Fitch Ratings has assigned an 'A+' rating to approximately $483 million of senior-lien airport general revenue bonds series 2012A and 2012B (Non-AMT) as well as series 2012C (AMT) and 2012D (taxable) issued by the City of Atlanta on behalf of Hartsfield-Jackson Atlanta International Airport (ATL). Fitch also affirms ATL's outstanding $1.53 billion general revenue bonds at 'A+' as well as the outstanding $955.3 million passenger facility charge (PFC) and subordinate lien revenue bonds at 'A'. The Rating Outlook for all bonds is Stable.
Proceeds of the proposed series 2012A-D bonds will be used to fund capital improvements at the airport and to retire $314 million of outstanding commercial paper notes.
KEY RATING DRIVERS:
--STRONG TRAFFIC BASE AND KEY DELTA HUB: Atlanta maintains an established status as the busiest operating airport in the world with over 46 million enplaned passengers. There is carrier concentration with Delta representing 78% of passenger traffic. However, Atlanta is the primary hub and corporate headquarters location for 2nd largest U.S. based air carrier, Delta Air Lines (IDR 'B-'; Rating Outlook Positive by Fitch). ATL is anchored by a large, local traffic base with 15 million O&D enplaned passengers for FY2011. Passenger traffic trends demonstrate solid resiliency relative to most other large-hub airports and limited competition exists from other regional airports.
--EFFECTIVE COST RECOVERY FRAMEWORK AND STRONG NON-AIRLINE REVENUE SUPPORT: The airport operates with continued airline support evidenced by extension of the use agreements that provide compensatory rate setting. Atlanta's large traffic base generates significant PFC and non-airline revenues enabling airline costs per enplaned passenger to be among the lowest for a major U.S. hub and international gateway.
--DEBT STRUCTURE REMAINS CONSERVATIVE: Nearly all of the airport's aggregate revenue bonds are in fixed rate mode with conservative amortization profiles.
--FINANCIAL METRICS AFFORD FLEXIBILITY: The airport currently shows a very healthy financial position in terms of leverage (approximately 5x net debt/cashflow available for debt service), coverage levels (2.30x senior bonds and 4.46x of subordinate hybrid PFC bonds), and liquidity (779 DCOH).
--WELL MANAGED CAPITAL SPENDING: Atlanta maintains significant airside and terminal infrastructure to support a major hub. City and carrier support for capital spending is evident. Following the series 2012 bond issue, no borrowings are anticipated over the next five years.
WHAT COULD TRIGGER A RATING ACTION:
--Material changes to current traffic levels;
--Additional leverage to meet the needs of the capital program;
--Changes to the existing favorable airline cost and financial profile.
The airport general revenue bonds are secured by a first lien on airport net revenues. A senior lien on passenger facility charge (PFC) revenue and a subordinate lien on general revenues of the airport secure the PFC hybrid debt.
ATL represents a major airport facility for the U.S. air transportation network, with significant direct air service to many U.S. and global destinations. With approximately 46.2 million enplanements and nearly 937,000 annual aircraft operations, ATL has been consistently ranked the most active airport in the world. While the airport is served by more than 30 passenger carriers, including scheduled domestic carriers and five foreign flag airlines, there is a high degree of service dependency from Delta Air Lines. Delta and its affiliates accounted for about 78% of the airport's total enplanements in fiscal 2011, a relatively unchanged level in recent years even though the carrier has reduced its presence at secondary hubs.
The next largest carrier, Southwest/AirTran, serves a smaller but still relevant 15% of airport traffic. Southwest has completed its acquisition of AirTran during the past year and has recently begun to serve ATL under its carrier brand. Both carriers currently rely on ATL as its primary base of service and connecting operations. Overall, connection traffic contributes to about 68% of total traffic and could lead to volatility in ATL's future business performance.
Despite the ongoing challenges in both the general economy and aviation industry, ATL's traffic levels have remained resilient. Recent enplanement figures over the past two years have been trending in a modest positive direction. Fiscal 2011 indicated a 1.8% improvement in traffic growth while the first six months of the current fiscal year is showing a more modest 0.6% growth in traffic when compared to the same period in fiscal 2011.
Going forward, Fitch believes that there are effective catalysts for additional growth opportunities with the combination of service by Southwest under its own brand coupled with the upcoming completion of the new international terminal. Management has indicated Southwest's potential growth for the Atlanta market can be material as, before the acquisition, there were 40 cities served by Southwest that were not served by AirTran. Still, Fitch views there to be general credit risk to due Delta's significant hubbing. While modest service reductions are not expected to impact the airport's credit, any material de-hubbing conditions would be a credit event.
Atlanta is currently progressing successfully through a multi-year capital program. A major component of the costs has been geared towards the new Maynard H. Jackson International Terminal and this project is expected to be completed by May 2012. The project will enhance international service capacity at the airport. Currently, Atlanta offers the sixth largest international traffic base for a U.S. airport with over 4.9 million enplanements. Growth of international passengers has been significantly higher than those for domestic in recent years. Following the issuance of the series 2012 bonds, the airport expects little future borrowings for the funding of the capital program. Other sources such as PFC pay-go collection, federal grants, and other airport funds are adequate to meet capital spending under the current plan.
The combined debt level (general revenue plus PFC hybrid) represents a modest $56 per enplaned passenger. Based on the aggregate debt of the airport, the leverage in terms of net debt to cashflow available to debt service at 5 times (x) is considered modest for a large-hub airport.
ATL is supported by a well positioned financial profile that include solid overall debt coverage levels of its general revenue bonds 2.3x and substantial unrestricted cash reserves of $421 million in fiscal 2011. Airline costs per enplanement (CPE) are also modest for a large-hub airport at $2.82, and are projected to be slightly lower at $2.72 in fiscal 2012. Based on forecasts that contain reasonable growth assumptions, Fitch believes that coverage levels can remain healthy but will likely decline moderately to the 1.50x level. CPE levels are also expected to rise modestly to the $4.00 level. Separate from these direct costs that carrier pay to the airport, the all-in CPE is $1.70 above this base rate as it includes additional outside operator payments.
The hybrid PFC bonds have a history of self-support from the PFC collections. Fiscal 2011 coverage from PFCs was nearly 4.5x and is expected to remain over 2.0x of future maximum annual debt service based on forecasted traffic levels. There is still some risk to the PFC credit as coverage of the hybrid PFC bonds from PFC collections is to a small extent dependent on the receipts derived from connecting traffic. Still, a subordinate lien on airport general revenues provides adequate risk mitigation. At current traffic levels, the airport collected PFC receipts in excess of $175 million annually. ATL's ability to maintain sound financial metrics as indicated in its current projections will be a key driver for the rating maintenance.
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' (Aug. 16, 2011);
--'Rating Criteria for Airports' (Nov. 28, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
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