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Fitch Affirms Lee County, FL's Airport Rev Bonds at 'A'; Outlook Stable.

New York: Fitch Ratings has affirmed Lee County, FL's outstanding $254.5 million airport revenue bonds (issued on behalf of Southwest Florida International Airport (SWFIA, or the airport) at 'A'. The Rating Outlook on all of the bonds is Stable.


The rating reflects a well-balanced mix of major carriers serving a leisure-focused service area with an enplanement base that has demonstrated positive growth over the past several years. In addition, the rating reflects SWFIA's solid financial metrics with competitive cost per enplanement (CPE) levels, in the $6 to $7 range, and moderate leverage in the 4x range. The rating is further supported by the current hybrid airline use and lease agreement (AUL), as well as manageable capital needs and robust liquidity compared to peers within the rating category.

Leisure-Based Traffic - Revenue Risk (Volume): Midrange

SWFIA serves an origination and destination (O&D) enplanement base of 4.4 million passengers, with considerable dependence on discretionary leisure traffic and moderate historical volatility. The airport enjoys a diverse carrier mix with no airline holding more than a 22% market share and low cost carriers collectively representing nearly half of all enplanements. SWFIA faces little competition in the region with the nearest comparable airport 125 miles away.

Standard Cost Recovery Framework - Revenue Risk (Price): Midrange

The airport is able to recoup a majority of its costs under the current hybrid AUL that expires Sept. 30, 2018, but is currently in the process of being extended for an additional three years under similar terms. However, because approximately 59% of its operating revenue is non-aviation based, SWFIA's financial performance is exposed to enplanement volume and management's ability to contain costs. CPE was $6.47 in fiscal 2017, but is expected to average approximately $8.00 under Fitch's rating case.

Manageable Capital Program - Infrastructure Development and Renewal: Stronger

The five-year capital improvement plan (CIP) has increased to $495 million to include the construction of a new air traffic control tower as well as a potential terminal expansion. The air traffic control tower is expected to be bid out in January 2019 and is expected to be funded with passenger facility charges (PFCs), PFC debt funding and pay-go funding. The terminal expansion is still in the preliminary phase and would require the issuance of additional general airport revenue bonds (GARBs) or short-term debt. The majority of the CIP will be carried out on a pay-as-you-go basis. All projects are demand-driven and could be scaled back or deferred if enplanement growth does not materialize, with some projects having already been deferred over recent years.

Conservative Debt Structure - Debt Structure: Stronger

The airport's debt is fixed rate and fully amortizing, with aggregate level debt service of approximately $24 million annually through 2033. The bond covenants and debt service reserve fund (DSRF) are comparable to other hubs of similar size.

Financial Profile

The airport's net debt-to-cash flow available for debt service (CFADS) fell to 3.9x in 2017 and is expected to fall to approximately 3.3x in 2018 (fiscal year-end Sept. 30). Leverage remains moderate for a medium hub airport and will continue to amortize rapidly absent additional debt issuance. The financial profile is stable with a debt service coverage ratio (DSCR), taking into account PFC transfers, of 1.3x under the rating case, and strong unrestricted cash balances of $129 million, equating to approximately 720 days cash on hand (DCOH) as of the end of June 2018.


The airport's peers include Palm Beach County (PBI), Florida (A+/Stable) and New Orleans Aviation Board (NOAB), Louisiana (A-/Stable). Traffic and CPE levels are similar among these medium-sized hubs with elements of discretionary leisure travel and CPE below $10. All airports benefit from very strong cash positions, with SWFIA falling between PBI and NOAB in terms of leverage. NOAB has very high leverage, expected to increase above 11x due to its significant capital plans, with comparable DSCR metrics in the 1.3x range. PBI has much higher DSCR and lower debt balances with more moderate capital needs, allowing it to achieve one notch higher above SWFIA.


Future Developments That May, Individually or Collectively, Lead to Negative Rating Action:

--A Fitch calculated leverage that rises above 6x.

--Significant declines or volatility in the enplanement base.

--A sustained use of extraordinary coverage to maintain the rate covenant.

Future Developments That May, Individually or Collectively, Lead to Positive Rating Action:

--The airport's size and traffic profile, reflecting inherent vulnerabilities related to leisure travel, restrict the likelihood of a higher rating at this time.


