THE SYSTEM HAS $561.1 MILLION IN OUTSTANDING DEBT
Alaska (State of) Airport Enterprise
Airport
AK
Moody's Rating
ISSUE | RATING |
|---|
Airport System Refunding Bonds, Series 2010A | Aa3 |
Sale Amount | $115,950,000 |
|---|
Expected Sale Date | 09/15/10 |
|---|
Rating Description | Revenue |
|---|
|
Airport System Refunding Bonds, Series 2010B | Aa3 |
Sale Amount | $21,600,000 |
|---|
Expected Sale Date | 09/15/10 |
|---|
Rating Description | Revenue |
|---|
|
Airport System Revenue Bonds, Series 2010C | Aa3 |
Sale Amount | $12,545,000 |
|---|
Expected Sale Date | 09/15/10 |
|---|
Rating Description | Revenue |
|---|
|
Airport System Revenue Bonds, Series 2010D | Aa3 |
Sale Amount | $19,545,000 |
|---|
Expected Sale Date | 09/15/10 |
|---|
Rating Description | Revenue |
|---|
|
Opinion
NEW YORK, Sep 7, 2010 -- Moody's Investors Service has revised to negative from stable the outlook on the
State of Alaska's Airports System Revenue Bonds. At this time we have assigned a
Aa3 rating to $169.64 million of Airport System Revenue and Refunding Bonds
Series 2010A, B, C & D. Moody's is also affirming the Aa3 rating on the
system's outstanding parity debt totaling $561.1 million. The negative outlook
is based on the airport's high leverage and volatile activity trends, which are
both susceptible to continued weakening should poor economic conditions persist.
The Alaska International Airport System (AIAS) includes the Ted Stevens
Anchorage International Airport and the Fairbanks International Airport.
USE OF PROCEEDS: The 2010A and B bonds are being issued to refund a portion of
the system's $165.3 million 1999A,B,C and 2002B Airport System Revenue Bonds for
savings. As part of the refunding, the system is extending the maturities on the
debt by 3 years. The 2010C and D bonds are being issued to fund certain portions
of the system's capital program. The majority of the proceeds will be used for
the rehabilitation and extension of Runway 7R. Seventy-five percent of this
expense will be reimbursed by FAA Airport Improvement Program grants in the form
of Letter of Intent (LOI) payments in the coming years. The system intends to
use those grant receipts, in conjunction with excess cash, to reduce
outstanding debt through a series of optional redemptions.
LEGAL SECURITY: Net revenues of the airport.
INTEREST RATE DERIVATIVES: None
STRENGTHS
* Role of air transportation in state economy gives system near-monopoly status
of a highly essential transportation service
* Substantial cargo revenues limit exposure to passenger airlines; largest
tenant, Alaska Airlines, accounts for only 13% of operating revenues with no
other tenant accounting for more than 7%;
* Solid liquidity position provides for significant financial flexibility
*Future debt requirements are limited for at least the next five years
CHALLENGES
* Concentration in Alaska Airlines for passenger enplanements
* Above average debt level and airline cost per enplanement due to recent large
capital expenditures
* Enplanement levels have declined for two consecutive years and cargo traffic
has been more volatile than previously expected
* The system's debt service reserve fund is funded with $18.6 million in cash
and $31.2 million in sureties from National Public Finance Guaranty ($29.2M) and
AMBAC ($2.0M), but the system intends to contribute $2 million annually to
fully cash fund the reserve
RECENT DEVELOPMENTS:
The airport system has seen substantial volatility in both passengers and cargo
over the past two years. While passenger declines have not been as sharp as at
some airports in the U.S., Anchorage has experienced declines of -3.8% and
-4.8% in the past two fiscal years, respectively. Unlike most other rated
airports, cargo revenues represent the bulk of aviation revenues at Anchorage,
accounting for approximately two-thirds of airline derived revenues. Total cargo
certified maximum gross take-off weight (CMGTW) at the airport declined -24.9%
in FY 2009, but rebounded somewhat in FY2010 with 15.6% growth. Still Moody's
believes the weaknesses in the global economy have the potential to restrict or
reverse cargo volume growth at the airport in the near term.
The risk of lower activity levels at the airport is heightened by the airport's
high leverage position relative to its peer airports. The system is among the
most highly levered airports when measured by either debt to operating revenues
(6.1) or debt per O&D enplaned passenger ($263). Compared to the U.S.
airport sector medians of 3.6 and $77.84, respectively, these figures indicate
that the airport is more susceptible to changes in activity levels. Through the
expected LOI payments and excess cash generated from achieving an annual
coverage factor, the airport expects to reduce its debt at an accelerated pace
from 2013 through 2017; however, in the near term the debt levels remain a
significant concern.
Cost per enplanement (CPE) has been kept low by use of excess construction funds
and surplus cash in FY 2009, 2010 and FY 2011. This use of cash has made the
common metrics of CPE and debt service coverage an inaccurate measure of the
airport for this time period. Airline costs have remained reasonable and
decreased from $9.89 in FY 2008 to $9.08 in FY 2009. Costs appear to
have increased in FY 2010 with a preliminary CPE of $9.92 and the state expects
them to increase modestly to the $10-11 range for the next few years. The
airport system had $65 million of excess construction funds and surplus cash
available and received approval to use them to reduce debt service costs in the
three years mentioned above. As a result, debt service requirements were
reduced by $25 million in 2009, $25 million in 2010, and will be reduced $15
million in 2011. This has kept CPE low while allowing debt service coverage to
increase from 1.30 times in FY 2008 to 1.52 times and 1.80 times in FY 2009 and
FY 2010, respectively. It has had the reverse effect on debt service coverage by
net revenues, which fell to 0.70 times in FY 2009 from 1.24 times in FY 2008. If
the airlines had to be charged for the debt service that was paid by the left
over construction funds FY 2009 CPE would have been approximately $2.90 higher
and debt service coverage by net revenues would have been approximately 1.26
times.
