Rating change affects $70 m of debt
NEW YORK, Jul 27, 2011 -- Moody's Investors Service has upgraded the rating on the Dallas Forth Worth
Public Facility Improvement Corporation (PFIC) Airport Hotel Revenue bonds to
Baa2 from Baa3. The rating upgrade reflects the maintenance of relatively solid
operations for the hotel throughout the period of the recession, and a current
trajectory of operating and financial recovery that points to the ability of the
project to withstand periods of notable stress. In addition, the upgrade of the
rating encompasses the unique feature of support from the Dallas Fort Worth
International Airport Board Capital Account with regards to the refilling of the
supplemental debt service reserve if the PFIC's revenues were insufficient.
LEGAL SECURITY: The bonds are special purpose, limited obligations of the Dallas
Fort Worth PFIC payable solely from net revenues of the project, certain funds
created under the indenture which include a 12-month supplementary debt service
reserve fund, a 12-month debt service reserve fund, and a 90-day operating
expenses fund. In addition, the bonds receive limited support pledged by the DFW
International Airport Board Capital Account per a financing agreement. The
indenture does not require a minimum debt service coverage ratio (DSCR) of, but
does require DSCR of 1.75 to issue additional bonds.
INTEREST RATE DERIVATIVES: None.
- Project is a premier facility integral to DFW's international terminal
- Large, affluent service area provides strong demand for origin and destination
- Passenger traffic levels at DFW remained stable, declining only modestly in
the economic downturn
- Credit metrics have held up relatively well during most recent period of
- Debt service reserves cover 24 months of debt service payments; DFW
International Airport supports the refilling of the supplemental debt service
reserve through its Capital Account
- U.S. lodging industry has a positive outlook in part based on the expectation
that business travel will recover through 2011
- No minimum DSCR is required under the indenture
- Exposure to economically sensitive revenues
CREDIT METRICS STABILIZED AND EXPECTED TO IMPROVE AFTER A RELATIVELY
MANAGEABLE DIP DURING THE RECESSION
The hotel is a 298 room upscale Grand Hyatt facility located within
the boundaries of the Dallas Forth Worth International Airport and is
accessed from the unsecured side of International Terminal D. Since its opening
in 2005, the hotel has done relatively well with hotel occupancy and financials
holding up during the recession period and now showing signs of improvement.
For FY2010, occupancy at the hotel reached 74.8% compared to 70.2% in the
previous year and 70.3% in 2008. The hotel and airport management budgeted a
decline in occupancy for FY 2011 given that the hotel is going through an
extensive renovation and will have several floors closed at any point in time
between May and August of 2011. As of May, occupancy stood at 76.6%, but is
expected to fall to about 50% in the summer months due to the construction.
Management expects that occupancy will recover to the 70% range once the hotel
Other metrics such as average daily room rate (ADR) and revenue per
available room (RevPar) have begun to improve slightly though they had taken a
notable hit in 2009, declining almost 19% from the high of 2008. At $171, the
ADR in 2010 slipped from the previous year's $173, but has recovered and is
expected to end up at around $190 for FY 2011. The rate is solid compared to its
immediate area peer group. RevPar also has began to trend positively, with
FY2011 RevPar expected to end up at $130 compared to almost $128 in FY2010, but
short of the $148 achieved in 2008. We would expect that the positive trend in
metrics will continue, if somewhat more muted than before the recession, given
the pickup in travel and especially business travel and the convenience and
nature of this facility.
DEBT SERVICE COVERAGE WEAKENED IN FY 2010, BUT STRENGTHENING AGAIN IN FY2011
DESPITE RENOVATION ACTIVITY AT THE HOTEL
Though hotel revenues in fiscal year 2010 were similar to those of the previous
years, these yielded a debt service coverage ratio of 1.45x, compared to 1.71x
in 2009, due to an increase in expenditures and principal repayment. FY2011 is
trending towards stronger performance and metrics which should yields a DSCR in
the range of 1.7x, even considering the ongoing renovation project.
The hotel is currently undergoing a $13 million major renovation of all rooms
and common areas. The work began May 1 and is reportedly on track to be
completed by Labor Day weekend. Consequently, the hotel has had and will have at
least one, if not two, floors closed at any one time through August. Hotel
occupancy rates for June and July are expected to be down to 48% and 45% ,
respectively. This compares to 76% and 65% for the same months in 2009.
