Approximately $752 million of rated debt outstanding
New York, April 25, 2016 -- Issue: The Indianapolis Local Public Improvement Bond Bank Refunding Bonds, 2016A (Indianapolis Airport Authority Project); Rating: A1; Rating Type: Underlying LT; Sale Amount: $164,600,000; Expected Sale Date: 05/23/2016; Rating Description: Revenue: Government Enterprise;
Summary Rating Rationale
Moody's Investors Service has assigned an A1 rating to The Indianapolis Local Public Improvement Bond Bank ("Bond Bank"), IN's $165 million Refunding Bonds Series 2016A (Indianapolis Airport Authority Project). Concurrently, Moody's has affirmed the A1 rating on all of the outstanding Bond Bank revenue bonds backed by obligations of the IAA. The outlook is stable.
The A1 rating is supported by the strong market position as an origin and destination (O&D) airport in a diverse economic region and limited competition from other airports, attracting diverse air service to Indianapolis International Airport (IND). While leverage has historically trended very high for the A1 rating level, recent refundings and amortization have brought metrics more in line with the authority's A1 peers. Furthermore, Moody's considers the authority's forecast for no new debt issuances to fund capital projects in the period 2016-2020 and maintenance of high liquidity levels, both of which provide stability to the rating.
The proceeds will be used to refund or defease all or a portion of the Bond Bank's Bonds, Series 2006F, pay the costs of issuance of the 2016A Bond Bank Bonds and the Indianapolis Airport Authority Refunding Revenue Bonds, Series 2016A. The Bond Bank issues bonds that are backed by an equivalent obligation from the Indianapolis Airport Authority (IAA).
The stable outlook is based on Moody's expectation that the airport has recovered from depressed enplanement levels resulting from airline industry consolidation and that the current high levels of enplanement growth will revert to more moderate levels in line with the area's economic growth. The outlook is also based on our view that the airport will continue amortizing its debt, maintaining liquidity near current levels.
Factors that Could Lead to an Upgrade
Debt per O&D enplaned passenger below $150
Debt service coverage ratios (DSCRs) above 1.50 times based on Moody's net revenue coverage calculation
Maintenance of liquidity above 600 days cash on hand
Factors that Could Lead to a Downgrade
Enplanements decline below 3 million passengers or stagnate with high volatility year-over-year, with cost to airlines increasing well above CPI
Debt service coverage declines below 1.5 times on a bond ordinance basis or 1.1 times based on Moody's net revenue coverage calculation
The 2016A Authority Bonds have a cash-funded reserve sized at the lesser of:
(1)10% of principal par amount;
(2)125% of the average annual principal and interest debt service; or
(3)the maximum principal and interest debt service in any future calendar year
The Series 2016A bonds are secured by the Authority's pledge of net revenues - gross revenues less operating and maintenance expenses.
The Series 2010C variable rate bonds and the private placement series 2012A, 2013A and 2013B bonds do not have a reserve fund.
Use of Proceeds
The proceeds of the bonds will be used to refund all or a portion of the outstanding Bond Bank Series 2006F (IAA Series 2006A) bonds and pay issuance costs.
The primary source of revenues comes from the operations of IND, a medium hub airport as classified by the FAA. The airport's terminal was completed in November 2008 with 40 aircraft gates. The Authority owns approximately 7,700 acres of land.
The A1 rating is one notch below the grid indicated rating of Aa3. The rating considers the high proportion of variable rate debt and negative mark-to-market value of the related swaps, which are assessed outside of the grid.
The grid is a reference tool that can be used to approximate credit profiles in the airport industry in most cases. However, the grid is a summary that does not include every rating consideration. Please see Airports with Unregulated Rate Setting for more information about the limitations inherent to grids.
The principal methodology used in this rating was Publicly Managed Airports and Related Issuers published in November 2015. Please see the Ratings Methodologies 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 certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.
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Moody's assigns A1 to Indianapolis Bond Bank's (IN) Ser. 2016A, affirms outstanding ratings; outlook stable
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