The 'A+' rating reflects
KEY RATING DRIVERS
Diversified Carrier Base & Some Cargo Exposure: SDF's established service area with limited competition supports nearly all the airport's origination and destination (O&D) enplanement base of 1.7 million in fiscal 2013 (fiscal year ends
Strong Contractual Framework: The airline use and lease agreements, one for the terminal facilities and one for the airfield, coupled with strong non-airline revenue generation, provide adequate cost recovery terms. Agreements cover about 50% of the airport's total cost base. SDF's cost structure is comparatively low; cost per enplaned passenger (CPE) was at
Modest Capital Needs: The authority's capital program of approximately
Conservative Debt Structure: Following the issuance of the series 2014 refunding bonds, all authority debt will be in fixed-rate mode with a descending debt service profile. Maximum annual debt service (MADS) of
Low Leverage and Healthy Liquidity: SDF has a favorable net debt/cash available for debt service (CFADS) ratio of 5x complemented by healthy balance sheet liquidity (470 days cash on hand) and available reserves. Fitch expects leverage to gradually decline given the lack of new debt over the next five years. Historically, stable financial performance has resulted in resolution-based debt service coverage levels of 1.60x or greater over the last five years (through fiscal 2013). Net coverage from cashflow remained stable in fiscal 2013 at 1.32x compared with 1.30x last year. Future coverage ratios should remain at similar levels.
--Major changes in UPS's commitment to the airport for its airfreight operations and/or significant unanticipated reduction in passenger airline services would reflect weakened credit quality.
--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.
--Additional debt, not currently expected, leading to either higher leverage metrics or a dilution of debt service coverage would have a negative impact on credit quality.
The bonds are secured by the net revenues of the authority, primarily generated by the operations of SDF. A portion of the authority's bonds are additional payable from a designated portion of passenger facility charge (PFC) receipts.
The series 2014 fixed-rate bonds are scheduled to price on or around
Southwest Airlines (IDR 'BBB'/Stable Outlook by Fitch) continues to be the main carrier at the airport, enplaning 33.6% of passengers in fiscal 2013, while
Recent traffic performance is uneven and is an indication that enplanements at SDF are influenced by both economic cycles and carrier service decisions. Between fiscal years 2008 and 2013, SDF's enplanements declined at a compound annual growth rate (CAGR) of 2.6%, largely driven by an enplanement decline of 14% in fiscal 2009. In fiscal 2013, enplanements increased 1.9% from the prior year, reaching 1.715 million. This level was consistent with the airport's expectations for the fiscal year as airlines increased frequencies, aircraft size and added new markets, including new service to
Complementing the passenger operations at the airport is the presence of
SDF's two use and lease agreements establish a hybrid structure of rate setting, with a compensatory methodology used for terminal charges and a residual methodology used for the airfield. Collectively, these agreements provide adequate cost recovery at competitive costs to the signatory airlines. The airport's 2013 CPE of
Operating revenues declined at a CAGR of 0.6% between fiscal 2008 and 2013, while operating expenses increased by a CAGR of 0.4% over the same period. Operating revenues were up 2% to
Fiscal 2013 debt service coverage on a resolution basis, including the rolling coverage account and net of the PFC-eligible portion of series 2011 debt service, was solid at 1.69x; a slight increase from 1.67x in fiscal 2012. Fitch calculation of coverage, excluding both the rolling coverage account and treating PFCs as revenues and not offsets, was 1.32x.
The authority's forecast of coverage ratios (on a resolution basis) is expected to remain between 1.56x-1.72x. This forecast reflects assumptions of a -0.5% traffic CAGR between fiscal 2013 and 2018 and management of expenses to a 2.9% CAGR over the same period. If PFCs are treated as revenues instead of being used to offset annual debt service and rolling coverage account is excluded from the calculation, coverage levels are narrower but adequate in the 1.31x-1.40x range through fiscal 2018.
Fitch's rating case scenario assumes greater traffic stress of declines totaling 14% by fiscal 2016, followed by 3% annual recovery through 2018. Revenues and expenses were adjusted to reflect weaker performance in terms of enplanements, such that the fiscal 2013-2018 CAGRs for operating revenues and operating expenses were -0.8% and 3.3%, respectively. As a result, coverage levels in this scenario drop to 1.41x on resolution basis and 1.16x based on Fitch's calculation, indicating less financial flexibility. It should be noted that under this scenario there is no material impact on CPE, which remains in the mid-$6 range, but could limit internal funding for future capital spending.
SDF's manageable capital improvement program (CIP) totals
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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