Fitch Ratings has assigned a 'BBB' rating to the City of Fresno (Fresno), CA's approximately $33.1 million series 2013A-B airport system revenue refunding bonds issued on behalf of Fresno Yosemite International Airport (FYI). Fitch has also affirmed approximately $56.5 million of outstanding airport revenue bonds at 'BBB'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--Small, Economically Vulnerable, O&D Base: FYI serves the captive origination and destination (O&D) passenger market of central California's San Joaquin Valley, a large, predominantly agricultural and generally low income, high unemployment region centered on Fresno. FYI's enplanement base is small, being 645,632 in fiscal year (FY) 2012, leaving it vulnerable to airline decisions to cut services.
Revenue Risk - Volume: Weaker
--Revenues Dependent on Passenger Volume: While the air carriers account for only 25% of operating revenues, FYI is highly reliant on passenger volume to generate revenues. Fresno had a competitive cost per enplanement (CPE) of $7.39 in FY 2012 due to the high contribution of passenger facility charges (PFCs) and customer facility charges (CFCs), both passenger-driven non-airline revenues.
Revenue Risk - Price: Midrange
--Conservative Debt Structure: FYI's debt is 100% fixed rate with a relatively flat and fully amortizing debt service profile. Debt service payments on the 2007 bonds are funded by CFC revenues while the 2000 bonds are supported with $1.1 million of PFC revenues annually. The 2013 bonds, refunding the 2000 bonds, will be eligible for up to $1.6 million of PFCs.
Debt Structure: Stronger
--Moderate Leverage and Improving Liquidity: Fresno's net debt-to-cash flow available for debt service (CFADS) of 7.2x is slightly elevated relative to peers. In FY 2012, the airport's indenture based debt service coverage ratio (DSCR) decreased to 1.62x from 1.76x the previous year. FYI does not maintain an adequate level of unrestricted cash with only 207 days cash on hand, but has increased its liquidity over the recent years and is projected to improve further in the near term.
Debt Service and Counterparty Risk: Midrange
--Modest Infrastructure Needs: Fresno made terminal and concourse improvements in 2000 and built a consolidated rental car facility (CONRAC) in 2008. The five-year capital improvement plan (CIP) is modest at $65.4 million and will be predominantly funded with airport improvement program (AIP) grants with no additional borrowing planned.
Infrastructure Renewal and Development: Stronger
--Favorable enplanement trends supported by expanded seating capacity combined with an improvement in liquidity and consequential reduction in leverage could lead to upward rating pressure;
--Volatility in enplanements could lead to reduced operating revenues and put strain on the airport's low liquidity base, leading to downward rating action.
The bonds are secured by a pledge of net revenues from the airport, with eligible portions of outstanding debt receiving additional support from PFC and CFC revenues.
Proceeds of the series 2013A-B refunding bonds will be used to refund approximately $34.5 million of series 2000A-B bonds. Net present value savings from the refunding are estimated at $3.7 million or 10.5% of refunded bonds.
Fresno served a 100% O&D enplanement base of 645,632 passengers in FY 2012, up 6.6% over FY 2011 as a result of AeroMexico's and Volaris' replacement of bankrupt Mexicana. FY 2013 enplanements are up 6.2% through 11 months, and management forecasts a further increase in FY 2014 driven by the use of larger aircraft on FYI routes. While enplanements are improving, the relatively small base leaves FYI relatively susceptible to carriers' scheduling decisions and passenger volatility.
The airport has diversified its revenue stream with non-airline revenues currently accounting for approximately 75% of operating revenues. Despite the diversification, FYI remains vulnerable to fluctuations in enplanement volumes. Rental income (at approximately 22% of operating revenues) is the largest contributor mainly as result of the fully operational CONRAC facility. Operating revenues increased 5.5% in FY 2012 while operating expenses increased 6.4% resulting in net income growth of nearly 3%.
Liquidity remains a concern, but increasing cash balances as a result of surplus PFCs and CFCs related to recent enplanement growth have helped increase FY 2012 days cash on hand to 207 from 142 in FY 2011. The airport's positive growth forecasts combined with minimal airport funds needed for the capital program have the airport well positioned to further improve its balance sheet position.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Rating Criteria for Infrastructure and Project Finance'(July 11, 2012);
--'Rating Criteria for Airports'(Nov. 27, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Airports
Rating Criteria for Infrastructure and Project Finance
- Security Upgrades & Downgrades
- Fitch Ratings
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