Fitch Ratings has affirmed the 'BBB+' rating on College Park, Georgia's approximately $204.9 million of outstanding series 2006A and 2006B revenue bonds. The bonds were issued to finance the construction of a consolidated rental car facility (CONRAC) and automated people mover (APM) maintenance facility at Hartsfield-Jackson Atlanta International Airport (Hartsfield-Jackson, or the airport). The Rating Outlook is Stable.
KEY RATING DRIVERS
Strong Rental Car Market with Some Volatility: A sizable underlying local market supports a high level of rental car transactions with 15 million O&D passengers. Annual rental car transactions exceed 5.7 million although the underlying activity, and CFC collections have exhibited volatility in recent years. Airport traffic at Atlanta is highly dependent on Delta Air Lines' service (77% of total enplanements), and thus rental car demand would be exposed to the carrier's operating decisions.
Adequate Rate Setting Flexibility: Imposition of the rental car customer facility charge (CFC) has been effective since 2005 and covers all car rental operators whether located on-airport or off. The CFC is assessed without cap or sunset by an ordinance of the Atlanta City Council. The CFC rate is currently $5.00 per day, and has been increased twice over the past three years to ensure adequate cash flow for debt service and operating costs.
Strong Security Package and Sound Reserves: The project structure is underpinned by a first lien on CFC monies and, if needed, contingent rent levied to the rental car operators. While the secured revenue stream is narrow in its nature, dedicated project reserves are robust including a cash funded debt service reserve that is supplemented by a debt coverage account and renewal/replacement reserve.
Elevated Project Leverage but Health Coverage on Senior Bonds: The project's overall leverage, including the revenue bonds as well as a $71 million internal subordinated loan with the airport, equates to approximately 8 times (x) net debt to cash flow available for debt service (CFADS). Still, senior debt service coverage levels are above 1.6x from operating cash flows. The healthy debt service coverage ratios should allow for strong serving of the subordinate loan and project operating costs.
Modern Infrastructure: The recent completion of the project negates construction risk with minimal capital expenditures over the intermediate term. The project faced higher total costs than initially planned and resulted in the project assuming a subordinate loan. The car rental project support is enhanced by facility agreements which were signed by all rental car companies serving the airport. These agreements extend to the end of the maturity of the outstanding bonds.
WHAT MAY TRIGGER A RATING ACTION
-- Any material changes in rental car demand or its volatility in the underlying O&D traffic base;
-- Any meaningful modification in the operating profile of Delta, which accounts for 77% of the airport's enplanement base.
-- Higher than expected cost increases or unexpected additional borrowings that pressure the CFC rate in order to recovery all project costs.
SECURITY:
The bonds are secured by payments received by the issuer from the city of Atlanta under an installment purchase agreement between the two entities. The sole source of revenue pledged by Atlanta for the payments are receipts generated by the imposition of a daily CFC levied on all rental car contracts issued by rental car operators at Hartsfield-Jackson.
CREDIT UPDATE:
Atlanta's Hartsfield-Jackson currently ranks as the world's busiest airport in number of total passengers, with over 46 million enplanements, including a strong origination/destination traffic base of 15 million enplanements in 2011. The sizable local economy, which over the long term has performed well in terms of population increases and business activity, sustains the overall demand for local air service and related rental car activity. Reflective of the strong business orientation of the market is the presence of several major corporate headquarters facilities in the Atlanta metropolitan area, including those of Bell South, Delta Air Lines, UPS, Home Depot, First Data, southern Company, and Coca-Cola. Still, rental car demand has fluctuated over the past decade.
The most recent recession has led to modest single-digit, non-connecting related enplanement declines but also resulted in more sizable 15% total reduction in rental car activity during the 2008-2010 period. As traffic stabilized over the past year, rental car activity rebounded quiet strongly, up 9.6% in fiscal 2011. Forecasts over the next five years indicate 2.2% to 5.5% annual increases in rental car transactions. Fitch views these ongoing recovery assumptions to be optimistic in light of recent performance results but does believe that a continued positive recovery is a reasonable assumption based on recent enplanement activities.
The CFC rate was initially set at $4.00 in 2005 and has been revised twice over the last three years to the current rate of $5.00 per day. CFC revenues of $28.1 million for fiscal 2011 provided sound coverage of 1.63x on the outstanding senior debt, exclusive of the coverage fund. In recent years, the coverage levels have been largely stable. When including the project coverage fund, equal to 25% of annual debt service, the coverage level from all pledged revenues was 1.88x. Elevated coverage levels are important for rating maintenance given the need to apply excess cashflow after payment of the project debt to cover nearly $8 million of project related operating expenses as well as principal and interest payments for the $71 million internally-funded project completion loan. Currently, project reserves are quite strong including the CFC surplus fund with $20.7 million. Including the combined surplus fund, coverage account, and the debt reserves, total cash balances translate to about 24% of the outstanding debt. Based on forecasts provided by the airport, the surplus fund balances mostly unchanged. Further, no additional CFC rate increases are assumed to support cash flow requirements.
The car rental facility project was completed in late 2009 and has over two years of successful operations. All rental car companies serving Hartsfield-Jackson operate out of this facility. Ahead of the date of completion of the project, the car rental companies executed long term facility agreements that require a number of payment obligations; such as privilege fees, operating and maintenance fees, and transportation system fees, in addition to the collection of the CFCs. Only the CFCs are pledged to the rated project bonds.
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. 29, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656970
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