Fitch Rates Port of Seattle's $273MM 2007 Revs 'AA'; Affirms Outstanding; Outlook Stable.

SAN FRANCISCO -- Fitch assigns an underlying rating of 'AA' to the Port of Seattle's $272,630,000 Revenue Bonds; consisting of $40,770,000 series 2007A (Non-AMT) and $231,860,000 series 2007B (AMT). The Rating Outlook is Stable. Expectations are that the bonds will sell during the week of March 5, 2007 through a Goldman, Sachs & Co led syndicate. Furthermore, Fitch expects the bonds to be insured by a guarantor whose financial strength is rated 'AAA' by Fitch.

Additionally, Fitch affirms the Port of Seattle's outstanding underlying ratings, with a Stable Outlook, as follows:

--$1.1 billion senior lien revenue bonds at 'AA';

--$577 million intermediate lien revenue bonds at 'A+';

--$601 million subordinate lien revenue bonds at 'A';

--$227 million passenger facility charge (PFC) revenue bonds at 'A'

Fitch also affirms the underlying 'A-' rating on $119 million in outstanding special facilities revenue bonds (Sea-Tac Fuel Facilities LLC), with a Stable Rating Outlook. Bondholder security is primarily net facilities rent (airline payments for access to the fuel system) payable under the lease between the Port and Sea-Tac Fuel.

The Port of Seattle's (the port) high ratings reflect its importance as a regional transportation provider, diverse revenue streams, and management's financial acumen. The port owns and operates Seattle-Tacoma International Airport (Sea-Tac or the airport), which accounted for 75% of total operating revenues in fiscal-year (FY) 2005, as well as a system of seaport terminals (the seaport), accounting for the remaining 25% of total operating revenues. Further enhancing financial stability is the port levied property tax, which generated $63 million of revenues in FY2005. These diverse revenue sources provide economic strength enabling the Port to consistently exceed its debt service requirements. Overall debt service coverage in FY2005 was estimated at 2 times (x) and coverage on the first lien bonds was very strong at 2.71x. Unaudited financial results for FY2006 are also quite strong with overall debt service coverage estimated at 1.95x.

Strong management techniques and stable throughput at port facilities have resulted in good cash flow and a strong balance sheet. A written return on investment policy, swap policy and refunding targets are only some of the proactive measures taken by management. Preliminary FY2006 estimates reflect cash and short-term investment balances of $313 million, up 55% from FY2005's level. However, costs are increasing substantially due to the large $2.2 billion ongoing (2007-2011) capital plan. Therefore, the system's cost structure may limit upside potential for net income and cash balance growth in future years.

The seaport division operates as a landlord tenant port with a diverse, stable stream of lease related revenues from cargo ships, terminal operators, property rentals, and, in recent years, increasing cruise ship activity. Series 2007 bond proceeds will be used primarily for relocating cruise ship operations to Terminal-91, expanding Terminal-30 for container operations and reimbursing the port for expenditures at Shilshole Bay Marina.

Sea-Tac serves the Seattle metropolitan area and provides transfer service to the entire Pacific Northwest. Along with having a near market share monopoly, since Portland International Airport is more than 100 miles away, the airport experienced decent historical enplanement growth of 2% on average annually during 1996-2006 and enjoys a diverse airline mix. The Alaska Air Group (Alaska Airlines and Horizon Air) continues to hold a market share concentration at 48% in FY2006, but United Airlines and Southwest Airlines comprise the next two largest carriers, at 10% and 9% respectively.

Additionally, Fitch views the Seattle region as the commercial focal point for the Pacific Northwest, but historically this region has been prone to above average economic volatility. Yet, Fitch rates the State of Washington's General Obligation Bonds (GO) 'AA' and King County's Unlimited Tax GO Bonds 'AAA,' reflecting the economic and financial strength of the state and county.

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.