Fitch Ratings has assigned an 'A-' rating to the City of Manchester, New Hampshire's proposed $92 million of series 2012A&B refunding bonds. Fitch also affirms the 'A-' rating on approximately $188.4 million of airport revenue bonds outstanding. In addition, the airport also has $23.5 million of series 2008 bonds not rated by Fitch. The Rating Outlook is Negative.
KEY RATING DRIVERS
CONCENTRATED ENPLANEMENT BASE WITH INCREASING VOLATILITY: Manchester Boston-Regional Airport is the sole airport in New Hampshire providing commercial jet service, but it faces significant competition from Boston Logan International Airport. In addition, Southwest provides approximately 60% of the air service in the area, meaning there is significant exposure to one airline's scheduling decisions. The air service area benefits from low unemployment rates and strong wealth levels, but competition has reduced traffic by 33% since 2005, leaving enplanements at a level last seen in 2000.
STRONG CONTRACTUAL FRAMEWORK WITH MODERATE COSTS: Manchester utilizes a hybrid ratemaking methodology that is compensatory for the terminal and residual on the airfield. Airline costs per enplaned passenger (CPE) was $7.33 in FY 2011, but price flexibility is somewhat constrained by nearby competition.
MODERATE LEVERAGE WITH ADEQUATE FINANCIAL FLEXIBILITY: The airport has moderate leverage given an increasingly volatile traffic base with debt per enplaned passenger of $156 and 7.1x net debt to cash flow available for debt service (CFADS). Management has been successful in reducing costs and maintaining financial flexibility with debt service coverage (DSCR) per indenture of 1.98x. Fitch's calculation of debt service coverage, which excludes rolling coverage and treats passenger facility charges (PFCs) as revenues, is 1.30x. The airport also maintains a strong liquidity position of 551 days cash on hand.
STABLE DEBT STRUCTURE: Manchester's capital structure includes nearly 89% fixed-rate amortizing debt, leaving the airport with limited exposure to volatility in the capital markets. Approximately 11% of the airport's debt is variable and is backed by a letter of credit from Citizen's Bank that expires in June of 2013.
LIMITED NEAR-TERM INFRASTRUCTURE NEEDS: The airport's five-year capital improvement program totals $39.4 million and is primarily grant funded and no additional debt is expected in the near term. It is Fitch's view that there are limited rehabilitation needs for the airfield and landside infrastructure as the current passenger terminal was built in 1993 and was expanded in 1999 and 2004 and the runways were extended and rehabilitated in 2002 and 2005.
WHAT COULD TRIGGER A RATING ACTION
--The airport has an elevated dependence on traffic-supported non-airline revenue sources. Further erosion in traffic volumes could lead to an unsustainable cost profile, negatively impacting credit quality. Absent significant improvement in the airport's traffic base, negative rating action is likely.
SECURITY
The airport revenue bonds are special obligations of the city payable from net revenues and pledged funds generated from operations at Manchester Boston Regional Airport.
TRANSACTION SUMMARY
The proposed series 2012 refunding bonds will refund approximately $92 million of the series 1998A, 2002A, and 2002B bonds for an estimated net present value interest savings of $7 million, or 7.6% of refunded bonds. The final maturity of 2032 has not been extended. Delivery date is expected to be June 21, 2012.
The Negative Outlook reflects continued declines in traffic, in part as a result of competition from Boston Logan. Building on enplanement declines of 13.1% and 15.0% in 2009 and 2010 respectively, Manchester's enplanements declined by 4.7% to 1.39 million in FY 2011, and year to date fiscal 2012 numbers continue to show declines of 4.6%. Competition in the New England region remains a concern. Southwest Airlines, which represented approximately 60% of the airport's enplanements in FY 2011, initiated service at Boston Logan in 2009, pressuring service levels and passenger volumes at Manchester ever since. JetBlue recently increased their focus in the Boston market. Further activity by low-cost carriers at Logan may continue to pressure Manchester's operations by driving fares lower at Logan and pulling traffic.
For more information, please see the Fitch report dated April 13, 2012, available at 'www.fitchratings.com'.
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 Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656970
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832
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