Fitch Ratings has taken the following action on Fort Wayne International Airport Air Trade Center Building Corporation, Indiana's (the corporation) outstanding obligations:
-- $13.2 million taxable first mortgage refunding bonds, series 2011 affirmed at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by semi-annual lease rental payments paid by the Fort Wayne-Allen County Airport Authority (the authority) pursuant to a master lease between the authority and the Fort Wayne International Air Trade Center Building Corporation (the corporation). The rent is payable from unlimited ad valorem taxes levied by the authority on all taxable property within Allen County (the county) which is coterminous with the authority boundaries. The rent payments are subject to abatement for any period that the leased premises are not available for use and occupancy.
KEY RATING DRIVERS
DIVERSE AND STABILIZING TAX BASE: The county's broad-based economy, including significant manufacturing, health care and retail sectors, is reflected in its diverse tax base. Taxable values reported a slight uptick in fiscal 2012 after three years of declines caused by the recession and a large statewide increase in the homestead exemption in fiscal 2009. Assessed values fell by 20% between fiscals 2008 and 2011.
VERY MODEST PROPERTY TAX LEVY: The authority's property tax levy for operating, building and debt service constitutes less than 2% of the total property tax levy within the county, including the city, county and other overlapping entities. This provides revenue flexibility as even sizable changes in the authority's tax rates only marginally affect overall taxes.
SOLID FINANCIAL OPERATIONS: The authority's finances are well-managed and supported by a compensatory cost structure, user fees and property and other tax revenues.
ABATEMENT RISK: Rental payments are subject to abatement if the leased premises are not available for use. This risk is mitigated by the master lease requirement that the authority maintain rental value insurance equal to two years of rent payments and property damage insurance at 105% of replacement cost.
LIMITED BUT CRITICAL OPERATIONS: Airport operations are small in scale but essential to the area as the nearest alternative airport is over 100 hundred miles away.
REGIONAL HUB: Allen County is an industrial, agricultural and business center for north-eastern Indiana.
CREDIT PROFILE
DIVERSE LOCAL ECONOMY SHOWS RECOVERY
Fort Wayne serves as the commercial center for the north central Indiana. The area economy includes a significant manufacturing sector as well as healthcare and government. Manufacturing employment dropped by about 16% during the recession but has been recovering more recently. One of the largest employers is General Motors (GM), who operates a major plant within the county employing approximately 3,300, announced that the plant will produce 'dual-fuel' pickup trucks beginning in 2013.
County employment grew by 2.4% in 2011 after several years of decline and February 2012 employment was up nearly 5% from the same period in 2011. County wealth indices are on par with the state averages but trail the national benchmarks.
STABILIZING TAX BASE
The $13 billion tax base is diverse and the top ten taxpayers account for 9.2% of total valuations. County taxable values stabilized in fiscal 2012 after three successive years of decline, totaling 20%. Approximately 14% of the assessed valuation decrease was attributable to the implementation of a large tax credit for homestead properties. Officials expect the tax base to continue to stabilize or even increase slightly over the next few years, a projection which Fitch believes is reasonable given recent economic trends.
MODEST PROPERTY TAX LEVY RELATIVE TO TOTAL COUNTY TAXES
The authority's tax rates comprise less than 2% of the combined county levy including Fort Wayne, county and school district tax rates so even large changes in authority tax rates will have a negligible effect upon overall rates.
SMALL AIRPORT PROVIDES CRITICAL AIRLINE SERVICES TO REGION
The authority operates two airports in Allen County; the Fort Wayne International Airport (airport) and Smith Field, a much smaller general aviation reliever airport. The airport's central location in northeastern Indiana affords access to major cities in the midwest, southwest and Florida. As the nearest airport is over 100 miles away, the airport provides critical airline service to the region. Airport activities include passenger service, cargo service and general aviation operations. The airport is also home to the 122nd Fighter Wing of the Indiana Air National Guard.
Airport operations are modest with enplanements averaging just under 300,000 annually for the past ten years. Cargo/freight service is provided by three carriers including Federal Express and United Parcel Service. Airport activity slowed considerably during the past economic downturn as indicated by a 44% decline in landing weights and a 7% drop in passenger counts between fiscals 2007 and 2010. More recent statistics suggest that a rebound may be in progress. Both landing weights and enplanements grew modestly in fiscal 2011 and three month year to date reports show further gains.
FAILURE OF CARGO FACILITY LESSEE TRIGGERS DEBT SERVICE LEVY
The outstanding bonds refunded a 1998 issue which financed the construction of a cargo facility. The authority expected the cargo carrier leasing the facility to cover debt service costs. The carrier declared bankruptcy and vacated the cargo facility in 2008 and the authority has since been levying property taxes for debt service.
MODEST DEBT
Debt levels are low with direct and total debt to market value of 0.1% and 2.8%, respectively. Outstanding bonds consist of the series 2011 first mortgage bonds and a 2004 self-supporting issue scheduled for final payout in 2013. Principal amortization is very rapid with all bonds fully retired within eight years. The authority's capital plans are manageable and are primarily funded with federal and state grants. There are no plans to issue additional bonds.
WELL-MANAGED FINANCES
Financial management has been sound supported by a compensatory cost structure built into the airline agreements as well as user fees and taxes. Operations are mostly self-supporting with tax revenues used to fill any revenue gaps and cover debt service. Unaudited fiscal 2011 operations report a small surplus, the authority's third consecutive year of positive operating results, as the authority increased operating revenues while maintaining tight controls on spending.
The authority is budgeting a larger surplus for fiscal 2012. Fiscal 2011 unrestricted net assets are robust, accounting for 84% of expenses. Liquidity levels are ample with fiscal 2011 unrestricted cash and investments cover twenty months of operations, excluding depreciation.
LEASE PAYMENTS SUBJECT TO ABATEMENT
The bonds are subject to a master lease between the airport authority and the building corporation. The leased property consists of an air cargo hub facility composed a 240,000 square foot sortation building, maintenance building, an administrative building and other site improvements. Semi-annual rent paid by the authority corresponds to debt service on the bonds. Payments are made directly to the trustee and deposited into the debt service account. Typical of Indiana leases, rent payments are subject to abatement if all or part of the leased project is not usable but requirements for property damage up to 105% of value and rental interruption insurance equal to two years debt service partially offset this risk.
RISING BUT MANAGEABLE PENSION COSTS
The authority participates in two plans administered by the Indiana Public Employees Retirement System (PERS); one is a defined benefit, and the other is a defined contribution plan. The authority's defined benefit plan funding ratio fell from 55% in fiscal 2010 to under 45% in fiscal 2011, assuming Fitch's more conservative 7% discount rate. As only a relatively small number of employees participate in the plan, small changes in personnel can have outsize effects upon funding levels.
In fiscal 2011, a flurry of retirements and investment losses combined to lower the funding ratio. Officials expect pension costs will go up substantially over the next few years. However, the authority's combined ARC and defined contribution plan costs for fiscal 2011 represented a modest 2.3% of authority spending, providing flexibility to absorb higher pension costs in the future without unduly pressuring finances.
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.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors
Applicable Criteria and Related Research:
-- 'Tax-Supported Rating Criteria', dated Aug. 15, 2011;
-- 'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 15, 2011';
-- 'Fitch Refines Methodology for Rating Tax-Supported Debt of Public Enterprises', dated July 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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