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Fitch Rates $600MM Miami-Dade County Aviation Revs 'A'

Posted on: Monday, 3 October 2005, 18:00 CDT

Fitch Ratings assigns an 'A' rating to Miami-Dade County's, (the county) aviation revenue bonds as follows:

-- $360,735,000 aviation revenue bonds, series 2005A (AMT);

-- $179,755,000 aviation revenue refunding bonds, series 2005B (AMT);

-- $59,490,000 aviation revenue refunding bonds, series 2005C (non-AMT).

The Rating Outlook is revised to Stable from Negative.

The series 2005A-C bonds are scheduled to price via negotiation lead by Banc of America Securities, LLC on or about Oct. 19, 2005. Co-senior managers include M.R. Beal & Co., Estrada Hinojosa & Co., Morgan Stanley, and Morgan Keegan & Co. The series 2005A-C bonds are secured by net revenues of the county's Port Authority Properties (PAP), which include assets at Miami International Airport (MIA or the airport) and, to a lesser extent, cargo and aviation facilities located at the county's other smaller airports for general aviation and flight-training operations. Proceeds will finance a portion of costs associated with phase I of the capital improvement program (CIP), refund outstanding commercial paper, and refund or defease a portion of the airport's outstanding series 1995A-E aviation revenue refunding bonds. The airport plans to insure the series 2005A-C bonds with a monoline bond insurance company whose insurer financial strength is rated 'AAA' by Fitch. Fitch also affirms the unenhanced 'A' rating on the county's approximately $3.2 billion of outstanding aviation revenue bonds.

The Outlook revision to 'Stable' from 'Negative' reflects slowly rebounding domestic and international enplanement levels and the continuing importance of MIA as a business and leisure destination. Additionally, the important role played by the airport in the overall route network of American Airlines (American; issuer default rating 'CCC+' by Fitch), the airport's hub carrier, is also a consideration. Recent changes in control of the CIP are positive, though future cost increases cannot be ruled out.

The 'A' rating is based upon the airport's role as the nation's key international gateway to the Caribbean and Latin America; significant cargo operations that offset costs normally borne by passenger carriers alone; healthy origination and destination (O&D) traffic (62%); despite the presence of American's large connecting complex, a diverse mix of domestic and international passenger and cargo airlines; and improved financial performance stemming largely from recently implemented cost controls.

Credit concerns center on the size and complexity of the airport's CIP ($7.2 billion), which has resulted in significant debt service obligations and a rising cost structure; heightened, albeit stabilizing, competition within the south Florida market for domestic passengers; the airport's reliance on international travel for a considerable proportion (46%) of total passenger traffic; and moderate airline concentration risk, with American accounting for nearly 60% of enplanements during fiscal year 2004.

MIA served a total 15.1 million enplaned passengers during fiscal 2004, up 2.6% from fiscal 2003, though still below the 2001 figure of 16.5 million and the airport's record level of 17.2 million in 1997. In fiscal year (FY) 2004, domestic traffic increased by 1.7% to 8.16 million enplanements from 7.79 million in FY 2003. International traffic increased slightly (0.1%) during this period, to 6.96 million enplanements reflecting improving global economic conditions, in particular within Latin America. Despite these recent positive trends, the airport's feasibility consultant conservatively projects enplanements will increase at just a 1.6% average annual rate between FY 2004 and FY 2015.

The airport is served by a diverse mix of airlines, including 20 domestic carriers, 40 foreign flag airlines, and 23 all cargo carriers. However, reflecting its role as the nation's principal carrier serving Latin America, American and regional affiliate, American Eagle, accounted for approximately 62% of the airport's total enplanements in fiscal 2004. After reducing the number of daily flights during the downturn in traffic, following the events of Sept. 11, 2001, American has since increased the number of daily departures to 200 and continues to actively pursue additional domestic and international opportunities. While the airport will continue to play an instrumental role in American's overall operation, the airline's significant presence and recent financial difficulties represents an ongoing credit concern.

The airport recorded improved financial operations over the past several years, as operating revenues increased at a 5% average annual rate since 2000. With operating expenses growing at average annual growth rate of 4% during this period, coverage of debt service provided by net revenues improved to 1.50 times (x) in fiscal 2004 from 1.44x in fiscal 2003. Based on the enplanement forecast and the financial structure of the airport, and allowing for $2.2 billion in additional debt through 2010, the consultant projects coverage from net revenues to exceed 1.3x through 2015.

The airport's $5.2 billion CIP Phase I 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 $2.2 billion in additional general airport revenue bonds. Based on the scope of the capital plan and incorporating the enplanement forecast, the consultant projects that the airport's cost per enplaned passenger (CPE) will rise to $34.94 in fiscal 2015 up considerably from $15.17 in fiscal 2004.

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 highly 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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