improvement program (CIP) totals $639 million. The largest project includes runway pavement improvements and the construction of the runway safety area for $304 million expected to be partially funded with PFC bond issuance in the fall of 2012. Although the new estimate of $170 million represents a material change from the original $245 million estimate, the final project cost and funding sources are not yet finalized, pending additional PFC authorization. While the currently proposed metrics appear to be commensurate with the current rating, the bond size and structure have not been finalized yet and the issuance depends on approval of additional PFC authorization.
The secure side concourses B/C connector project, relocation of the passenger screening checkpoint, and widening of concourse C entrance for a total of $99 million will be funded with a combination of pay-go funds, transportation trust funds, and the proceeds from the $50.9 million series 2012A bonds that were issued earlier this year.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Airports' (Nov. 29, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Airports
Rating Criteria for Infrastructure and Project Finance
Elizabeth Fogerty, +1-212-908-0526
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Tanya Langman, +1-212-908-0716
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Ken Weinstein, +1-212-908-0571
Michael McDermott, +1-212-908-0605
Source: Fitch Ratings