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Rating Action:

Moody's assigns A1 to LAX's (CA) Series 2018C Subordinate Revenue Bonds, outlook is stable

28 Jun 2018

New York, June 28, 2018 -- Moody's Investors Service ("Moody's") has assigned an A1 to the City of Los Angeles Department of Airports - Los Angeles International Airport Enterprise's, CA (LAX) $470 million Subordinate Revenue Bonds, 2018 Series C (AMT). LAX has approximately $2.2 billion of outstanding subordinate lien debt that is also rated A1 and has $3.6 billion of senior lien debt rated Aa3. The rating outlook is stable.

RATINGS RATIONALE

The A1 rating is based on LAX's superior market position as the largest airport in the second largest population center in the US, limited competition from operationally constrained airports, and the lowest air carrier concentration of any US airport. LAX's strong market position is demonstrated in the largest base of origination and destination enplanements in the US and financial metrics that are the strongest of its international gateway peers.

The rating is constrained by the large amount of construction at the airport that poses risk of project completion delays, cost overruns and operational closures. Also, the long construction timeframe (approximately 5 years) of the automated people mover (APM) project could lead passengers to choose other regional airports.

RATING OUTLOOK

The stable outlook reflects Moody's expectation of continued demand growth in the region that will allow the airport to cash-fund significant portions of its capital plan while maintaining debt service coverage ratio above 1.5x and liquidity above 425 days cash on hand. We expect that the construction risk mitigation strategies LAX has in place will prevent large construction cost overruns.

FACTORS THAT COULD LEAD TO AN UPGRADE

- The capital improvement program continues to progress without additional cost increases, particularly for the Midfield Satellite Concourse project and the access improvements

- Funding of all projects that keeps projected leverage below $250 debt per O&D enplanement, which could occur if enplanements exceed the current forecast and no unexpected debt is incurred

- Debt service coverage ratio for all debt above 2.5x

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Considerable declines in enplanements or increases in debt requirements above expected levels leading to reduced debt service coverage below 1.75x for the senior lien or 1.5x for all bonds based on Moody's net revenue calculations

- Reduced internal liquidity levels below LAWA's target of 365 days cash on hand

- Airline cost per enplanement that grows faster or to levels significantly higher than other international gateway peers that could erode LAX's competitive position

LEGAL SECURITY

The senior lien bonds are secured by a pledge of net revenues generated at LAX and the subordinate lien bonds are secured by a pledge of net revenues subordinate to the claim of the senior bondholders. Revenues generated at the other airports operated by LAWA are not pledged to the bonds. The senior lien bonds have an additional bonds test (ABT) that requires historic net revenues plus rolling coverage equal 125% of maximum annual debt service (MADS), or that the senior rate covenant has been met and will be met, including additional bonds, to the later of five years after issuance or three years beyond the use of capitalized interest. Subordinate bonds have an ABT that is similar to the seniors but with a subordinate net revenues threshold of 115% on subordinate debt.

The debt service reserve fund is fully funded with cash to meet the requirement of the lesser of MADS, 10% of par outstanding, or 125% average annual debt service.

USE OF PROCEEDS

Proceeds from the Series 2018C bonds will be used to pay or reimburse certain capital projects at LAX, make a deposit to the Subordinate Reserve Fund, fund a portion of the interest accruing on the Series 2018C Subordinate Bonds and pay costs of issuance of the Series 2018C Subordinate Bonds.

PROFILE

LAWA also operates Van Nuys Airport and LA/Palmdale Regional Airport in addition to LAX. Only the revenues derived from the facilities at LAX are included in the security pledge for this bond issue.

LAX is located approximately 15 miles from downtown Los Angeles on the western boundary of the city and occupies approximately 3,673 acres. The central terminal complex features a decentralized design with nine individual terminals constructed on two levels lining a U-shaped two-level roadway. LAX currently has a total of 113 contact gates in the central terminal along with a number of remote gate positions for a total of 141 gates. The existing airfield consists of four parallel east-west runways configured in two pairs. Approximately 15,764 public parking spaces are available at LAX in parking lots owned by LAWA. Cargo facilities at LAX provide approximately 2.2 million square feet of building space in 26 buildings on 166 acres of land devoted exclusively to cargo.

METHODOLOGY

The principal methodology used in this rating was Publicly Managed Airports and Related Issuers published in October 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Earl Heffintrayer
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
Plaza Of The Americas
600 North Pearl St. Suite 2165
Dallas 75201
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Michael Mulvaney
MANAGING DIRECTOR
Project Finance
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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