SUPPORT FROM DFW'S CAPITAL ACCOUNT PROVIDES MODERATE CREDIT UPLIFT
Under the original agreement between the airport and the PFIC, the support from
the airport came from the airport's Fund 302. Fund 302 was within the capital
improvement fund (CIF) for the DFW International Airport Board, which was at the
bottom of the waterfall for airport revenues. Within the CIF, the Fund 302
support for the supplemental debt service account refill was at the bottom of
the flow of funds.
Per the new Use Agreements dated Oct 1, 2010, the DFW Capital Account (DFWCA)
took on the functions of Fund 302. The DFW Capital Account may be used at DFW's
discretion to fund any airport costs and projects, and if necessary, to
reimburse the Public Facility Improvement Corporation (PFIC). In effect, the
commitments to the PFIC bonds' supplemental reserve are now on par with other
capital expense needs of the airport, funded with monies from this account. The
changes to the account do not affect the commitment to support the bonds'
supplemental debt service reserve account.
As of the new use agreements the DFWCA is guaranteed in FY2011 to receive a
minimum of $40m a year and a maximum of $60 million. These amounts are adjusted
by CPI annually. The guarantee is derived from the user airlines, the majority
of which is made up by American Airlines (AMR Corporation CFR Caa1). If the
amount is over $60m, the excess cash is split between the airlines and DFW on a
75/25 basis with the airfield rates and charges adjusted for the following year.
As of June 14, 2011, the DFWCA had $106 million and it is expected to receive
another $63 million by the end of FY2011. This support from this account, in our
view, provides modest uplift to the PFIC bonds rating. However, given that
the money is also available for any airport costs and projects and that
the airport is undergoing a major terminal renovation project, we view the
support as worthy but limited in its scope.
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. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
For ratings issued on a program, series or category/class of debt, this
announcement provides relevant regulatory disclosures in relation to each rating
of a subsequently issued bond or note of the same series or category/class of
debt or pursuant to a program for which the ratings are derived exclusively from
existing ratings in accordance with Moody's rating practices. For ratings issued
on a support provider, this announcement provides relevant regulatory
disclosures in relation to the rating action on the support provider and in
relation to each particular rating action for securities that derive their
credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides relevant regulatory disclosures in
relation to the provisional rating assigned, and in relation to a
definitive rating that may be assigned subsequent to the final issuance of the
debt, in each case where the transaction structure and terms have not
changed prior to the assignment of the definitive rating in a manner that
would have affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following: : parties
involved in the ratings, [and] parties not involved in the ratings, [and] public
information, [and] confidential and proprietary Moody's Investors Service
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing a rating.
The stable outlook on the bonds indicates Moody's expectation that the hotel
will continue to perform in at least the current 70% range of occupancy once all
of the renovations are completed, therefore providing stable cash flows and debt
service coverage levels in the range of 1.65x or higher.
What could change the rating--UP
The rating is well placed in its rating category but could experience positive
rating pressure over the next couple of years if occupancy and other metrics
improved and were able to consistently produce DSCR above 2.0x.
What could change the rating--DOWN
A sharp and sustained decline in air travel at the airport which resulted in a
drop in occupancy and revenue would weaken the hotel's ability to pay its own
Facility Size: 298 rooms
Reserves: (As of 9.30.2010)
Operating Reserve: $4.2 million
Senior Debt Service Reserve: $6.8 million
Supplemental Debt Service Reserve: $4.5 million
FF&E Fund: $1.4 million
Operating statistics FY 2010 :
Occupancy rate: 74.8%
Senior debt service coverage: 1.45
Operating statistics FY 2011 Projected:
Occupancy rate (Estimated FY 2011): 70%
ADR (Estimated FY 2011): $190.00
RevPAR (Estimated FY 2011): $130.00
Senior debt service coverage (Estimated FY 2011): 1.72
Dallas Fort Worth Public Facility Improvement Corporation Airport Hotel Revenue
Series 2001, $70.6 million
Vice President Treasury Management
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.
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S UPGRADES THE DALLAS FORT WORTH PUBLIC FACILITY IMPROVEMENT CORPORATION HOTEL REVENUE BONDS TO Baa2 FROM Baa3
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007