NEW YORK, October 16 (Fitch) Fitch Ratings has assigned an
'A' rating to the Metropolitan Airport Commission's (MAC)
subordinate airport revenue and revenue refunding bonds series
2012A-B expected to be issued in the amount of $82.8 million.
The proceeds from the proposed series 2012A subordinate
airport revenue bonds will be used to finance the expansion of
the rental car facilities located in the T2 Humphrey Terminal
parking ramp and vicinity.
The proceeds from the proposed series 2012B subordinate
airport revenue and refunding bonds will be used refund all or a
portion of the subordinate series 2003A bonds with an expected
net present value (NPV) savings of approximately $4.4 million.
Fitch has also affirmed the 'AA-' rating on MAC's $746.2
million outstanding senior revenue bonds and the 'A' rating on
$723 million of outstanding parity subordinate revenue bonds.
The Rating Outlook on all bonds is Stable.
KEY RATING DRIVERS:
--Strong O&D Base With High Dependence on Dominant Carrier:
The Minneapolis-St. Paul metropolitan statistical area (MSA) is
a well-established commercial center for the upper Midwest with
no competing airport facility in the vicinity. Considerable
demand for air service generated from a broad-based local
economy with an origination and destination (O&D) base of 8.3
million enplaned passengers. Delta maintains a dominant market
share representing 77.8% of enplanements with connecting traffic
representing approximately 47.3% of total traffic which leaves
Minneapolis St-Paul International Airport (MSP) susceptible to
realignment of hubbing service. Enplanements have increased
modestly after several years of declines. Revenue Risk-Volume:
--Hybrid Use and Lease Agreement Resulting With Competitive
CPE: Carriers operate under a hybrid operating agreement with a
compensatory methodology for Terminal 1 Lindbergh terminal costs
and residual for the airfield. Airline charges for Terminal 2
(Humphrey Terminal) are set under an ordinance. The airport's
cost per enplaned passenger (CPE) was a competitive $6.34 in
2011 and is expected to remain competitive despite an expected
increase to approximately $6.60 in 2012 as debt service ramps
up. Revenue Risk-Price: Stronger.
--Moderate to High Leverage Profile: Comparable to other
airports of its size, MSP has a fair amount of leverage with
$1.48 billion of debt outstanding (including $9.2 million of
general obligation bonds). All of MAC's debt is fully amortizing
and fixed rate. Debt Structure: Stronger.
--Stable Performance But Higher Leverage: MSP has maintained
strong and stable financial performance despite recent traffic
declines. The airport maintains a diverse revenue stream
consisting of aero-nautical, parking, concession, PFC, and other
non-airline revenues. MSP's healthy balance sheet helps to
manage the financial metrics given the size of its operations
including net debt/CFADS of 6.7 times (x); Debt per O&D
enplanement of $171; and days cash on hand (DCOH) of 626 days.
Debt Service Counterparty Risk: Midrange.
--Modest Capital Needs with No Future Borrowing Expected:
Having recently completed an approximately $2.9 billion capital
program, the airport's future capital plans are modest, focused
on airfield and routine terminal work as well as noise
mitigation. The capital program will be funded from a
combination of PFCs, proceeds from previous and current bond
issuance, a short-term bank loan, grants, and available cash. No
new money long-term borrowing is currently anticipated.
Infrastructure Development Renewal: Stronger.
WHAT COULD TRIGGER A RATING ACTION:
--Significant adverse changes in airport's current traffic
base, particularly hub operations, and ongoing commitment from
its leading carrier.
--Deterioration of financial metrics as result of as result
of inability to manage cost structure.
SECURITY: The bonds are secured by a net pledge of general
CREDIT UPDATE: Passenger demand at the airport is sizable at
15.9 million enplanements with approximately 47.3% of traffic
derived from connecting passengers. Enplanements rebounded
slightly in fiscal 2011 up 2.7% following four consecutive years
of enplanement declines. Passenger enplanements are projected to
be down slightly at 0.3% for 2012. Overall, traffic still
remains approximately 12% below its peak 2005 level. Key
influences to these trends include the prior bankruptcy filing
of Northwest, the general downturn in domestic air traffic
demand, and reductions in capacity serving both O&D and
connecting traffic. Delta (Issuer Default Rating 'B+', Outlook
Stable) is the airport's largest carrier, as it and its
affiliates accounted for 77.8% of total enplanements in 2011.
Under the terms of its lease agreement, which runs through 2020,
Delta covenants that it and its regional affiliate airlines will
maintain an annual average of 360 daily departing flights from
the airport (no less than 250 of such flights will be aircraft
with more than 70 seats). Delta is meeting the terms of the
covenant by averaging over 390 daily flights every month of 2012
to date. Delta prepaid leases tied to the series 15 general
obligation (GO) bonds, which led to the refunding of the $214
million series 15 GO bonds in early 2012. In conjunction with
the prepayment, Delta has subsequently consolidated training and
support functions from the Minneapolis area to Atlanta as part
of its strategic business plan.
The other carriers serving at MSP include American Airlines,
Southwest, Sun Country Airlines, US Airways, and United
Airlines, none of which represented more than 5% of enplaned
passengers in 2011. Despite the tepid traffic performance, the
airport maintained its sound financial position in 2011 with net
revenues providing 2.24x coverage of senior lien debt service
(D/S), and 1.54x coverage of subordinate lien debt service,
prior to transfers. When PFC's are treated as revenue instead of
an offset to D/S total coverage was 1.37x in 2011. These
coverage levels are largely unchanged from performance figures
in the four previous years. Revenue sources are diverse with
aeronautical revenues contributing only 40% of total airport
revenues. However, with Delta alone contributing to nearly 80%
of airline revenues, counterparty risk is high. The airport's
CPE remains favorable compared to similar sized connecting hub
facilities at $6.34 in fiscal 2011 and is expected to rise to
$6.60 in fiscal 2012 as debt service increases.
Comparatively, other large hub airports across the Midwest
will be facing rising CPE levels as costs associated with
capital programs are phased into their airline charges. The
airport's future capital needs are modest, having already
completed a $2.9 billion capital program in 2010, the principal
component of which was the construction of a new runway. Through
2018, the airport's capital program will total $708 million.
Most of the projects relate to airfield and runway
rehabilitation, noise mitigation, and routine terminal
The airport expects to fund its capital program with a
combination of proceeds from previous and current bond issuance,
PFCs, federal and State grants, short-term bank loan as well as
other available revenues of the Commission with no future
long-term borrowing currently anticipated.