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Fitch Rates Wayne County Airport Authority, Michigan's $74.8MM Revs 'A'; Outlook to Negative

Posted on: Monday, 29 September 2008, 14:41 CDT

Fitch Ratings has assigned an 'A' underlying long-term rating to Wayne County Airport Authority, Michigan's (the authority) approximately $74.8 million airport revenue refunding bonds senior lien, series 2008E-F. In addition, Fitch has affirmed the following ratings for the authority:

--$2.0 billion outstanding senior lien revenue bonds 'A';

--$180.4 million outstanding junior lien bonds 'A-'.

Fitch has also revised the authority's Rating Outlook to Negative from Stable. Fitch also expects to assign a short-term rating based on letters of credit from JPMorgan Chase Bank, N.A. The 2008E-F bonds will consist of the following:

--$37.465 million subseries 2008E (AMT);

--$37.33 million subseries 2008F (AMT).

The bonds will be sold via negotiation subject to market conditions. However, this is subject to market change and recent movements in interest rates could impact the authority's borrowing costs. Proceeds from the issuance will refund all of the authority's outstanding series 1996A and 1996B variable-rate demand debt. All bonds are secured by a pledge of the net revenues derived from the operations of the authority, whose largest asset is Detroit Metropolitan Wayne County Airport (Metro).

The Outlook revision to Negative reflects the continued economic deterioration of the Detroit regional economy and the potential decline in enplanements and non-airline revenues in the near- to medium- term as a result of this pressure. The regional economy has weakened considerably in the past several years, with the Detroit area and the state in general having suffered, exemplified by an unemployment rate of 9.4% compared to the nation at 6% in July 2008. In addition to persistently high unemployment rates, the regional tax base is expected to experience double digit contraction in 2008 which illustrates the significant economic pressures in the air trade area. The revision in outlook also reflects the expected enplanement decreases of at least 7.0% as a result of capacity reductions announced by Northwest for fourth-quarter 2008, and those from other carriers.

In addition, there is uncertainty in the medium-term with respect to the pending merger of Northwest and Delta Air Lines, which are awaiting final approval from the U.S. Department of Justice. While the two airlines compete directly on only 12 of approximately 1,000 city pair routes flown by both carriers, past airline mergers have indicated enplanement reductions, following a period of transition, that have resulted in double digit declines. Fitch does recognize the airport's adequate infrastructure having just completed a new terminal development project and management's efforts to impose a workforce reduction by approximately 15% over the next 2.5 to 3 years as well as streamlining its police and maintenance expenses to deal with these pressures.

The senior and subordinate lien ratings reflect the airport's central geographic position, substantial airfield and terminal processing capability that position it well as a large hub, its minimal airport competition within the metropolitan area, and a solid source of non-airline revenue. In addition, the completion and opening of the North Terminal on September 17, 2008 positions the airport with modern facilities and adequate airfield and terminal capacity for the next 15 to 20 years. Remaining projects are expected to be partially funded through federal grants and the issuance of some additional debt.

Credit concerns center on the weakness of the regional economy, the heavy concentration of Northwest Airlines (Northwest), which operates one of its three domestic connecting hubs at Metro, and is expected to account for approximately 77% of total enplanements at the airport for fiscal 2008. The airport's historical enplanement fluctuation is also a concern.

Enplanements for fiscal 2008 (ends Sept. 30) are up 1.8% over 2007. However, this does not reflect reductions announced for the fourth quarter of calendar 2008 which could result in a reduction of at least 7.0% for fiscal 2009.

Financial margins and metrics remain low but steady. The airport's net operating revenues are expected to provide 1.53 times (x) coverage of senior lien bonds in fiscal 2008, down slightly from fiscal 2007 of 1.57x coverage, and 1.24x combined coverage for senior and junior lien bonds in fiscal 2008. Coverage of senior lien bonds is projected to decline to a low of 1.34x in fiscal 2009 and rise only slightly to 1.37x through the forecast period. A portion of this reduction is due to the prepayment of some subordinate lien bonds with federal funds. The cost per enplaned passenger (CPE) is expected to be $7.95 in 2009 and reach $9.79 in fiscal 2013, 19% higher than recently forecasted in April 2008. Fitch recognizes that part of the increase was expected given the completion of the North Terminal project.

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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