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Fitch Rates Ontario International's (Dept. Of Airports Los Angeles, California) $90MM Revs 'A'

Posted on: Thursday, 5 October 2006, 15:00 CDT

Fitch assigns an 'A' rating to $89,950,000 Department of Airports of the City of Los Angeles, California, Ontario International Airport (ONT or Airport), consisting of $82,950,000 Series 2006A (AMT) and $7,000,000 Series 2006B (Taxable), Revenue Refunding Bonds. The Rating Outlook is Stable. The bonds are scheduled for a negotiated sale via a syndicate led by De La Rosa & Co on or about Oct. 17, 2006. The bonds are secured by a pledge on the airport's net revenues and are expected to be insured by a bond insurer whose financial strength is rated 'AAA' by Fitch Ratings.

The 'A' rating reflects the high origination and destination (O&D) passenger base, (comprising nearly 93% of the airport's market); significant cargo activity that balances airport operations and finances; healthy liquidity levels; and a well developed and diverse service area and economy. ONT operates as part of a larger system, owned and operated by the Los Angeles World Airports (LAWA), and thus benefits from experienced management and diverse revenues that can be transferred interagency. Offsetting credit strengths include the moderately high cost structure at the airport; market share concentration in passenger and air cargo service; underutilization of existing facilities; and the lack of substantial enplanement growth in a very competitive air passenger service area. Further offsetting ONT's credit strength is management's historical focus on Los Angeles International Airport (LAX), now mitigated by growing capacity constraints that require a more regionalized approach to meeting air service needs in southern California.

The high O&D passenger base reflects the strong demand for air passenger service in the region as enplanement levels reached a high of 7.03 million in fiscal 2005. Complementing passenger service, ONT ranked 15th nationally in cargo activity by Airports Council International-North America (ACI-NA) that same year. Air cargo operations at ONT increase utilization of the airfield and spread airfield costs over a larger user base that includes both passenger and cargo carriers. Stable operations historically led to healthy cash balances peaking at $58.8 million in fiscal 2005, representing 307 days cash on hand. The residual nature of the airport's use and lease agreement historically provided debt service coverage well in excess of the rate covenant of 1.25 times (x), resulting in 1.71x coverage in fiscal 2005. Preliminary estimates show debt coverage continuing to grow in fiscal 2006. ONT is located in the Riverside-San Bernardino- Metropolitan Statistical Area (MSA) that reached a high of 3.8 million residents in 2005, with 36.4% of households earning above $50,000.

Offsetting credit positives include a relatively high cost structure that resulted in a cost per enplanement (CPE) of $9.91 in fiscal 2005, slightly above Fitch's median for 'A' category, medium- hub, and residual airports. Some market share concentration exists as Southwest Airlines represents 48% of enplanements in fiscal 2006, though mitigated by the financial strength of the airline. (Southwest Airlines Co. (NYSE:LUV), Long-Term Issuer Default Rating 'A', Stable Outlook by Fitch). Despite ONT's ability to generate sufficient revenues that provide adequate debt service coverage, a rate covenant violation occurred in fiscal 2004. Fitch believes newly established management and accounting procedures and practices will help to ensure compliance with all legal covenants.

Bond proceeds will be used to refund all the outstanding Ontario International Airport Revenue Bonds, Series 1996A (AMT) and Series 1996B (Taxable). The final maturity remains 2026.

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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