Fitch Rts Clark County, Nevada's Las Vegas-McCarran Int'l Airport Sys Series 2006.

SAN FRANCISCO -- Fitch Ratings assigns Clark County, Nevada's Las Vegas-McCarran International Airport ratings as follows:

--$100,000,000 airport system subordinate lien revenue bonds, series 2006A (Non-AMT) at 'A+';

--$300,000,000 airport system junior subordinate lien revenue notes, series 2006B-1 (AMT) at 'F1+';

--$150,000,000 airport system junior subordinate lien revenue notes, series 2006B-2 (Non-AMT) at 'A+';

Fitch also affirms the 'AA-' rating on approximately $245 million airport system senior lien revenue bonds, 'A+' rating on both $1.1 billion airport system subordinate lien revenue bonds and $507 passenger facility charge/airport system subordinate lien revenue bonds. Finally, Fitch affirms the 'A' rating on $103 million 2003C jet aviation fuel tax/airport system junior lien revenue bonds. The Rating Outlook is Stable on all liens.

The series 2006A bonds are expected to price on a negotiated basis led by Siebert, Brandford Shank & Co on Aug. 29, 2006 and Citigroup is leading the sale for the 2006B-2 (Non-AMT) bond anticipation notes (BANs) on Sept. 13, 2006 and the 2006B-1 (AMT) BANs on Sept. 28, 2006. The 2006B-1 BANs mature July 1, 2008 and the 2006B-2 BANs mature July 1, 2010.

Fitch's 'F1+' and 'A+' ratings on the BANs are based on the credit quality of the issuer and mechanisms already in place for the take-out financings. In anticipation of this issuance, the Clark County Department of Aviation's (department) management has entered into $1 billion of forward synthetic fixed rate swaps, obtained bond insurance commitments, and has bond purchase agreements with Citigroup for the take-out financings, including the series 2008A&B, 2009A&B, and 2010A bonds. Furthermore, another $550 million of parity tax-exempt capital asset program term extendible note shelf (CAPTENs) are expected to be issued in the next one to two years, and then taken-out by the 2009A&B bonds.

The department consists of Las Vegas McCarran International Airport (McCarran) and five other general aviation or reliever facilities. The strong ratings reflect McCarran's large origination and destination passenger base and healthy airline market share diversity, which produce consistently high financial margins. Total enplaned passengers increased by a healthy 5.2% in fiscal year (FY) 2006, following two years of greater than 10% annual growth. Thirty-three carriers provide scheduled service, including a strong presence from Southwest Airlines (Southwest Airlines Issuer Default Rating (IDR) 'A'; Stable Outlook by Fitch) at 33% of the overall market share and America West at 19% (US Airways Group IDR 'CCC'; Positive Outlook by Fitch). The Las Vegas region itself is a strong origination and destination (O&D) market, evidenced by the low percentage (12%) of connecting airport passengers. McCarran serves the fast-growing Las Vegas region with a 2005 resident population of 1.8 million and 26 million visitors (through Aug. 31, 2005).

Good management and the use of a hybrid rate-making methodology generate excellent annual financial results, as reflected by a strong balance sheet -- $207 million in unrestricted cash and equivalents and $1.1 billion in restricted assets in FY2005. The FY2005 operating ratio was a healthy 46% and non-airline revenues as a percentage of operating revenues remain high at 51%. Debt service coverage (including the coverage funds and offsets) on the senior and subordinate bonds was 3.91 times (x) and 2.19x, respectively in FY2005, well above the 1.25x and 1.10x rate covenants. Furthermore, the FY2005 airport cost structure was very competitive; the landing fee was $1.22 and the cost per enplaned passenger was $4.71. Preliminary FY2006 financial estimates reflect solid growth.

Credit concerns center on McCarran's increasing debt burden and use of complex financings. The capital plan details issuance of $1.4 billion of long-term bonds starting in 2008 to provide for construction of the new Terminal-3. McCarran's pro-forma long term debt is expected to increase to approximately $3.2 billion. Of the total, 66% of the debt portfolio will be synthetically fixed, while 23% and 11% remain in traditional fixed and unhedged variable-rate modes, respectively. Although McCarran's capital structure will be heavily exposed to interest rate derivatives, management's debt strategies seem reasonable and the risks are somewhat mitigated by McCarran's solid cash balances and annual operating profits. Swap oversight is directed through a swap policy, advice from a financial advisors and a policy of marking-to-market and quarterly reporting. Also of concern is the Las Vegas service area's economy, which remains concentrated in the gaming, tourism, and convention industries. Consequently, the region's economy is highly correlated with the health of the US and global economies, as well as the propensity of travelers to spend on leisure activities.

Additionally, the airport's passenger facility charge (PFC) drops in September 2006 to $3.00 from $4.50 for a period of up to two years. Although the extra $1.50 was not pledged to PFC bondholders, it represented additional funds that could be used for debt service and/or pay-go projects. Finally, Fitch will monitor the department's appeal of recently lost litigation and/or future potential settlements and the financial impact to the system. Maximum liability on pending litigation is estimated at $300 million-$500 million, although the final cost may ultimately be lower.

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.