“Fitch Rates Massachusetts Port Auth's $213MM Revs 'AA' & Passenger Facil Revs 'A+'; Outlook Stable”

Fitch Rates Massachusetts Port Auth's $213MM Revs 'AA' & Passenger Facil Revs 'A+'; Outlook Stable

Posted: 14 Jul 2010 02:26 PM PDT

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the Massachusetts Port Authority's (Massport or the authority) revenue bonds series 2010 bonds, comprised of the following:

--$101,045,000 revenue bonds series 2010-A (Non-AMT);

--$141,990,000 revenue refunding bonds, series 2010-B (Non-AMT);

--$25,380,000 million revenue refunding bonds series 2010-C (AMT);

--$108,280,000 Multi-Modal revenue refunding bonds, series 2010-D (AMT).

Fitch also assigns an 'A+' rating to $72,990,000 passenger facility charge (PFC) revenue refunding bonds, series 2010-E (AMT).

The series 2010-ABC revenue bonds and the 2010-E PFC bonds are scheduled for negotiated sale on or about Aug. 4, 2010, and the series 2010-D bonds are scheduled for negotiated sale on or about Aug. 11, 2010. The rating on the proposed multi-modal series 2010-D bonds are an underlying rating and Fitch will issue long-term and short-term ratings for the series 2010D bonds based on dual-party pay criteria and the liquidity facility provided through the expected irrevocable letters of credit issued by Bank of America, N. A. nearer to closing.

The authority's revenue bonds are secured by the net revenues generated from port authority properties, including Logan International Airport and various maritime facilities within the Port of Boston. The PFC bonds are solely secured by the collection of passenger facility charges levied at the current $4.50 per passenger rate. Bond proceeds will finance elements of the authority's capital program and refinance various outstanding bonds of the authority. Fitch also affirms its 'AA' rating on the authority's approximately $1.1 billion of outstanding revenue bonds and its 'A+' rating on the authority's approximately $175 million outstanding PFC revenue. The Rating Outlook for all of the authority's debt is Stable.

The 'AA' rating reflects the strong economic underpinnings of the authority's service area that supports healthy demand for transportation and commerce related business lines; Logan's long-standing role as New England's primary international gateway airport; a traditionally stable and diverse mix of domestic and foreign flag airlines augmented by the increasing presence of low-cost carriers; solid financial metrics driven by the proven revenue generating capabilities of the authority's asset portfolio; and a mature capital program with minimal needs for future general revenue and PFC borrowings. The 'A+' rating for the authority's PFC revenue bonds reflects the aforementioned fundamental credit strengths of Logan, the low existing leverage that provides for high coverage levels offset by the limited revenue stream and its inherent volatility due to its direct correlation with passenger volume.

Credit risks are moderate in nature and include the authority's broad organizational mission, which is subject to some to political interventions based shifting transportation and trade related needs and priorities of the Commonwealth of Massachusetts as noted by the recent disposition of the financially accretive Tobin Bridge and acquisition of the City of Worcester Airport that has a history of operating deficits. Additional concerns center on the above average airline costs at $15.66 per enplaned passenger that should remain elevated over the next several years and continued competition interplay among New England airports primarily for domestic passengers. Fitch also notes the recent economic downturn and financial pressures across the airline industry together has led to some service reductions and negative passenger growth at Boston-Logan although signs of a healthy rebound have materialized over the past six to 12 months and should be sustainable into the upcoming fiscal year.

Logan remains the centerpiece of the authority's properties, generating 79.5% of total operating revenues in fiscal 2009, while the Tobin Memorial Bridge generated 5% and the maritime properties 14.5%. Capturing the disposition of the Tobin Bridge, the airport properties are expected to contribute to 85% of total operating revenues by 2011. Historically, the Tobin Bridge having become a revenue generator on both an operating and fully allocated basis, while the maritime facilities have been largely self-sustaining on an operating basis, it still require capital subsidies.

