Amended -- Fitch Rates Sacramento County Airport System's $79.4MM 2006A Revs 'A+'.

SAN FRANCISCO -- (This is an amended version of the release dated April 10, 2006; it contains new data on the sub-series and the broker-dealer.)

Fitch Ratings assigns an 'A+' rating to the County of Sacramento Airport Systems' (the system) $79.4 million auction-rate revenue bonds (AMT), consisting of $39.7 million of sub-series 2006A-1 and $39.7 million of sub-series 2006A-2. Morgan Stanley & Co. Inc. will serve as the broker-dealer on the series 2006A bonds and Wells Fargo will serve as the auction agent. Scheduled payments of principal and interest on the 2006A bonds will be insured by XL Capital Assurance, whose financial strength is rated 'AAA' by Fitch. Sub-series 2006A-1 and sub-series 2006A-2 are expected to price on May 1, 2006 and June 5, 2006. In addition, Fitch affirms the following ratings for the system with a Stable Rating Outlook:

-- $132 million senior lien airport system revenue bonds 'A+';

-- $50.6 million airport system passenger facility charge (PFC) and subordinated revenue bonds 'A+'.

The senior lien bonds are secured by net revenues of the airport system. The passenger facility charge and subordinated revenue bonds are secured by both a lien on the system's PFC revenues and the system's subordinate revenue. The purpose of the series 2006A bonds is to finance $7 million in capital projects and to refund the series 1996A bonds in the amount of $81.7 million. The system has entered into an interest rate swap with Morgan Stanley Capital Services (swap counterparty) to synthetically fix the interest rate on the 2006A bonds and hedge against rising interest rates. The full and complete swap payment to Morgan Stanley is guaranteed by XL Capital Assurance.

Fitch's 'A+' rating reflects management's ability to make use of the system's hybrid lease structure to generate strong cash balances and to maintain the low cost structure at Sacramento International Airport (SMF). The system's cash balances reached a high of $112 million in 2005, up from $81 million in 2000. However, the airport system's days cash on hand slipped to 493 days in 2005 from 515 days in 2000, as operating expenses increased to $83 million, up from $58 million. As operating expenses have outpaced operating revenues, growing at an average annual rate of 7.5% and 6.2% respectively, the operating margin decreased slightly to 17% in 2005 from 20% in 2000. Nevertheless, bondholder security is strong as the system's debt service coverage ratio on the senior lien reached 2.21 times (x) in 2005 and 6.19x on the PFC and subordinated revenue bonds the same year. The Stable Outlook on all the outstanding bonds reflects the system's relative monopoly position as the only airport system serving both passenger and air cargo service in a developing and growing region.

The system consists of four airports, including SMF, Mather Airport, Executive Airport, and Franklin Field. Scheduled commercial service is only provided at SMF and Mather Airport. Both Executive Airport and Franklin Field are general aviation facilities. SMF has a strong passenger market that provides the airport the ability to offer non-stop service to 28 different cities with 158 flights per day as of January 2006. Enplanements grew steadily at an average annual growth rate of 4.4% between 1995 and 2005. Post-Sept. 11, SMF's traffic rebounded quickly and reached five million in 2005, up 21.5% over 2001 levels, proving the resiliency of the market and the necessity of travel to and from the state capital region. The low cost structure at SMF, with CPE for FY2005 equaling $5.51 encourages new entrants and a competitive fare environment that facilitates enplanement growth. As a consequence, SMF is served by a diverse mix of airlines including both mainline legacy carriers and low cost carriers. 14 major airlines served SMF in 2005, with the addition of five new entrant airlines since 2001. Southwest Airlines has the largest market share with 49.9% in 2005, followed by United Airlines with 10.1%, America West Airlines with 6.2%, American Airlines with 5.5%, and Delta Airlines with 5.3%.

The strong enplanement growth rate is supported by a healthy and diversifying regional economy and resultant gains in population. SMF is geographically located in a valley between the San Francisco Bay Area and the California-Nevada border. This location allows SMF to service the neighboring counties that include El Dorado, Placer, San Joaquin, Solano, Sutter, Yolo, and Yuba Counties, in addition to some more rural communities in the San Joaquin valley and the foothills of the Sierras. From 1990-2000, population increased over 17% and has risen 12% since 2000 to 1.4 million in 2005, in Sacramento County alone. Furthermore, the economic base is stabilized by the county's status as the seat of California state government, with governmental services accounting for 36% of the employment base. Fitch expects the region's economy and population to continue to grow given the affordability and availability of land for residential and commercial development.

The key credit concern is the sizable airport system capital plan that totals $1.6 billion. The single largest expense includes the construction of a new airport terminal that is expected to accommodate the growing passenger demand of the region, expected to reach 6.3 million enplanements in 2011. As the capital financing plan continues to evolve, more detail will be available prior to the issuance of the additional debt. As sources of funds become identified, Fitch will assess the impact to credit quality. While SMF has been historically maintained as a low cost facility, a new terminal will undoubtedly increase the airline's rates and charges, thus making the airport a higher cost facility. At this juncture, it is unclear how a higher cost facility may impact the existing competitively low fare environment. Additional credit concern remains the growth in operating and maintenance expenses that have contributed to the decreased operating margin in 2005. As profitability declines, it will remain important to monitor the execution of this large capital plan.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.