Fitch Ratings assigns an 'A' rating to the Greater Orlando Aviation Authority (GOAA), Florida's approximately $64 million special purpose facility taxable revenue bonds, series 2009 (the Rental Car Facility Project bonds). The bonds are scheduled for negotiated sale in late September. Proceeds of the bonds will be used to pay for design and construction of car rental facilities at the airport; to fund debt service reserve and coverage fund requirements; and to refund GOAA's taxable commercial paper debt, used to provide interim financing for certain costs of the car rental facility project. The Rating Outlook is Stable.
The 2009 bonds are a special limited obligation, payable solely from Customer Facility Charge (CFC) payments received by GOAA. Bonds are also secured by interest earnings on available funds and other Pledged Funds. Revenues and net revenues of Greater Orlando Aviation Authority are not pledged to the payment of the 2009 bonds.
The rating reflects GOAA's sizable underlying origination and destination (O&D) market; Orlando's status as the largest rental car market in the U.S. by gross revenues; the geographically dispersed nature of Orlando business centers and theme parks; a competitive $2.50 CFC rate; level debt service with no dependence on growth; a short debt maturity of eight years with coverage at or above two times (x) through the life of the bonds; $17.5 million in up-front fund balances; car rental facility agreements executed by all operators serving the airport; and manageable near-term capital expenditures for the rental car facility following project completion, to be funded without additional bonding. Risks to the rating include the limited nature of car rentals as a revenue stream; the leisure nature of trips to GOAA; vulnerability of demand for car rentals in the current economic downturn; and modest competitive threats from other transportation modes.
The Stable Outlook reflects GOAA's ability to sustain sufficient levels of rental car transactions going forward, supported by the sizeable O&D component of air traffic, and GOAA's flexibility to modify CFC rates as needed without outside approvals.
Orlando's strong O&D market provides a solid base for CFC revenue generation. The airport ranks as the 3rd largest O&D airport in the nation behind Las Vegas and Los Angeles. The most relevant passenger base for car rentals is visiting passengers (O&D passengers whose destination is Orlando). Visiting passengers outnumber area residents by 3 to 1, and accounted for 74% of O&D passengers at Orlando in fiscal year (FY) 2008. Orlando International Airport is also the largest rental car market in the U.S. in terms of gross revenues, owing to the geographically dispersed nature of Orlando business centers and tourist attractions.
Orlando's CFC rate of $2.50 compares favorably to CFCs charged at other large airports: Seattle ($5.00), Phoenix ($4.50), DFW ($4.00), Atlanta ($4.00), and BWI ($3.25). CFC revenues have totaled $17 million in the first nine months of FY2009, and Fitch believes this rate level will be sufficient to meet GOAA's special facility debt obligations going forward. Under various stress scenarios, envisaging declines in transaction days of up to 23% over the next four fiscal years with modest 1% recovery per annum thereafter, pledged revenues generated by the CFC are sufficient to provide 1.9x or greater debt service coverage. Including the fully funded coverage account of $2.5 million, coverage increases to 2.2x. This stable, elevated level of coverage provides room for substantial downside risk, and is consistent with an 'A' category rating. GOAA's ability to increase the CFC with board approval only (no need to consult with County officials or concessionaires) provides further downside protection for bondholders.
The structural elements of GOAA's special facility bonds provide protection for bondholders. The bonds benefit from $17.5 million in up-front fund balances, equaling 28% of the total amount of bonds being issued. This includes a $5 million CFC stabilization fund (funded with CFCs already collected), $2.5 million coverage fund, and $10 million debt service reserve fund (both funded with bond proceeds). Furthermore, the existence of car rental facility agreements executed by all operators serving the airport also provides some certainty. Under the new agreement, which will bring 95% of car rental activity at GOAA on-airport, rental companies are obligated to collect CFCs and remit them to GOAA monthly; to pay a minimum annual privilege fee for facility use (greater of 10% of gross receipts or a fixed base amount); and to pay an annual rental fee to occupy the premises, including counter, office, and ready/return spaces. In addition, concessionaires agree to pay for all operating, utility, maintenance, and service management expenses related to their respective leased premises.
The current portion of the car rental facility project is 65% complete, due to open in April 2010. Proceeds from the 2009 bonds will pay for 83% of this construction, with the remaining funds coming from CFCs already collected. Going forward, Fitch expects only modest near-term capital expenditures for the rental car facility following project completion, to be funded on a pay-go basis with no additional bond issuance. While the current issuance has a very short tenor and benefits from substantial structural liquidity, additional parity bonds would not necessarily enjoy the same protections. To the extent that additional bonds are issued with a longer tenor and minimal liquidity, the 'A' rating could be pressured.
While the short maturity, low debt quantum, and structural protections of the special facility bonds allow for a relatively high rating ('A' being the highest rating Fitch has assigned to a car rental facility bond issue), inherent risks to this type of structure place upper limits on the rating. Concerns include the limited nature of car rentals as the only revenue stream available to service debt. Without recourse to airport revenues, it is difficult for the rating to rise above the 'A' category. Furthermore, demand for car rentals is exposed to the variability of discretionary spending in the current economic downturn. This is particularly true in Orlando, which is dependent on tourism and leisure activity for much of its visiting traffic.
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