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-- Transportation Infrastructure Properties LLC (TrIPs) owns 38 air cargo facilities located at or near 26 airports in the U.S. TrIPs is issuing senior bonds to refund project-level debt, consolidating the debt in the TrIPs structure.
-- We are assigning our 'BBB-' rating to the debt.
-- We base the stable outlook on our expectation of high and stable occupancy levels.
On Sept. 12, 2012, Standard & Poor's Ratings Services assigned its 'BBB-' rating to the New York City Industrial Development Agency's $126.875 million series 2012A senior bonds and Public Finance Authority's $189.4 million series 2012B senior bonds, $27.676 million series 2012C seniors bonds, $15.8 million series 2012E senior bonds and $6.1 million series 2012G senior bonds. The agencies issued the bonds on behalf of Transportation Infrastructure Properties LLC (TrIPs). The outlook is stable.
The rating on TrIPs' $365.851 million senior bonds due 2042 is 'BBB-'. The project owns 38 air cargo facilities at 26 airports in the U.S. All facilities are operational. Bonds get supportfrom the net revenue generated under short-term tenant leases. The New York City Industrial Development Agency and Public Finance Authority issued the bonds on behalf of TrIPs.
The project rating reflects our view of the following strengths:
-- Established competitive position--TrIPS generates more than 60% of the project revenue from air cargo facilities located at gateway airports, which are major entry and exit points into the U.S. for international air cargo. Although air cargo volumes are strongly correlated to economic growth, these gateway airports had less of a drop in air cargo volumes during the recession relative to other U.S. airports and have a more established demand profile.
-- Barriers to new entrants are significant because the majority of TrIP's facilities are located on airport property within the security perimeter and offer direct on- and off-loading of cargo, as well as aircraft parking. There are few directly competing facilities and most of TrIPs' facilities are located on space-constrained airports, limiting the potential for future direct competitors.
-- Aeroterm, as the property manager, is an experienced operator with established relationships with major tenants and airports; and
-- The cash flow generated by the portfolio is resilient, with senior debt service coverage (DSC) under our base case averaging 1.76x with a minimum of 1.71x.
TrIPs has the following weaknesses, in our view:
-- The tenant leases are generally three- to five-year contracts, and face renewal risk. The lease renewals expose the project to market price and volume risk during the 30-year life of the debt.
-- The portfolio is concentrated, with properties at five gateway airports, generating about 65% of the project cash flow and five tenants account for about 56% of total rents.
-- The air cargo business is highly cyclical, sensitive to economic trends, and highly correlated to changes in GDP. Other factors that influence air cargo are exchange rate movements, levels of consumer spending in major economies, and oil trends, which boost or constrain imports.
-- The long-dated debt profile, maturing in 30 years, exposes bondholders to changes in the air cargo business in the long term, as TrIPs competes with other forms of transportation, including truck, ship, and rail.
The project has sound liquidity. Bondholders benefit from a debt service reserve fund funded at closing with bond proceeds equal to one-half of maximum annual debt service. Also, the project retains additional liquidity in that it must fund the rolling forward debt service and operating requirements for the next six months before distributing excess cash flow.
The maintenance reserve will be funded monthly initially, in an amount equal to one-12th of 13 cents multiplied by the aggregate number of square feet of building space included in the TrIPs facilities. Thereafter, the funding will be adjusted based on an independent real estate consultant report determining annual maintenance reserve funding requirements for the next five years.
The outlook reflects our anticipation that the portfolio will stabilize in 2017 at higher occupancy levels, which we assume will be 92% on average, as a function of gradual economic growth that will also increase rental rates in line with the Consumer Price Index. We could lower the rating if changes to project cash flow caused by a combination of lower occupancy or rental rates, higher operating costs, or removal of high-quality assets from the portfolio result in a senior DSC of less than 1.4x. An upgrade is unlikely without an improvement in the parent's credit quality.
Related Criteria And Research
Updated Project Finance Summary Debt Rating Criteria, Sept. 18, 2007
Transportation Infrastructure Properties LLC
$126.875 mil sr bnds ser 2012A BBB-/Stable
$189.4 mil sr bnds ser 2012B BBB-/Stable
$27.676 sr bnds ser 2012C BBB-/Stable
$15.8 mil sr bnds ser 2012E BBB-/Stable
$6.1 mil sr bnds ser 2012G BBB-/Stable