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Rating Action:

Moody's assigns A2 to Memphis-Shelby County Airport Authority's (TN) forthcoming Series 2021 bonds; outlook stable.

09 Mar 2021

New York, March 09, 2021 -- Moody's Investors Service has assigned an A2 rating to Memphis-Shelby County Airport Authority's forthcoming Airport Revenue Bonds, Series 2021A (AMT), as well as Airport Revenue Refunding Bonds, Series 2021B (AMT), Series 2021C (AMT), and Series 2021D (Non-AMT), totaling approximately $173 million. The outlook is stable. Moody's rates the Authority's 2020A, 2020B, 2011B, 2011C, 2011D, 2011A-1, 2010B series bonds, and total GARB debt will stand around $519 million following the upcoming issuance and refunding.

RATINGS RATIONALE

The A2 rating reflects the relative resilience of Memphis International Airport's revenue profile, in part due to a residual airline agreement, and significant cargo operations, that serve as a buffer through a period of reduced enplanements. Memphis International Airport benefits from the presence of FedEx Corporation (Baa2 negative), which serves as an anchor to the airport, supporting an expanded capital improvement plan that limits increased costs on passenger airlines. Moreover, FedEx's operations serve a mitigating role to the historical volatility in passenger enplanements.

The rapid spread of the coronavirus outbreak, severe global economic shock, and asset price volatility are creating a severe and extensive credit shock across many sectors, regions and markets, including for airports. While the authority has experienced a material decline in the level of enplanements since the onset of the coronavirus pandemic, it remains supported by significant cargo operations, and adequate levels of liquidity that offer a financial buffer through this turbulent period. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

The A2 rating remains supported by the airport's near 100% O&D traffic profile, limited competition from surrounding airports, and a residual airline agreement, which is effective through June 30, 2021. The authority is currently negotiating a 1-2 year contract to become effective upon DBO of Concourse B. Debt service coverage ratios demonstrate stability at moderate levels (1.51x for 2016-2020) and Moody's would expect DSCR to remain at a minimum of 1.25x moving forward given coverage requirements.

Constraining credit factors remain the authority's high debt service legacy costs, rising required airline revenue which will result in higher cost per enplanements, as well as rising leverage due to a large capital plan. The authority's $772 million 5-year capital plan includes a $241 million project to optimize the airport's footprint and modernize Concourse B, and a $311 million consolidated deicing facility. Following the 2021 issuance, we project that debt to operating revenue will see a sharp peak above 6.0x in fiscal year 2021, after which the metric will fall below 5.0x, in line with previous expectations.

RATING OUTLOOK

The stable outlook reflects our expectation of stable DSCRs supported by the airport's airline agreement, and stable cargo operations to help offset pandemic related pressure on passenger airlines. The authority's liquidity also serves as a material buffer.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Completion of the capital plan with significantly lower than expected debt

- Debt service coverage above 1.75x, on a sustained basis

- Debt to operating revenue below 3.0x, on a sustained basis

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Significant reduction in FedEx's activity at the airport or sustained deterioration in air travel demand in the Memphis market

- Any developments that materially increase passenger enplanement costs and reduce airport competitiveness on a sustained basis

- Further increases in capital plan or other developments that would lead to debt to operating revenue remaining above 5.0x for a sustained period

- Liquidity declines to below 400 days cash on hand for a sustained period

LEGAL SECURITY

The authority's outstanding revenue bonds are secured by a pledge on net revenues. The authority's rate covenant requires net revenues to equal at least 125% of debt service, including a 25% rolling coverage account and ability to include last year's surplus when calculating DSCR. The debt service reserve fund is series specific and is set at the lesser of maximum annual debt service (MADS), 10% of proceeds or 125% of average annual debt service. An additional bonds test also requires that projected net revenues be sufficient to cover debt service during construction and then meet the 125% rate covenant (including rolling coverage) for three years on a prospective basis, including new debt service.

USE OF PROCEEDS

The Series 2021A bonds will be used to fund the remainder of the deicing facility (CDF). The 2021B, 2021C, and 2021D bonds will be used to refund the 2011 A-1, 2011B and 2011D bonds, respectively.

PROFILE

The Memphis-Shelby County Airport Authority is a body politic and corporate of the State of Tennessee, created in 1969 pursuant to the Metropolitan Airport Authority Act. The authority owns and operates the Memphis International Airport (MEM) and two general aviation reliever airports - Charles W. Baker Airport and General DeWitt Spain Airport. MEM has four runways. MEM is undergoing a terminal modernization that will consolidate and optimize capacity at the airport.

The airport is an O&D airport with annual enplanements of 1.71 million for year-end fiscal year 2020. Memphis frequently ranks as the busiest cargo airport in the US and the second-busiest cargo airport in the world behind Hong Kong. FedEx facilities contain approximately 3.8 million square feet and occupy 945 acres of leased space.

METHODOLOGY

The principal methodology used in these ratings was Publicly Managed Airports and Related Issuers published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1140469. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

David Kamran
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
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Kurt Krummenacker
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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