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Fitch Affirms Palm Beach County, FL Dept of Airport's $121MM System Revs at 'A'; Outlook Stable
Posted February 3, 2012
We Recommend...
CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms Palm Beach County, Florida, Department of Airport's approximately $121.1 million of airport system revenue bonds outstanding at 'A'. The Rating Outlook is Stable.
KEY RATING DRIVERS
--Medium Hub with Diversified Carrier Base: Palm Beach International Airport (PBIA) served 2.93 million enplanements in fiscal year (FY) 2011 (ending Sept. 30), of mainly origination and destination (O&D) traffic. This represents a very modest 0.2% year-over-year increase compared to FY 2010. The airport's primary service area is an affluent region with favorable demographics, above average wealth levels, and a high unemployment rate. PBIA features a well diversified carrier mix with no single airline exceeding 25% of enplanements.
--Low Historical Cost Profile: The airport's cost per enplaned passenger (CPE) remains moderate relative to peers at $8.19 for FY 2011. The airport forecasts the CPE level to remain flat through FY 2014 and then potentially be lowered significantly starting in FY 2015 when annual debt service requirements decline substantially.
--Conservative Debt Structure: All of PBIA's debt is in fixed rate with debt service payments dropping by 60% starting in FY 2015 and then remaining relatively flat through maturity.
--Low Leverage and Strong Liquidity: PBIA's net debt-to-cash flow available for debt service (CFADS) of 2.73 times (x) is low relative to peers. In FY 2011, the airport's debt service coverage decreased to 1.73x from 1.79x. The airport maintains a healthy level of $46.7 million in unrestricted cash, equivalent to 406 days cash on hand, as well as $76.6 million in restricted cash.
--Moderate Infrastructure Plan: The five-year capital improvement plan (CIP) is modest at $71.1 million and will be largely funded through airport improvement program (AIP) grants with no additional borrowing planned. The remainder is to be funded with passenger facility charge (PFC) monies, as well as minimal local proceeds.
WHAT COULD TRIGGER A RATING ACTION
--Shifts in the airport's traffic profile due to the elevated dependence on leisure-oriented traffic as well as competitive environment in the south Florida region.
--Material changes in the financial profile in terms of leverage, coverage, or liquidity.
SECURITY
Airport system revenue bonds are revenue obligations of the county payable from and secured by the county's irrevocable pledge of all net revenues available for debt service and all funds and accounts established by the bond resolution.
CREDIT UPDATE
The airport benefits from an affluent service area with strong economic fundamentals. Palm Beach County is currently rated 'AAA' on its general obligation debt but has faced heightened economic challenges during the current recession. While traffic activity has been impacted, PBIA is expected to maintain a base of enplanement activity at the airport that is consistent with the current rating level. Traffic trends at the airport were pressured during fiscal 2009 and 2010. Enplanements were negatively impacted by poor national and regional economies characterized by high unemployment, increased competition with nearby competing airports, and sizeable reductions in air carrier frequencies and markets served at the airport, despite the mild backfill of incumbent carriers. FY 2011 remained relatively flat only recovering by 0.2%. Passenger traffic for the first quarter of FY 2012 is down 3.4%. For FY 2012, the airport forecasts enplanements to remain flat at FY 2011 levels.
In addition, Fitch views the airport's carrier diversity and reduced reliance on service provided by Delta as favorable credit attributes. PBIA enjoys a well balanced presence of legacy carriers and low cost carriers. Delta Air Lines, which enplaned 23.5% during FY 2011 (down from 33% in FY 2005) narrowly remains the dominant carrier at PBI. Other carriers with a significant presence at the airport include jetBlue with 21.8% of total market share, followed by Southwest with 18.2%, US Airways with 13.9%, and Continental with 13.6%.
The airport's cost structure has remained largely stable considering the lack of enplanement recovery since FY 2007. CPE for FY 2011 was $8.19, slightly higher than management's earlier projection of $8.05. For FY 2012, CPE is expected to decline modestly to $7.69 and potentially lower starting with FY 2015 when annual debt service payments on existing debt becomes 60% lower than current payment levels.
Despite the recent traffic performance trends and softening of passenger-related revenues, the airport's finances remain solid and are supported by a healthy balance sheet with a low debt burden coupled with a strong liquidity position. In FY 2011, the airport maintained 406 days cash on hand, equal to approximately 39% of debt outstanding, and a low debt per enplanement ratio of approximately $41. The airport's sound balance sheet and low leverage should help to mitigate a slow traffic recovery and provide a degree of financial flexibility appropriate for the rating category. Additionally, airport management has taken measures to counterbalance traffic losses in order to operate within a more constrained financial profile. Operating expenses decreased by 4.7% in FY 2011 following a cut of 3.4% in FY 2010.
Debt service coverage has fluctuated mildly through the economic downturn, primarily driven by large declines in non-airline revenue streams. In FY 2011, the airport's debt service coverage was a comfortable 1.73x, well above the department's rate covenant of 1.25x. The airport also maintains the ability to apply PFCs, PFC interest income, and environmental operating fees collected annually towards debt service coverage calculations, which would result in appreciably higher levels of coverage compared to the indenture reported calculation. Debt service coverage for FY 2012 through FY 2014 is expected to decline, but remain well above the 1.50x level. In FY 2015 coverage should improve dramatically due to the decline in debt service. In addition, the airport's healthy unrestricted liquidity balances and lack of near-term debt financing helps to mitigates the forecasted decline in coverage through FY 2014.
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', dated Aug. 16, 2011;
--'Rating Criteria for Airports' dated Nov. 28, 2011.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/report...
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/report...
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