CHICAGO--()--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 outstanding bonds.
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