Fitch Ratings places the 'A-' rating on the City of San Jose, California's approximately $1.04 billion of outstanding airport revenue bonds on Rating Watch Negative pending further review of the airport. The bonds are secured by net revenues of the airport, including operating grants and customer facility charge (CFC) collections on rental car transactions.
The Negative Rating Watch reflects Fitch's undertaking of a review of the credit given continuing concerns with regards to operational performance and financial flexibility. Enplanements in fiscal 2010 fell 6.65%, which is below Fitch's expectations, and absent a meaningful recovery, the airport's cost per enplaned passenger (CPE) may be moving to levels inconsistent with the current rating. Debt per enplaned passenger and net debt to cash available for debt service (CFADS) already remain extremely high for this type of airport and this risk attribute is exacerbated by the severe mutli-year declines in traffic volumes. On Sept. 14, 2009, Fitch downgraded the airport to 'A-' from 'A+', Outlook Negative as a result of significant enplanement declines and leverage. Fiscal 2010 enplanements of 4.1 million represent a level last seen at the airport in 1995.
Fitch is aware that enplanemment levels are up slightly for the first quarter of fiscal 2011 and that the airport is undertaking strategies to contain the CPE. Fitch expects to complete its rating review in early January 2011 pending receipt of additional information from airport staff. The city has a mandatory furlough that begins on Thursday, Dec. 23, running through Friday, Dec. 31, limiting availability of staff. Discussions with airport staff will center on management efforts to limit CPE, manage expense growth, and also grow revenues before resolving the Negative Rating Watch.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', dated Aug. 16, 2010,
--'Rating Criteria for Airports' dated Nov. 29, 2010.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578745
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