Fitch Upgrades Hartsfield-Jackson Airport's (GA) Car Rental Facility Bonds
to 'A-'; Outlook Stable
CHICAGO -- January 22, 2013
Fitch Ratings has upgraded the rating on College Park, Georgia's approximately
$198.7 million of outstanding series 2006A and 2006B revenue bonds to 'A-'
from 'BBB+'. 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.
The upgrade reflects the increased financial flexibility and favorable trends
in debt service coverage and liquidity. The recent customer facility charge
(CFC) rate increases coupled with robust growth in transaction days produced
higher than anticipated, robust debt service coverage ratios and growing
reserve balances. Debt service coverage levels are forecast to remain in the
1.8 times (x) to 1.9x range even in a little- to no-growth scenario.
Underpinning the improved coverage is the continued enplanement growth, from
43.3 million enplaned passengers to 47.1 million from 2008 to 2012, or 2.1%
CAGR, experienced at the airport. Additionally, no further CFC rate increases
are projected to be needed to maintain or grow current coverage levels given
the flat debt service profile.
KEY RATING DRIVERS
--Strong Rental Car Market with Some Volatility: A sizable underlying local
market supports a high level of rental car transactions with 15.4 million
origination/destination (O&D) enplanements and 6.1 million rental car
transactions in fiscal year (FY) 2012. Rentals have proven more volatile than
enplanements in recent years;, however, total transaction days has returned to
pre-recession levels. Airport traffic at Atlanta is highly dependent on Delta
Air Lines' service (78% of total enplanements), and thus rental car demand
would be exposed to the carrier's operating decisions.
--Adequate Rate Setting Flexibility: Implementation of the rental car 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
not increased since July 2010 nor is it expected to increase throughout the
five-year forecast period.
--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, renewal
& replacement reserve, and surplus fund.
--Elevated Leverage but Healthy Coverage on Senior Bonds: The project's
overall leverage, including the revenue bonds as well as a $72 million
internal subordinated loan with the airport, equates to approximately 7.1x net
debt to cash flow available for debt service (CFADS). However, senior lien
leverage is more moderate at 4.9x and FY 2012 senior debt service coverage is
1.8x from operating cash flows. The strong debt service coverage ratios allow
for sufficient serving of the subordinate loan and project operating costs.
--Modern Infrastructure: The completion of the project negates construction
risk with minimal capital expenditures projected 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
WHAT COULD TRIGGER A RATING ACTION
-- Material changes in rental car demand or its volatility in the underlying
O&D traffic base;
-- Meaningful modifications to Delta's operating profile, which accounts for
78% of the airport's enplanement base;
-- Higher-than-expected cost increases or unexpected additional borrowings
that pressure the CFC rate in order to recover all project costs.
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.
Atlanta's Hartsfield-Jackson currently ranks as the world's busiest airport in
number of total passengers, with over 47.1 million enplanements, including a
strong O&D traffic base of 15.4 million enplanements in FY 2012. 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. Reflecting 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,
SunTrust Banks, and Coca-Cola.
The recent recession led to modest single-digit, non-connecting related
enplanement declines but also resulted in a more sizable 15% total reduction
in rental car activity during the 2008-2010 period. However, as traffic
stabilized over the past three years, rental car activity rebounded quite
strongly to pre-recession levels, up 6.6% in FY 2012 following 9.6% growth in
FY 2011. Fitch projects growth to continue, albeit at a more moderate 1%-2%
through the forecast period given the continued enplanement growth experienced
at the airport.
The CFC rate was initially set at $4.00 in 2005 and has been revised twice
over the last four years to the current rate of $5.00 per day. CFC revenues of
$30 million for FY 2012 provided sound coverage of 1.80x on the outstanding
senior debt, excluding the coverage fund. In recent years, the coverage levels
have been largely stable and improving. When including the project coverage
fund, equal to 25% of annual debt service, the coverage level from all pledged
revenues was 2.06x. Elevated coverage levels are important for rating
maintenance given the need to apply excess cash flow after payment of the
project debt to cover $8 million-$10 million of project-related operating
expenses as well as principal and interest payments for the $72 million
internally-funded project completion loan. The subordinate loan is assumed to
be interest-only until 2016 with amortization beginning in 2017. To the extent
the amortization schedule changes dramatically, or should additional bonding
be used to pay off the loan, the credit quality may be weakened and negative
rating action could result.
Currently, project reserves are quite strong at over $48 million, including
the CFC surplus fund with $20 million. Further, no additional CFC rate
increases are assumed to support cash flow requirements given the flat debt
service profile. Fitch's base case, which assumes annual growth in rental car
transaction days of 1%-2%, projects debt service coverage levels to remain at
or above 1.80x from cash flow alone throughout a five-year forecast period.
Fitch's rating case, which assumes a double-dip recession where rental car
transaction days fall 10% in FY 2013 followed by annual recovery of 2%,
projects debt service coverage levels to not drop below 1.64x from cash flow
alone throughout a five-year forecast period.
The car rental facility project was completed in late 2009 and has over three
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' (July 11, 2012);
--'Rating Criteria for Airports' (Nov. 28, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
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