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Fitch Rates Colorado Springs Muni Airport $11.8MM Revenue Refunding Bonds 'A-'

Posted on: Tuesday, 27 February 2007, 18:00 CST

Fitch Ratings assigns an 'A-' rating to $11.8 million City of Colorado Springs, Colorado, airport system revenue refunding bonds consisting of:

--$7,675,000 series 2007A (Non-AMT);

--$4,111,000 series 2007B (AMT).

Fitch also affirms approximately $46,575,678 in outstanding airport revenue bonds. The Rating Outlook on all bonds is Stable.

The series 2007 bonds are scheduled to sell via negotiation led by Piper Jaffray and Co. on or about April 9, 2007. The final maturity date of all debt is 2027. Fitch expects the series 2007 bonds to be insured by a financial guarantor whose financial strength is rated 'AAA' by Fitch.

The 'A-' rating reflects the strong passenger origination and destination market, which accounted for 98% of total passenger volume in 2006; considerable airport facility and airfield capacity; stable financial operations (estimated operating margin of 40% in 2006) and excellent liquidity (estimated $24.8 million as of year-end 2006); strong financial flexibility; and a sound debt service coverage ratio, estimated at 1.67 times (x) for 2006. Offsetting credit issues include the competitive passenger airline service environment with moderate levels of passenger leakage to nearby Denver International Airport (DIA; rated 'A+', with a Stable Rating Outlook by Fitch) and the airport's history of moderate volatility in enplanement activity, both of which are partially mitigated by the airport's high O&D (origination and destination) market and strong demand for air passenger service.

The airport serves the Colorado Springs region, which is home to Peterson Air Force Base, a lessee of the airport, Fort Carson, and Shriever Air Force Base. While the military has historically been a large contributor to the economic base, the city has seen some growth in the high-tech, manufacturing, communications, and tourism industries. Between 1990 and 2006, this service area generated a compound average annual growth rate of 3.4% in total enplanements at the airport. However, in the past five years enplanements contracted by a compound average annual rate of 1.2%, reflecting the events of September 11, various airline bankruptcies, and the down-gauging of aircraft serving the market. Many of these trends mirrored events in the national economy and were not unique to Colorado Springs. Recognizing a recent uptick in the local economy and demand for air service, Express Jet recently announced plans to begin new nonstop routes from Colorado Springs Airport to Ontario International Airport (rated 'A', with a Stable Outlook), Sacramento International Airport (rated 'A+', with a Stable Outlook), and San Diego International Airport (rated 'A+', with a Stable Outlook) in April 2007.

Between fiscal 2000 and 2005, operating revenues increased by a compound average annual rate of 2%, while operating expenses increased by 3.6%. Growth in operating expenses was largely due to security measures, rising personnel costs and higher medical/benefit costs that all have appeared to flatten in 2004 and 2005. The airport's healthy financial operations produced strong operating margins ranging from 36%-41% during that same period. Airport management is business-minded and is seeking to diversify airport revenues through the development of a business park with third-party operators.

The hybrid nature of the airport's use and lease agreement allowed the airport to build its sizable unrestricted cash balances ending fiscal 2005 with $25.7 million, representing 709 days cash on hand. The airport's ability to generate significant cash flows allows it to pay for small- to medium-sized capital projects without additional borrowing. The airport has a low to moderate debt burden with a total of $46.6 million outstanding revenue bonds and has historically had strong debt service coverage that has successfully exceeded 1.62x between fiscal 2000 and 2005. The airport expects to maintain this low debt burden and to fund its very affordable $88 million 2007-2012 capital program from airport revenues and grants. While historical cost per enplaned passenger at the airport has been moderate and ranged from $4.99 to $7.87 between 2000 and 2005, it expects declines through 2012.

The series 2007 bonds are secured by a pledge of net revenues from the airport on parity with the outstanding airport revenue bonds. Bond proceeds will be used to current refund and defease all the outstanding City of Colorado Springs, Colorado Airport System Revenue Bonds, series 1996A and 1996B.

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 C onduct' section of this site.

Source: Business Wire

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