Performance Update

Enplanement levels at the airport continue to grow from their post-recession low in fiscal 2012 as tourism in the area rebounds and airlines continue to add or increase route frequencies to various destinations. Total annual enplanements grew 20% from fiscal 2012, increasing by 2% in fiscal 2017, to over 4.4 million. Furthermore, this upward trend has continued in fiscal 2018, as enplanements are up an additional 4.5% through July 2018. Moderate enplanement and population growth are projected to continue in the near future; however, the airport remains vulnerable to discretionary spending related to the travel and leisure industry.

The airport's overall operating performance has remained stable. Total operating revenue in fiscal 2017 grew 3.6% while operating expenses only slightly increased by 0.2%. Net revenues grew by 3.6% in fiscal 2017 compared to falling by 4.2% in fiscal 2016. Concession, parking, and rental car revenues, which account for nearly half of total operating revenue, grew 4% in fiscal 2017, and remains an important source of revenue for the airport. The slight growth in operating expenses in fiscal 2017 is primarily attributable to an increase in fuel inventory for resale, data processing and janitorial services.

SWFIA's five-year capital plan now totals $495 million. The two largest projects include a $62 million air traffic control tower and a $160 million terminal expansion. The control tower is expected to be bid out in January 2019 and will be funded through grants, PFCs and unrestricted funds. The terminal expansion is expected to improve the overall efficiency of the airport by consolidating security check points and purchasing more equipment to move the security lines faster. It will also create more space for food & beverage and retail stores. The expansion is still in the early planning phases and would likely be funded through PFC's, which have not yet been submitted for approval to regulatory authorities. The projects are expected to be funded with additional borrowings, PFCs, grants, and excess cash.

Fitch Cases

Fitch has not assumed any additional debt in its cases. Although the airport has indicated plans to issue additional parity bonds to fund elements of its CIP (primarily the terminal expansion), the funding sources are too preliminary at this time to include in Fitch's forecasts. A significant portion of the cost is expected to be covered through PFC's. Applications, including the terminal designs have not yet been submitted as designs, are still underway. Based on information available to Fitch at this time, Fitch estimates that the airport could issue up to around $125 million of parity debt in FY 2021, while drawing down cash by $45 million, and maintain a leverage of below 6x in FY 2023.

Fitch's base case scenario assumes modest five-year compound annual growth rates for enplanements, revenues and expenses of 1.2%, 1.7% and 3.1%, respectively, from fiscal 2019 through FY 2023. Coverage levels, with PFC transfers, are maintained around 1.5x, while CPE remains in the mid-$7 range.

Fitch's rating case stresses enplanements by assuming a 5% decline in FY2019 followed by a modest recovery of around 1.5% growth in the projected years onwards, for a 1.3% CAGR. The rating case further assumes that non-aviation revenue tracks enplanements and that the airport passes through some additional cost to the airlines in order to compensate for this shortfall in revenue, resulting in CPE levels reaching above $8 by FY2022. Expenses are assumed to grow at 50 basis points above the base case levels. Under the rating case, the airport is able to maintain approximately 1.3x coverage with PFC transfers in the projected years. Fitch assumes that the airport maintains robust cash positions, with DCOH not falling below 600, resulting in leverage in the base and rating case gradually declining to below 2x by fiscal 2023.

Security: The bonds are secured by a pledge of the net revenue of SWFIA's operations and certain funds under the bond resolution. PFCs are not pledged under the bond resolution but such receipts can be transferred to reduce debt service requirements and to stabilize rates to airlines. The airport also has the ability to impose an additional airline charge through the extraordinary coverage protection provision to support the rate covenant.

A January 2018 district court ruling that dismissed claims regarding payment of Puerto Rico Highways and Transportation Authority debt has raised questions about the scope of protections provided by Chapter 9 of the U.S. bankruptcy code to bonds secured by pledged special revenues. Fitch's rating criteria treat special revenue obligations as independent from the related municipality's general credit quality. The outcome of the litigation could result in modifications to Fitch's approach. For more information, see "What Investors Want to Know: The Impact of the Puerto Rico Ruling on Special Revenue Debt" available at
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Jan 8, 2019
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