2008-06-07 00:30:28 -
- Fitch Ratings assigns an 'A+' underlying long-term rating to the Indianapolis Local Public Improvement Bond Bank's variable rate bonds, series 2008 C (Indianapolis Airport Authority Project). Nearer to closing Fitch expects to assign a short-term rating based on the standby purchase agreement from the Bank of New York Trust Co. and an enhanced long-term rating based on an insurance
policy from FSA. Fitch also affirms its 'A+' underlying long-term rating on the bond bank's $1.04 billion of outstanding bonds secured by airport revenues. The Rating Outlook is Stable. The 2008 bonds are being issued to complete construction of a new terminal building: the improvements had previously been financed by the authority's commercial paper program ($220 million outstanding as of May 23, 2008).
The 'A+' rating for the authority reflects strong debt service coverage, high internal reserve levels, a well-diversified mix of carriers serving the airport and the broad economic base of the Indianapolis metropolitan area. Credit concerns include the airport's above average use of leverage, with long-term debt in excess of 10 times (x) operating revenues, rising costs through 2011 as the debt service for the new terminal is included in rates and charges and the economic challenges of the domestic airline industry due to rising fuel costs and the potential for significant system-wide capacity reductions in the last quarter of 2008. Should such reductions affect Indianapolis, projected gains in non-airline revenues expected from its new state-of-the-art terminal building, which is on-time and on-budget for an October opening, could be less than anticipated.
The airport is the primary commercial facility serving the Indianapolis metropolitan area and serves more than 4 million passengers each year. It is the 44th largest passenger airport (93.5% origin and destination) and the eighth largest cargo airport in the nation. Enplanements were up 2.4% in 2007, following a 5% decline in 2006 enplanements due to fare increases and airline capacity cuts, notably at ATA during its bankruptcy proceedings. Still, the airport has demonstrated sustained growth, with enplanements rising 7.6% annually since the last cyclical trough in 2003 through 2005, and a 2.2% average annual gain since 1990.
The authority's residual use and lease agreement extends through Dec. 31, 2010 and provides the basis for its consistently sound financial operations. Negotiations are ongoing to extend the agreement through 2012. The airport's ability to generate substantial non-airline revenue, which has historically represented 60% of total operating revenue, sustains the airport's reasonable cost per enplaned passenger (CPE), which equaled $7.26 in 2007. A large amount of air cargo activity provides some diversity to the airport's revenue base and helps maintain a competitive cost environment by distributing airfield expenses across a broader customer base. FedEx operates its second-largest global sorting facility at the airport and has demonstrated its commitment to Indianapolis by undertaking a 600,000 square-foot expansion. Cargo traffic accounted for approximately 10% of airport revenue in 2007. In addition to revenue from operations the airport collects a $4.50 passenger facility charge (PFC) from each enplaning passenger and a $3.00 customer facility charge (CFC) for each contract day of car rentals transacted at the airport.
The new terminal represents the majority of the airport's current capital program. With the opening of the facility, debt service charges will be included in airline rates and charges beginning with fiscal 2009, with the CPE expected to rise to approximately $9.50 and peak at $11.05 in 2011. These figures are based on the airport's consultant's forecast of a 3.3% average annual increase in enplanements. Fitch ran a stress scenario with a 5% decline in enplanements in 2009, with growth of 2% thereafter, which resulted in a peak CPE of $14.84 in 2011.
Fitch forecasts strong debt service coverage for this airport, with debt service coverage solely from net operating revenues averaging 1.71x in 2008-2012, and debt service including non-operating items (PFCs, CFCs, federal payments, and fund transfers) averaging 2.25x. The authority held $363 million in cash ($44 million unrestricted) as of fiscal year end 2007.
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.
Fitch Ratings
Andrew Abramczyk, +1-212-908-0596 (New York)
Peter Stettler, +1-312-368-3176 (Chicago)
Christopher Kimble, +1-212-908-0226
(Media Relations, New York)
