News Column

Fitch Rates Wayne County Airport Authority, MI's Revenue Bonds 'A-'; Outlook Stable

July 28, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A-' rating to the $103.2 millionWayne County Airport Authority, MI (WCAA) senior lien airport revenue bonds, series 2014B-C.

Additionally, Fitch has affirmed the 'A-' rating on the WCAA's approximately $1.8 billion outstanding senior lien and $170 million junior lien revenue airport revenue bonds issued to finance Detroit Metropolitan Airport (DTW).

The Rating Outlook for both lien ratings is Stable.

The 'A-' rating reflects DTW's central geographic location and essentiality to Delta's system as seen in their fully residual long-term use and lease agreement through 2032. The authority's ability to increase non-airline revenues and control operating expense growth while enplanements have remained relatively stagnant in recent years has helped maintain a stable financial position using internal liquidity despite thin underlying financial performance.

KEY RATING DRIVERS

Dependence on Delta Hub: The airport enjoys limited competition within the metropolitan area, which provides the airport with a catchment population of around 6 million. DTW is heavily reliant on its dominant carrier, Delta ('BB-', Outlook Positive), which maintains a significant market share with 79% of airport enplanements. The traffic profile is 54% connecting leaving DTW susceptible to realignment of Delta's hubbing service. Enplanements have remained broadly stable at around 16 million since falling 11% in fiscal year (FY, ended Sept. 30) 2009.

Revenue - Volume: Midrange

Strong Cost Recovery Structure: Airline use and lease agreements are 100% residual with long-term expiration in 2032 and with multiple airlines beyond the dominant carrier, Delta. CPE was $9.45 in FY 2013, at the high end of the competitive range, and is expected to increase to go above $11 by FY 2019 as debt service ramps up. However, signatory airlines are tied in to covering all airport costs until at least 2032.

Revenue - Price: Stronger

Modest Capital Needs: Having recently completed a multi-billion capital program the airport's investment plans are primarily focused on airfield work. The capital program will be funded from a combination of proceeds from previous issuance, grants, and new money borrowing.

Infrastructure & Renewal Risk: Midrange

Variable Rate Debt Exposure: Compared to other airports of its size DTW has a relatively high debt burden with approximately $2 billion outstanding. Around 79% of WCAA's debt is fixed rate with 21% paying an unhedged variable rate and subject to some refinancing risk. Upon reaching the maximum annual debt service (MADS) in FY 2016, the profile is flat-to-declining. All reserves are cash funded.

Debt Structure: Midrange

Moderate Leverage and Liquidity: WCAA's financial performance has been stable in recent years despite the step-down decline in traffic during the recession, as it has been able to pass along costs to carriers through residual agreements. Financial leverage of 8.31x net debt/cash flow available for debt service (CFADS) is comparable to peers while having sufficient balance sheet liquidity of 260 days cash on hand. FY 2013 debt service coverage ratio (DSCR) as calculated by Fitch is 1.14x on the senior lien and 1.05x on the junior lien without the benefit of the sizeable revenue fund balance.

RATING SENSITIVITIES

Negative - Exposed Economic Area: The deteriorating condition of Detroit could spill over into other surrounding areas causing a significant decline in locally based traffic demand.

Negative - Hub Loss: A material reduction in, or elimination of, connecting traffic will cause CPE to rise and operating margins to weaken.

SECURITY

The senior debt has a first lien pledge on net airport revenue while the junior debt has a second lien pledge of net airport revenues.

CREDIT UPDATE

Enplanements have been broadly flat since FY 2009, having grown at a compound annual growth rate (CAGR) of 0.2% since. Traffic declined 0.6% in FY 2013, but through the first 8 months of FY 2014 it has rebounded up 1.7%.

DSCR, as defined in WCAA's debt ordinance, has remained robust in recent years, around 1.60x for the senior lien and around 1.50x for the junior lien. These have been supported by the relatively stable traffic performance, and improved non-airline revenue performance, which grew 1.6% in FY 2013, increasing revenue per enplanement to $8.06 from $7.37 in FY 2010. Higher non-airline revenues have been driven primarily by increased parking revenue but should further benefit from $46 million in investment the concessionaires are making to the McNamara Terminal in both retail and food and beverage concessions.

Fitch calculates DSCR excluding the impact of revenue fund balances from the ratio, and these have remained stable at historical levels between 1.10-1.15x for the senior lien and around 1.05x for the junior lien - while these may appear tight, they are backed up by the fully residual AULs to 2032 with numerous airlines including not only Delta but also United/Continental, American/US Airways, Southwest, Spirit, Fedex and UPS. WCAA's DSCR including the revenue fund balance for FY 2013 was 1.59x on the senior lien and 1.47x on the junior lien.

The airport's FY 2014-19 capital improvement program is moderate at $595.2 million with 61% of funds to be spent on runway improvements and airfield projects. The plan is funded through a mix of grants, funds available from previous bond issuances, and an additional $134 million of unidentified sources of which some or all could be new debt issued in the future.

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

Applicable Criteria & Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);

--'Rating Criteria for Airports' (Dec. 13, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

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

Rating Criteria for Airports

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842103

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

Daniel Adelman

Analyst

+1-312-368-2082

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Seth Lehman

Senior Director

+1-212-908-0755

or

Committee Chairperson

Cherian George

Managing Director

+1-212-908-0519

or

Media Relations

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

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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