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Fitch Rates Miami-Dade County, Florida $600MM Aviation Revs 'A'; Outlook Stable

Posted on: Thursday, 25 October 2007, 18:00 CDT

Fitch Ratings has assigned an 'A' rating to Miami-Dade County, Florida's (the county) up to $600 million aviation revenue refunding bonds, comprised of series 2007C (subject to the federal alternative minimum tax [AMT]) and series 2007D (non-AMT), scheduled for negotiated sale on or about Nov. 8, 2007 through a syndicate led by Morgan Stanley. The final amount will be determined based on market conditions at the time of sale.

The bonds are secured by net revenues of the county's Port Authority Properties (PAP), the main asset of which is Miami International Airport (the airport). Proceeds will refinance outstanding airport revenue bonds. The airport plans to insure the bonds with a monoline bond insurance company whose insurer financial strength is rated 'AAA' by Fitch. Fitch has also affirmed the unenhanced 'A' rating on the county's approximately $4 billion of outstanding aviation revenue bonds. The Rating Outlook is Stable.

The 'A' rating is based upon the airport's role as the nation's leading international gateway to the Caribbean and Latin America; significant cargo operations that offset costs normally borne by passenger carriers alone; strong demand for air service from the local market; a diverse mix of domestic and international passenger and cargo airlines; and enhanced management oversight of the capital improvement program (CIP).

Credit concerns center on the size and complexity of the airport's $6.2 billion CIP and resultant use of leverage and high cost structure; American Airlines' dominant share of the market, which leaves the airport vulnerable to the carrier's future routing decisions; significant competition within the south Florida market for domestic passengers; and the airport's reliance on international travel for a considerable proportion of total passenger traffic.

The Stable Rating Outlook reflects the airport's recent actions to enhance oversight of the CIP, complete design of the North Terminal development program, conduct independent cost estimate reviews, and realign the construction of the North Terminal, and begin opening the South Terminal in stages, all of which combine to provide more certainty to the cost of the CIP. While the South Terminal is essentially complete, with all carriers moving to the facility scheduled to be relocated by the end of December, and approximately 90% of the North Terminal program completed, under construction, or bid, Fitch recognizes that some risk of additional cost increases in the capital program remains due to the tight labor market in South Florida and the world wide demand for construction related commodities, as well as potential scope changes and the region's susceptibility to tropical storms.

The airport served 16.6 million enplaned passengers in fiscal 2007, reflecting a 3.7% gain over fiscal 2006 and surpassing the 16.5 million enplanements the airport served in fiscal 2001. The fiscal 2007 gains were driven by actions by American, which increased capacity at the airport by 6.7%, based on published schedules, in October 2007 compared to October 2006 and has announced further service additions over the next year.

The airport is served by a diverse mix of airlines, including 16 scheduled domestic passenger carriers, 31 foreign flag airlines, and 23 all-cargo carriers. However, American and regional affiliate, American Eagle, accounted for approximately 68.3% of the airport's total enplanements for the nine month period ended June 2007, up from 54% in 2001. This heightened level of concentration represents a credit concern, as the airport's financial performance becomes increasingly influenced by the operational decisions of a single carrier. This concern is somewhat mitigated by the number of carriers serving the airport, many of whom Fitch believes would act quickly to capture market share in response to any decline by American.

Financial performance has been stable as the airport passenger base recovered starting in 2003. Aviation fees led the growth in revenues, averaging 8% on average per year from 2003 to 2006 as the airport raised airline rates and charges to match increasing debt service payments. Airport management has also been quite successful in containing operating expense growth to 1% on average annually during that same period. Debt service coverage provided by net revenues was approximately 1.56 times (x) in fiscal 2006, compared to 1.44x in fiscal 2003. The airport's unaudited 2007 financials indicate favorable performance relative to budget, with debt service coverage at 1.46x and the airport holding approximately 225 days cash on hand.

The airport's $6.2 billion CIP is designed to meet the airport's needs through 2015. The airport plans to finance the program through a mix of sources including federal grants, state grants, passenger facility charge (PFC) receipts, and approximately $2.6 billion in additional general airport revenue bonds. Based on the scope of the capital plan and forecasted enplanements, the most recent airport consultant's report projects that the airport's cost per enplaned passenger (CPE) will rise to $35.51 in fiscal 2015 up considerably from $16.15 in fiscal 2007.

While the airport's forecasted CPE is above that of comparable domestic airports and remains an ongoing credit concern, a portion of the airport's costs represent higher capital expenditures for international gates, which are offset by higher yields attained by the airlines for international travel. Additionally, Fitch recognizes the conservative traffic growth assumptions which underpin this forecast.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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