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Rating Action:

Moody's assigns A1 to San Antonio, TX airport senior lien Series 2019A&B; A2 to PFC and subordinate lien Series 2019A&B; affirms all outstanding ratings; outlook stable

08 Nov 2019

New York, November 08, 2019 -- Moody's Investors Service has assigned an A1 rating to the City of San Antonio, TX Airport Enterprise's $85.2 million Airport System Revenue Refunding Bonds (GARBs), Series 2019A (AMT) and Taxable Series 2019B. We have also assigned an A2 rating to the $95.5 million Passenger Facility Charge and Subordinate Lien Airport System Revenue Refunding Bonds, Series 2019A (AMT) and Taxable Series 2019B. Concurrently, we have affirmed the A1 and A2 ratings on the $295 million of outstanding senior and PFC/subordinate lien debt, which includes the bonds being refunded, as well as the A3 rating on the City of San Antonio, TX - Airport Consolidated Rental Car Special Facilities Project's $123 million Customer Facility Charge (CFC) revenue bonds. The outlook is stable.

RATINGS RATIONALE

The assignment and affirmation of the A1 rating on the senior lien revenue bonds reflects the overall strength of the airport's service area with a large, stable and diverse economy; mixed set of air carriers with some concentration by Southwest Airlines; and improving financial metrics given the recent trend of strong enplanement growth. However, we expect longer term growth rates will be curbed by the low average wage of the region and leakage of passengers to Austin. The enterprise's leverage measured by debt plus Moody's adjusted net pension liability (ANPL) is a moderate $90 per O&D enplaned passenger, though not exceedingly high compared with the sector-wide trend of significant additional debt issuance to fund capital plans. The development of a long-range master plan is currently underway, which could entail a sizeable amount of new debt.

The assignment and affirmation of the A2 rating on the PFC and subordinate lien revenue bonds has a one-notch distinction from the senior bonds. This reflects the subordinate pledge and lack of rate raising ability on the PFC, although PFC collections currently provide strong coverage on subordinate lien debt service if considered on a standalone basis.

The affirmation of the A3 rating on the CFC bonds considers the fundamental strength of the airport's service area, limited collection history yet solid revenue trend after the ConRAC facility officially opened in January 2018. The rating additionally considers the strong bondholder protection features including the ability to charge contingent rent to car companies and the City in the event that CFC collections fall short, as well as performance guarantees from operators. The CFC rate ($5.50 per transaction day) is within the standard range with room for increase if necessary. The ConRAC system benefits from adequate liquidity in the form of rolling coverage, surplus and renewal and replacement funds. The long-dated structure of the CFC debt is exposed to long-term technological disruptions like widespread passenger use of autonomous vehicles and thus negatively weighs on the rating.

RATING OUTLOOK

The stable outlook on the senior and subordinate lien bonds reflects our expectation that continued economic expansion in the San Antonio region will drive enplanement growth. Moderate enplanement growth will support stable to improving financial metrics given the flat debt service profile on airport revenue bonds. The stable outlook on CFC bonds is based on the expectation that the current trend of CFC collections will remain stable over the near term.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Enplanement growth well above the national average for all airports

- Total net revenue debt service coverage exceeds 2.0x on a consistent basis while maintaining current liquidity levels for both GARBs and CFC bonds

- Liquidity above 4x annual debt service requirements for CFC bonds

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Decrease in enplanement growth rates or passenger declines that compromise debt service coverage and CFC collections in a sustained manner below the airport's anticipated levels

- Continued decrease in debt service coverage by net revenues that would result in debt service coverage below 1.25x on a sustained basis on GARB bonds, 1.5x on for the CFC bonds

- Significant debt-funded expansion without a long-term airline agreement

LEGAL SECURITY

The senior lien revenue bonds are secured by a pledge of gross operating revenues derived from the operation of the city's airport system secure the airport system revenue bonds, on parity with outstanding senior lien debt. The senior lien revenue bonds debt service reserve funds requirement is equal to average annual debt service requirements. The required reserve on the portion of the parity debt funded by CFC revenues is equal to maximum annual debt service.

