NEW YORK--(BUSINESS WIRE)--
Fitch Ratings assigns an 'A' rating to Miami-Dade County, Florida's approximately $795 million aviation revenue refunding bonds series 2013, issued on behalf of the Miami-Dade County Aviation Department (MDAD). Fitch also affirms the county's $5.82 billion parity aviation revenue bonds at 'A'. The Rating Outlook is Stable.
KEY RATING DRIVERS
LEADING INTERNATIONAL GATEWAY AIRPORT: MIA is a well-positioned, leading international gateway airport to serve the building Latin America market. Despite general recovery challenges in the aviation industry and the presence of competition from nearby Fort Lauderdale Airport, overall traffic activity remains robust with approximately 19.7 million enplanements. The passenger base is well balanced for both origination/destination (O&D) and connecting passengers as well as international and domestic operations. American Airlines maintains a sizable connecting hub at Miami serving nearly 70% of total passengers. American's anticipated merger with US Airways could lend to uncertainty over the carrier's future service decisions. However, the Miami market is well anchored and the airport has a solid franchise for significant traffic activity.
Revenue Risk - Volume: Midrange
RESIDUAL RATE SETTING: All of the airport's costs are adequate covered by the use agreement rate setting mechanisms. The current agreement extends until 2017. While airline costs have been relatively high, with the estimated cost per enplanement (CPE) of slightly below $20 for fiscal 2012, the most recently updated CPE forecasts are coming in measurably lower than previously estimated due to a combination of improving traffic and non-airline revenue trends as well as lower post-construction operating costs.
Revenue Risk - Price: Stronger
CONSERVATIVE DEBT STRUCTURE: All of the airport's debt are fixed rate obligations and amortize with mostly level debt service through final maturity in 2041.
Debt Structure Risk: Stronger
HIGH LEVERAGE AND MODEST COVERAGE: Very high airport debt levels (approx. $315 per enplanement and 13x net debt/CFADS) in conjunction past financings for a terminal driven $6.5 billion capital program. Leverage should slowly moderate over the next five years but still remain elevated at 11x-12x. Debt service coverage ratios (DSCR) on a historical basis are stable at close to 1.50x but are supported by fund balance transfers and debt service offsets from passenger facility charge deposits. Future DSCR levels should level off at around the 1.25x -1.30x range.
Debt Service Risk: Weaker
CAPITAL PROGRAM COMPLETION: Nearly all of the $6.5 billion capital program has been expended and the overall budget has remained intact over the past several years. MDAD expects future needs will be far smaller in scale and additional borrowings are not foreseen over the near term.
Infrastructure Development/Renewal Risk: Stronger
--Material losses or increased volatility in aviation activity considering the particular exposure to the operations of American Airlines and the Latin American economies;
--Operating costs that trend materially above current forecast parameters, leading to upward revisions to airline costs;
--Development of a new capital program that results in increased leverage metrics.
The bonds are secured by net revenues of the county's Port Authority Properties (PAP), the main asset of which is MIA.
The county intends to issue up to $795 million in parity aviation revenue and revenue refunding bonds for the purposes of generating debt service savings which will help support the airport's goal to advance fund grant-funded projects. The bonds are expected to be issued in fixed rate mode with a final maturity in 2036.
MIA's enplanement activity continues to demonstrate solid growth with a positive change of 5.3% in fiscal 2012 to 19.7 million enplanements. Fiscal 2013 year-to-date enplanements are largely flat and thus may result in a slight underperformance to the sponsor forecast growth of 2.1% for this period. Still, Fitch notes that the overall traffic resiliency reflects the relative strength of international traffic, particularly to Latin American markets that have close economic and cultural ties to the Miami metropolitan area. Expanded services from American are also a result of increased gate availability at the airport's North Terminal facility. The airport is served by a diverse mix of airlines, including nine scheduled domestic carriers, 37 scheduled foreign flag airlines, and 23 all cargo carriers. Miami's leading role for international operations is not only relevant for passenger operations but as well for air cargo. Miami currently ranks in the top two positions for U.S. airports in terms of nonstop international destinations and international air cargo tonnage.
Still, Fitch views future traffic stability to remain an ongoing risk consideration given the high concentration of traffic from American's operations. American and its affiliate American Eagle collectively represents 68% of MIA's total passenger traffic and support a key part of the airport's domestic and international traffic operations. American's market share of total passenger traffic has remained mostly stable over the past several years. Subsequent to the American bankruptcy filing in late 2011, system-wide service capacity at the carrier has remained positive with international service expansion to Latin American markets being most beneficial for the airport. Fitch does not expect the pending American merger with US Airways to have material changes to the operational activities at MIA as there is very little overlap in domestic or international routes. Miami should remain a primary hub with significant base of international aviation activity.
In addition to general economic conditions, both domestically as well as internationally across Latin American regions, MIA's base of service also faces ongoing competitive threats for its domestic O&D traffic from nearby Ft. Lauderdale Airport (FLL). FLL currently has a much lower cost profile and is served by a broader diverse mix of domestic legacy and low cost carriers. FLL is also undergoing a $2 billion expansion and redevelopment on both its airfield and terminal facilities, and could create a more challenging environment for MIA with regards to sustaining the traffic growth off its existing passenger traffic base.
Fitch notes that the airport's current $6.5 billion capital program is nearly complete and remains at about the budget estimates indicated over the past several years. Key projects tied to terminal redevelopment have been completed including the new in-line baggage system to service the newly rebuilt North Terminal (Concourse D). Previously, the airport had faced cost overruns for the baggage system project necessitating some use of the set-aside capital program contingencies. At this time Fitch views the capital program risk to be minimal to the credit profile.
Taking into consideration the airport system's residual rate-setting methodology, financial operations have been largely stable over the past several years with coverage of debt service holding in the 1.4 times (x) to 1.55x range, taking into account Improvement Fund transfers. Airline revenues account for about 50% of total revenues and have increased measurably in recent years to support the airport's growing cost base. However, non-airline commercial revenues have also risen in conjunction with the rising traffic levels. Otherwise, coverage is typically at or near the 1.2x-1.3x range net of the use of such reserves. Based on the enplanement forecast (1.7% compounded annual growth rate through 2018) and the financial structure of the airport, projected coverage from net revenues to remain in the range of 1.2x to 1.3x through 2018. MIA's approximately $5.8 billion in senior-lien debt translates to approximately $315 per enplanement based on the 2012 traffic base but no additional debt is planned over the next several years to complete the funding of the current capital program. Estimated net debt to CFADS for fiscal 2012 is high for large hub airports at 13x but will ultimately moderate to a still elevated 11x-12x level as airline costs are increased to meet the rising expenses even though annual debt service requirements are leveling. Airport unrestricted fund balances at about $260 million in FY2012, or 257 days cash on hand, have been largely stable but somewhat constrained given the residual airline agreements.
Airport CPE was $19.72 in fiscal 2012, an increase from $18.51 in fiscal 2011. These levels are generally high even for international gateway airports. However, the most recent CPE forecast report indicates materially lower growth trends as seen from previous projections. The combination of rising passenger levels, growing non-airline revenues, and containment in operating costs results in CPE rising to less than $22 by 2018. Earlier forecasts assumed CPE levels rising to $30 and higher over the same time period. Fitch notes the airport's forecasted CPE may become a barrier to bring in new carrier service for domestic based traffic but is partially mitigated by higher yields typically attained by the airlines for international travel.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Airports' (Nov. 28, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
- Airline Industry
- Security Upgrades & Downgrades
- Fitch Ratings
- American Airlines
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