Fitch Rates Port of Seattle's 2006 Intermediate Lien Rev Rfdg Bnds 'A+'; Outlook Stable.

SAN FRANCISCO -- Fitch Ratings assigns an underlying rating of 'A+' to the Port of Seattle's $125,810,000 intermediate lien revenue refunding bonds, series 2006 (Non-AMT). The Rating Outlook is Stable. Expectations are that the bonds will sell during the week of May 30, through a Merrill Lynch led syndicate.

Furthermore, Fitch expects the bonds to receive insurance from a bond insurer, whose insurer financial strength is rated 'AAA' by Fitch. Additionally, Fitch affirms the following Port of Seattle's outstanding underlying ratings, with a Stable Outlook:

-- $1.3 billion senior lien revenue bonds at 'AA';

-- $452.6 million intermediate lien revenue bonds at 'A+';

-- $609 million subordinate lien revenue bonds at 'A';

-- $235.6 million passenger facility charge 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 (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 $62.4 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.

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 FY2005 estimates reflect cash and investment balances of $202 million, up 18% from FY2004's level. However, airport costs are increasing substantially due to the large $2.2 billion ongoing (2006-2011) 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. Recently, port management adjusted to seaport industry challenges and shipping alliances, by undergoing a significant reorganization and restructuring that should make seaport operations more competitive on the West Coast.

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 2.1% on average annually during 1996-2005 and enjoys a diverse airline mix. The Alaska Air Group (Alaska Airlines and Horizon Air) continues to hold a slight market share concentration at 47% in FY2005, but United Airlines and Southwest Airlines comprise the next two largest carriers, at 10% and 8% respectively.

Additionally, Fitch views the Seattle region as the commercial focal point for the Pacific Northwest; however, until recently, unemployment levels were above the national average, tax revenues declined and stagnated, and a volatile airline and airplane industry have had an adverse impact on the region. This region is prone to above average economic volatility. Fitch continues to monitor the above-mentioned credit concerns and the port's credit strengths, which help mitigate credit deterioration.

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