The rating reflects the authority's very strong credit attributes. Among them include:
--The inherent resilience of its complementary dual-large hub airport system serving the strong and growing DC air service area;
--Well-balanced system-wide carrier mix;
--Largely complete capital program that can serve current and projected demands; and
--Stable financial profile.
Some concerns remain given the large debt burden and rising airline cost profile, particularly at
KEY RATING DRIVERS
Strong Market Position of Dual-Airport System: The authority's large overall traffic base is anchored by the underlying economic strength of the DC region and complementary service offerings at
Favorable Rate Setting Approach: The in-place airline agreement provides for a manageable cost structure considering the combined domestic and international profile, enhanced by an extraordinary coverage protection trigger on airline rates. Similar provisions are expected to be rolled into a new agreement to be implemented once the current agreement expires in
Major Capital Needs Addressed: The authority's
Largely Conservative Capital Structure: Approximately 81% of the authority's debt is in conventional fixed rate mode, with another 12% of its obligations synthetically fixed through swap agreements. As a result, only 7% of the authority's debt profile is unhedged variable rate debt. (Debt Structure: Stronger)
Stable Finances but Elevated Leverage Position: The authority's borrowing program results in an elevated leverage position as indicated by the debt to enplanement of
--Significant or unanticipated changes in the airport's current traffic base or shifts in commitments from leading carriers would reflect weakened credit quality.
--Failure of the authority to negotiate a strong new use agreement with airlines that provides for sufficiently robust cost recovery mechanisms at both airports similar to those in the current agreement may pressure the rating.
--Additional leveraging above current expectations due to revisions in the size and scope of the current capital program or for a new capital program may pressure the rating.
--Operational or financial conditions that prevent a downward trend of net debt/CFADS to the 7x-8x range over the next few years could be a cause for rating concern.
--Inability of the authority to manage the airport system cost profile, putting pressure on debt coverage metrics or leading to CPE rising above expected levels, could affect the credit profile.
The bonds are secured by the net revenues of the authority.
The series 2014A fixed-rate bonds are scheduled to price on
The authority's two airports performed relatively well in terms of enplanement activity during the 2008-2010 recession, supported by the economic strength of its catchment area and the complementary nature of the dual-airport system structure. System-wide enplanements increased by a modest 0.5% in 2013, broadly consistent with growth of 0.4% in 2012.
The number of enplaned passengers at DCA increased by 4.2% in 2013 but was offset by a traffic reduction at IAD resulting from the net effect of lower domestic enplanements combined with a slightly higher level of international traffic. In first quarter-2014, system-wide passenger traffic was down 3.6% over the same period in 2013. This was largely the result of harsh winter weather, yet management forecasts traffic to be more or less flat for the full year.
The authority generated a 1.40x DSCR in 2013 - slightly above the authority's previous estimate of 1.34x and coverage of 1.35x for 2012. Fitch's calculation of DSCR, which treats passenger facility charges (PFC) as revenues rather than debt service offsets, was 1.36x. The 2013 financial results demonstrate a continuation of the recent trend of lower coverage levels when compared to historical levels.
As detailed in current forecasts, the authority's management case DSCR will remain around 1.40x. This forecast reflected assumptions of a 1.6% traffic compound annual growth rate (CAGR) between 2013 and 2018 and management of expenses to a 2.8% CAGR over the same period. If PFCs are treated as revenues instead of being used to offset annual debt service, coverage levels are in the 1.33x-1.38x range through 2018.
Fitch also developed a rating case scenario under which system-wide enplanements decline by 9% in 2015 - in line with the aggregate loss experienced in the 2006-2009 timeframe - followed by recovery in the form of 2%-3% annual growth rates through 2018. Revenues and expenses were adjusted to reflect weaker performance in terms of enplanements, such that the 2013-2018 CAGRs for operating revenues before transfers and operating expenses were 2.7% and 2.9%, respectively. As a result, DSCR levels in this scenario drop to 1.29x, indicating less financial flexibility; the impact on CPE is an increase over the management case of approximately
The airport's 2013 CPEs were largely in-line with previous forecasts. The authority reported a
Therefore, CPE at DCA is actually forecast to drop and remain in the
The authority's 2001-2016 capital construction plan is nearing completion. The total plan is estimated at approximately
As a result of the significant level of past borrowings applied to the capital program, Fitch views the current 9.9x net debt to CFADS to be somewhat elevated for an 'AA' category airport. However, Fitch notes that this metric is expected to evolve to a more moderate 8x level over the next few years, even when factoring in the expected additional debt issuance in 2015. Operational or financial conditions that prevent a downward trend of this leverage metric would be a cause for rating concern.
The current airline use and lease agreement has provided for relatively stable financial performance over the last 25 years. Fitch conducted this review under the assumption that a broadly similar framework would remain in place through the forecast period and will monitor the situation for any credit relevant developments.
Additional information is available on 'www.fitchratings.com'.
--'Rating Criteria for Infrastructure and Project Finance' (
--'Rating Criteria for Airports' (
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
Source: Fitch Ratings
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