Correction – Fitch Rates New Orleans Aviation Bd (LA) $88MM Bonds Series 2007
(This is a correction to the release that went out on Oct. 18, 2007. It corrects the total amount of the notes.)
Fitch Ratings assigns an ‘A-’ rating on approximately $88,000,000 New Orleans Aviation Board (the board) revenue refunding bonds (Passenger Facility Charge Projects) series 2007. The issue consists of $62,000,000 of revenue bonds 2007A, 4,500,000 revenue refunding bonds series 2007 B-1, and 21,400,000 series 2007B-2. The bonds are secured by passenger facility charge (PFC) revenues collected at Louis Armstrong New Orleans International Airport (the airport). The Rating Outlook is Stable. Expectations are that the bonds will be sold on Nov. 1st through a negotiation via a syndicate lead by JP Morgan Chase. Fitch also affirms the ‘A-’rating on outstanding PFC bonds, series 1999 A-1 and 1999A-2.
The ‘A-’ rating reflects the sound coverage of annual debt service provided by current PFC revenue, the maintenance of a high level of liquidity in the airport’s PFC program, the lack of significant competing facilities within the air service area, and the airport’s limited need for future debt. Principal credit concerns include the narrow revenue stream supporting the PFC bonds, the direct reliance on enplanement activity, the slow rebound of the region’s tourism-based industry post Hurricane Katrina, and the region’s exposure to additional tropical storms in the future. The revision in the Outlook is based on the continued recovery of passenger activity and air service, which is now at levels sufficient to support planned PFC related debt service.
The region’s significantly reduced population and economy in the aftermath of Katrina resulted in a dramatic decline in enplanements, with passenger volume decreasing by 20% in fiscal years 2006 and 2005. Prior to the hurricane, the airport had experienced a 2.5% average annual growth between fiscal years 2002 and 2004. Data for fiscal 2007 show significant service gains, with enplanements expected to grow 25% for the year. This would place the airport at 80% of its pre-Katrina activity level. Management forecasts that enplanements will increase 8% on average annually through 2009, and then from 2010 through 2017 by 2.5% on average annually.
The airport has retained a diverse mix of airlines despite the decline in enplanements. Southwest Airlines (Southwest; rated ‘A’ by Fitch) has historically been the largest carrier in the market, and accounted for 24% of total enplanements in fiscal 2006. Other carriers with a significant presence at the airport include Continental Airlines and American Airlines, each accounting for 17% of enplanements. Southwest has slowly restored service to the airport, and with its recent announcement to add eight daily flights in early November will be at approximately 65% of the level of service it offered in 2004.
The airport’s modest use of leverage in its PFC program until now enabled it to maintain high debt service coverage over the past two fiscal years, with coverage equaling 5.72 times (x) and 4.69x, respectively, in fiscal years 2005 and 2006. Additionally, the airport held approximately $30 million in unspent PFC resources, adding further cushion for debt service payments. After this issue, the airport’s forecast coverage will exceed 2x.
The airport’s current capital improvement plan program totals $210 million, and includes the potential extension of Concourse D in fiscal 2010, when the airport’s terminal is expected to reach its estimated capacity of 5 million enplanements. The plan of finance for the program includes $54.1 million of federal grants, $9.4 million in other funds, $121.7 million of PFCs on a pay-as-you-go basis, and $25 million in additional PFC bonds. The airport consultant’s forecast indicates that PFC revenue should provide at least 2.05x coverage through 2017. A stress scenario projecting no enplanement growth but including the issuance of $25 million in additional debt for the Concourse D extension indicates coverage remains above 1.8x. However, Fitch recognizes that the Concourse D expansion is demand-driven, and the airport intends to only undertake the expansion if it exceeds a certain number of enplanements. Fitch expects airport management to maintain a moderately leveraged PFC program in the near- to medium-term, with the majority of capital planning funded by PFC pay-go, which maintains liquidity in the program, and federal grants. However, Fitch will review the rating should the airport increase leverage appreciably above the level presently contemplated.
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