The PFC/subordinate lien revenue bonds are secured by a first lien on all PFC revenues and a first lien on all subordinate revenues of the airport system. The debt service reserve requirement is equal to average annual debt service. The 2019 refundings will terminate the reserve fund surety policies acquired in connection with the Series 2005 and 2007 bonds.

Secured by the assets of the Trust Estate pledged by the City which encompasses: first lien and security interest on (i) CFC revenues, (ii) lease agreements, (iii) performance guarantee revenues (equivalent to 6 months of estimated CFC revenues and ground rent from rental car companies) and contingent fees (additional payment obligations required to be paid by the Operators and the City in the event of shortfalls) and (iv) the amounts in the construction, revenue, debt service, debt service reserve, coverage, renewal and replacement and surplus funds. One third of the performance guarantee revenues may be in the form of a letter of credit with the remainder in a surety bond.

The CFC bonds benefit from a MADS reserve fund, an initial $7.5 million CFC Renewal and replacement fund which if depleted may be replenished over a period of 60 months, a 25% of MADS rolling coverage ($2.4 million) and a CFC surplus fund.

USE OF PROCEEDS

The 2019A GARBs are being issued for the purposes of: (i) currently refunding a portion of the City's outstanding indebtedness originally issued to finance or refinance Airport System improvements to be redeemed on January 1, 2020, and (ii) paying the costs of issuing the 2019A GARBs.

The Taxable 2019B GARBs are being issued for the purposes of: (i) advance refunding a portion of the City's outstanding indebtedness originally issued to finance or refinance Airport System improvements to be redeemed on July 1, 2020, and (ii) paying the costs of issuing the Taxable 2019B GARBs.

The 2019A PFC Bonds are being issued for the purposes of: (i) currently refunding a portion of the City's outstanding indebtedness originally issued to finance Airport System improvements to be redeemed on January 1, 2020, (ii) providing a portion of the funds to purchase a reserve fund surety policy in order to replace certain existing surety policies, and (iii) paying the costs of issuing the 2019A PFC Bonds.

The Taxable 2019B PFC Bonds are being issued for the purposes of: (i) advance refunding a portion of the City's outstanding indebtedness originally issued to finance or refinance Airport System improvements to be redeemed on July 1, 2020, (ii) making a deposit into the PFC Bond Reserve Fund, and (iii) paying the costs of issuing the 2019B PFC Bonds.

PROFILE

Originally built in 1941 as a military base, San Antonio International Airport became a commercial airport in 1953. The airport occupies approximately 2,600 acres of land and is located eight miles north of the City of San Antonio's downtown business district. The city owns and operates the Airport System. The Airport System includes the City of San Antonio International Airport and Stinson Municipal Airport, which is primarily a general aviation airport, including all its land, buildings, structures, equipment, and facilities.

San Antonio International has three runways, the largest one measuring 8,500 feet in length and 150 feet wide, two passenger terminals with abutting apron areas for aircraft parking; two terminals with 24 gates and approximately 623 square feet including: hold rooms, operations, ticketing, and common areas; concessions; aviation offices, and pedestrian access to existing parking facilities. Stinson is located five miles outside of the city, and is a designated general aviation reliever airport for San Antonio International. The airport is classified as a medium-hub airport by the Federal Aviation Administration (FAA) and is the only commercial service airport serving the City and the San Antonio metropolitan area.

The San Antonio International ConRAC opened for business in January 2018. The 1.8 million square feet facility houses up to 14 rental car companies, a quick turnaround area for fueling, vacuuming, washing and light maintenance and approximately 2,600 ready/return parking spaces. ConRAC is within walking distance to the Airport terminals, eliminating the need for shuttles to take passengers to their rental car locations, thus enabling the Airport to initiate significant improvements to traffic flow in the arrivals area.

METHODOLOGY

The principal methodology used in these ratings was Publicly Managed Airports and Related Issuers published in March 2019. 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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Julie Meyer
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

Kurt Krummenacker
Additional Contact
Project Finance
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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