News Column

Fitch Affirms MassPort's $95.6MM Rev Bonds for BosFuel at 'A-'; Outlook Stable

June 25, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the underlying rating on the Massachusetts Port Authority's (MassPort, or the authority) approximately $95.6 million special facilities revenue bonds (BosFuel Project), series 2007 at 'A-'. The bonds are payable solely from facilities rent derived from a lease between MassPort and BosFuel, a consortium of member carriers serving at Boston Logan International Airport (Boston Logan or the airport). The BosFuel project consists of a consolidated fuel storage and distribution system at the airport to meet the fueling needs of all aircraft operators.

The Rating Outlook is Stable.

RATIONALE

The rating reflects BosFuel's monopolistic position in providing an essential service to airlines at Logan Airport. In addition, the credit benefits from the airport's strong and growing enplanement base which is served by a diversified mix of carriers. These strong characteristics are somewhat offset by the limited nature of the revenue stream which is dependent solely upon carrier rental payments and not the authority's overall general revenue pledge.

KEY RATING DRIVERS

ESSENTIAL AIRPORT SERVICE: BosFuel has an effective monopoly on jet fueling services at Boston Logan airport and is viewed as an essential function to the airlines at the airport.

PROVEN DEMAND AND LIMITED CONCENTRATION: Annual sales are approximately 346 million gallons with 93% coming from BosFuel member carriers. Boston Logan benefits from a diverse mix of domestic and international carriers, and has experienced very strong increases in passenger traffic over the past couple of years. Supporting the credit is the lack of significant airline fuel consumption concentration, as the largest carrier marginally exceeds 26% of airport jet-fuel consumption. Still, the bonds mature in 2038 and demand for jet fuel services could decline over time.

STRONG STRUCTURAL PROTECTIONS: There is a strong structural framework between the airlines using the fuel system and the fuel system operator, including airline reserve deposits and full step-up payments by the member carriers in cases of defaults or delinquencies from non-performing carriers. The debt service reserve is fully cash funded equal to one year of debt service.

ADEQUATE FACILITIES AND MODERATE COSTS: Fuel storage and distribution assets are adequate to meet projected needs. Estimated net member costs at about 3.2 cents per gallon in 2013 are marginally higher than peer fuel facilities but have remained mostly stable in recent years. Leverage is moderate at 9.4x on a net debt to cash flow available for debt service basis, and there are only very modest near-term capital expenditure requirements.

NARROW REVENUE STREAM: The special facility bonds do not have recourse to the authority's general revenues or fund balances. Only the BosFuel facilities rental payments paid by airline carriers support the debt obligation.

RATING SENSITIVITIES

--Significant deterioration in airport operations leading to a material decline in fuel demand could cause negative rating pressure.

--Carrier defaults or delinquencies in lease payments to BosFuel resulting in a material decline in financial performance could cause negative rating migration.

--Significant leverage for capital needs, without an offsetting revenue increase, could lead to negative rating action if financial metrics materially decline.

SECURITY

The series 2007 bonds are secured by a limited revenue stream of facilities rent payments made by Bosfuel under a fuel system lease. BosFuel collects revenues to support the required lease payments primarily from jet fuel to its member passenger and cargo carriers. The bonds are not secured by the general credit of MassPort.

CREDIT UPDATE

The project continues to demonstrate stable operations. Fitch views the fuel distribution and storage system to be an essential component of airline operations at Boston Logan airport. The fuel system has been in successful operation for over 10 years and essentially all of the original capital improvements associated with fueling system have been completed with minimal future capital programs anticipated.

Currently, there are more than 20 airline members of BosFuel, accounting for over 90% of estimated total fuel volume at the airport in 2013. Fuel volume through the system is estimated at 346 million gallons in 2013, a 2% increase from the prior year. Boston Logan has experienced essentially flat enplanement growth in fiscal 2013.

Consumption across all operating carriers at Boston Logan is highly diverse with JetBlue serving as the largest user at 26.3% of estimated total gallons pumped in 2013, followed by American at 11.5%, Delta at 10.9%, and United Airlines at 11.2%. JetBlue is also the largest carrier at the airport in fiscal 2013 in terms of enplaned passengers, representing 26.3% of the total. As was the case in earlier bankruptcy filings of passenger carriers, the project has the ability to draw on member reserve deposits in case of delayed payments or withdrawal that follows a bankruptcy event. Currently, BosFuel retains approximately $4.6 million in membership reserve deposits which is equivalent to two months of total facilities charges.

The average cost of BosFuel's operations, excluding terminalling and pipeline costs, is approximately 3.2 cents per gallon. The average cost has been relatively stable in recent years and the fiscal 2014 budget indicates no major increases to project costs.

BosFuel is a Delaware non-stock membership corporation created for the purpose of operating the fuel distribution system at the airport. MassPort has granted the corporation an exclusive right to provide aircraft fueling services at Boston Logan. Membership in the corporation is open to all airlines serving the airport upon their acceptance of the interline agreement; however, fueling service is available to all carriers serving Boston Logan on a non-discriminatory basis with non-member airlines paying a higher rate.

BosFuel assesses a net facilities charge on all member carriers equal to its costs of operation, with 90% of the charge based on volume of fuel a particular carrier pumps through the system relative to the total volume of fuel pumped through the system and 10% allocated equally on a per capita charge. While there is not a rate covenant, charges are set to cover all operating expenses and debt service annually. In the event of a default by a member carrier, the interline agreement that governs the consortium includes step-up provisions requiring additional payments from the non-defaulting airlines, in the form of a loan, to assure full and timely lease payments. Fitch believes the adequacy of the legal terms and financial framework of BosFuel has been demonstrated through its performance, with all payments made on a full and timely basis, during the recent spate of bankruptcies in the airline industry.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance', July 12, 2012.

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=836538

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Tanya Langman

Director

+1-212-908-0716

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Seth Lehman

Senior Director

+1-212-908-0755

or

Tertiary Analyst

Samuel Marsico

Analyst

+1-212-612-7810

or

Committee Chairperson

Scott Zuchorski

Senior Director

+1-212-908-0659

or

Media Relations

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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