An additional concern remains the debt service reserve fund (DSRF) that is only
partially cash funded. The reserve requirement is met through $18.6 million of
cash, $29.2 million of National Public Finance Guarantee Corp (rated Baa1,
developing) surety policies, and $2.0 million of Ambac (rated Caa2, ratings
under review for possible upgrade). The extensive reliance on sureties from
companies with weak credit strength materially weakens the protections afforded
to bondholders. The airport has taken steps to address this weakness and will
begin infusing $2 million of cash into the reserve fund in FY 2011. Previously
the bond indenture did not allow additional cash contributions to the DSRF. This
DSRF weakness is partially offset by the system's strong liquidity, which stood
at 644 days cash on hand at the end of FY 2009. This strength has been eroded by
the spending down of funds to reduce debt service requirements and will continue
to decline to support some of the airport's capital projects. However, the state
does not expect unrestricted cash balances to fall below one year of days cash
on hand.
The majority of the airport system's current capital program was set at the
completion of the airline use and lease agreement that began in 2008. The
airlines approved $177 million of capital spending through 2013 in that
agreement and have since approved an additional $23 million of projects, $19.1
which was increases in the cost of the runway 7 right upgrade and
rehabilitation. That project and the planned rehabilitation of runway 7 left are
by far the two largest projects in the program and both are almost entirely
funded through FAA AIP grant funds. Phase I of the Runway 7 right project is
expected to be complete September 30th. The runway will close again in May 2011
for Phase II of the upgrade and for the runway extension project. These projects
have not yet been bid, so costs are only estimates. The rehabilitation of runway
7 left is not expected until 2012.
Only $13 million of the program anticipates bond funding and those proceeds will
primarily fund land acquisition, periodic improvements at both airports, and
provide matching funds for the FAA grants in conjunction with the runway
projects and taxiway projects. Approximately, $29.5 million of the total capital
program will be at Fairbanks Airport, the largest of this is also a runway
rehabilitation project of $18.3 million also 95% funded with AIP grants.
Bond ratings were assigned by evaluating factors believed to be relevant to the
credit profile of the issuer such as i) the business risk and
competitive position of the issuer versus others within its industry or
sector, ii) the capital structure and financial risk of the issuer, iii) the
projected performance of the issuer over the near to intermediate term, iv) the
issuer's history of achieving consistent operating performance and meeting
budget or financial plan goals, v) the nature of the dedicated revenue stream
pledged to the bonds, vi) the debt service coverage provided by such revenue
stream, vii) the legal structure that documents the revenue stream and the
source of payment, and viii) and the issuer's management and governance
structure related to payment.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, public
information, confidential and proprietary Moody's Investors Service's
information, confidential and proprietary Moody's Analytics' information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
Outlook
The negative outlook is based on the airport's high leverage and
volatile activity trends, which are both susceptible to continued weakening if
poor or stagnant economic conditions persist.
What Could Change the Rating - UP
Continued revenue diversification through enplanement growth by carriers other
than Alaska Airlines or a strengthening in cargo operations that further reduces
costs to all airlines could place positive pressure on the rating.
What Could Change the Rating - DOWN
Unexpected increases in the airport's costs to the airlines that reduces its
strategic advantage for commercial and/or cargo operation or a continued decline
in enplanement and cargo levels at the airport could have a negative impact on
the rating.
KEY INDICATORS
Type of Airport:O&D
Rate-making methodology:Residual
FY 2010 System-wide Enplanements: 2.79 million
5-Year Enplanement CAGR 2005-2010:1.5%
FY 2010 vs. FY 2009 Enplanement growth:-4.8%
% O&D vs. Connecting, FY 2010:86%
Largest Carrier by Enplanements, FY 2010 (share):Alaska (62%)
FY 2010 vs. FY 2009 Cargo landed weight growth:19.8%
FY 2009 vs. FY 2008 Cargo landed weight growth: -24.5
Airline Cost per Enplaned Passenger, FY 2009:$9.08
Airline Cost per Enplaned Passenger, FY 2010 prelim:$9.92
Debt per Enplaned Passenger, FY 2009 :$226
Debt Service Coverage, FY 2009:1.52x
Utilization Factor, FY 2010:4.6
RATED DEBT
Series 1999A,B&C Airport System Revenue Bonds, $145.6 million, Aa3
Series 2002 B Airport System Revenue Bonds, $19.7 million, Aa3
Series 2003A&B Airport System Revenue Bonds, $71.9 million, Aa3
Series 2006A,B&D Airport System Revenue Bonds, $273.9 million, Aa3
Series 2009A Airport System VRD Revenue Refunding Bonds, $50.0 million, Aa3
All debt is fixed rate except Series 2009A.
CONTACTS
Keith Day
Controller
(907) 266-2404
MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
Analysts
Kurt Krummenacker
Analyst
Public Finance Group
Moody's Investors Service
Maria Matesanz
Backup Analyst
Public Finance Group
Moody's Investors Service
Contacts
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA
MOODY'S REVISES THE OUTLOOK ON THE STATE OF ALASKA AIRPORTS SYSTEM BONDS TO NEGATIVE; Aa3 RATING AFFIRMED
