Fitch Rates Dallas-Fort Worth (TX) Revenue Bonds Series 2012H 'A+'; Outlook Negative
Fitch Ratings has assigned an 'A+' rating to Dallas-Fort Worth International Airport, Texas' (DFW) approximately $345.7 million joint revenue improvement bonds, series 2012H. Fitch also affirms approximately $3.9 billion in outstanding joint revenue improvement bonds issued by the cities of Dallas and Fort Worth, Texas for DFW at 'A+'.
The Rating Outlook for all bonds remains Negative.
KEY RATING DRIVERS
SIZABLE TRAFFIC BASE SUBJECT TO CONCENTRATION AND CONNECTING EXPOSURES: The airport is located in a strong primary market area that generates strong demand for air service. Further, DFW's favorable central geographic location provides for a well-balanced traffic profile for both domestic and international passengers. DFW relies on its dominant carrier, Fort Worth-based American Airlines (American; Issuer Default Rating 'D'), with approximately 87% market share and a high proportion of connecting traffic. American has maintained its current scale of operations at DFW since its bankruptcy filing in November 2011, although uncertainty remains with regards to future operating decisions.
STRONG RATE SETTING MECHANISMS: The recently implemented airline use agreement allows for timely recovery of costs within all airline cost centers and provides for adequate cashflow generation to meet all funding requirements under the bond documents as well as funding for renewal and replacement. Airline costs are currently low for a large-hub airport at $6.32 but will double over the next five years as airport capital spending is funded.
FIXED RATE, LOW COST CAPITAL STRUCTURE: All of DFW's debt is issued in fixed rate mode with generally conservative debt amortization.
STABLE FINANCIAL METRICS: Debt service coverage (DSC) and liquidity metrics have historically been sound. In fiscal 2011, DFW's DSC was 1.52 times combined with almost 600 days cash on hand. High leverage remains a concern as debt per enplanement is expected to approach $200 in fiscal 2015 (ended Sept. 30) or north of $450 per origination enplanements.
LARGE SCALE CAPITAL PROGRAM RELIES ON ADDITIONAL BORROWINGS: Much of the $1.94 billion terminal renewal and improvement program as well as the other $1.9 billion of airport improvements will be funded by up to $3 billion of additional borrowings. In light of American's current bankruptcy situation, prudent management of capital spending and borrowings will be critical to credit maintenance.
WHAT COULD TRIGGER A RATING ACTION
--Changes to American's Service Operations: The Chapter 11 bankruptcy position of American and its principal operating subsidiaries could result in material operational changes that are adverse to DFW's credit.
--Lack of Adequate Revenue Growth: Given the debt focused nature of the airport's capital program, a reliance on growth of both airline and non-airline revenues will remain key to managing costs and controlling leverage. Revenue underperformance, particularly from non-airline sources could pressure DFW's rating.
--Regional Competition: Beginning in October 2014, all restrictions related to domestic air service to or from a competing airport will be removed and any airline will be allowed to operate nonstop service to all U.S. destinations. Fitch will closely monitor the effects, if any, on air traffic at DFW.
The bonds are secured by an irrevocable first lien on gross revenues generated by the operation of DFW, as well as passenger facility charge revenues to the extent they are specifically pledged to an individual series of bonds.
Net proceeds of the series 2002H bonds will be used to finance capital improvements at DFW airport. The bonds will be fixed rate obligations with a final maturity on Nov. 1, 2045.
For additional information on DFW, please see the Fitch release 'Fitch Rates Dallas-Fort Worth (TX) Airport Refunding And Improv Bonds 'A+'; Outlook Negative' dated April 12, 2012. For information on AMR Corp's voluntary filing, please see the Fitch release 'AMR Restructuring to Boost Industry Revenue Fundamentals,' dated Nov. 29, 2011. Both are available at www.fitchratings.com.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Airports' (Nov. 28, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Airports
Seth Lehman, +1-212-908-0755
One State Street Plaza
New York, NY 10004
Mike McDermott, +1-212-908-0605
Chad Lewis, +1-212-908-0886
Elizabeth Fogerty, +1-212-908-0526