The airport served 12.5 million enplaned passengers in fiscal 2009, an 8.5% reduction from fiscal 2008 and traffic performance similar to fiscal 2004. From fiscal 2000 through fiscal 2009, traffic at the airport changed by a negative 1.1% compounded annual growth rate. However, for the 11-month period ended May 31, 2010, the airport reports a 5.1% gain in enplanements with low cost carrier service additions leading the recent rebound. While economic factors adversely generally affected aviation performance in both 2008 and 2009, Logan Airport has otherwise enjoyed from other recent years of traffic gains benefiting in part from the completion of major roadway work that improved access to Logan from downtown Boston and the growing presence of low cost carriers serving the airport. Both characteristics have improved Logan's competitive position relative to nearby facilities in Connecticut, Rhode Island and New Hampshire. The origination and destination orientation of the market attracts a diverse mix of carriers. American Airlines (including American Eagle) led the market for the 10-month period ended April 30, 2010, accounting for 16.4% of total enplanements, followed closely by jetBlue Airways at 16.1%, USAirways at 14.1%, and Delta Air Lines at 13.4% (excluding regional affiliates). This passenger airline mix is considered a strong positive operating attribute at Logan considering it served a large domestic travel base complemented by international gateway service among many foreign-flag carriers.

Port operations depend on a blend of container throughput, automobile processing, bulk cargo, and cruise passengers. While container and cruise volumes have performed well over the past decade, some volatility exists on the bulk and automobile segments. The authority anticipates operational and financial growth in the port property division due to new or extended leases. In fiscal 2009, the ports generated nearly $68 million which is almost a 10% decline from 2008 performance. The Tobin Bridge generated nearly $29 million in revenues from 10.3 million toll transactions. The bridge segment was accretive to the authority's net revenues, including $16 million in fiscal 2009. At the time the authority handed over the bridge ownership to the Commonwealth's newly created Department of Transportation in January 2010, the authority also defeased approximately $21 million of its debt related to bridge capital improvements from internal funds.

Massport's capital program of $1.1 billion will primarily focus on airport parking, terminal and rental car facilities. The largest project for a new consolidated rental car facility is estimated to cost $271 million and the current financing plan calls for a separately secured bond financing, based on a pledge of daily car rental customer facility charges, to cover the project costs. Besides the new money portion of the 2010 bond issue, no additional borrowings are expected at either general revenue bond or the PFC bond credits.

Financial metrics have held up well during the two-year downturn with debt service coverage levels at 2.10 times (x) and 2.30x, in fiscal 2009 and 2008, respectively. This performance remains similar to historical levels. The authority reports its unrestricted liquidity of $244 million represented 225 days cash on hand for fiscal 2009. Airline costs per enplanement (CPE) have been rising in recent years to $15.66 in 2009 as compared to just $11.56 in 2005, reflecting an increase in debt and operating costs while passenger levels have fallen by 7% over this period. Future CPE levels appear stable as long as the airport can return to moderate levels of annual traffic growth.

For fiscal years 2010 and 2011, the authority's financial condition will experience some transition as it reflects loss of pledged revenues from the Tobin Bridge (as of January 2010) as well as the costs associated with the Worcester Airport (starting July 2010). The authority expects overall revenues to remain largely flat and debt service coverage to decline to below 1.80x by 2011 even with expected operating improvements at the port operations and a 5% traffic rebound in 2010 followed by 1.5% additional growth in future years. Fitch believes that the underlying assumptions to the forecasts are generally conservative given the recent operational improvements. While the authority also established sound debt and financial policies in 2010, underperformance to the financial metrics under the latest forecast would likely pressure ratings. Further, Fitch believes the growing presence of low cost carrier service may raise greater sensitivity to CPE levels given its current above-average position. The current rating assumes that CPE levels will stabilize particularly since the authority anticipates no additional long-term borrowings over the next several years.

The bonds secured by the PFC collections mature in 2017 and are supported by annual cashflow that generate over two times coverage of annual debt service from current passenger throughput. The final years' debt service payment exceeds $55 million, as compared to annual payment requirements of $25 million to $27 million in other years. The balloon payment is expected to be met by the use of the $29.4 million held in the debt service reserve fund together will normal PFC collections.

Applicable criteria available on Fitch's website at 'www.fitchratings.com' include:

--'Rating Criteria for Infrastructure and Project Finance' (Sept. 29, 2009);

--'Airports Rating Criteria Handbook for General Airport Revenue, PFC and Letter of Intent Bonds' (March 12, 2007).

Additional information is available at www.fitchratings.com.

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