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Rating Action:

Moody's assigns Aa3 to Atlanta GA Airport Enterprise's Series 2019A and 2019B Airport General Revenue Bonds and Series 2019C and Series 2019D Airport Passenger Facility Charge and Subordinate Lien General Revenue Bonds; outlook is stable.

07 Aug 2019

New York, August 07, 2019 -- Moody's Investors Service has assigned a Aa3 to the Atlanta (City of) GA Airport Enterprise's anticipated $319.8 million Airport General Revenue Bonds, Series 2019A (Non-AMT) and Series 2019B (AMT) and $459.4 million Airport Passenger Facility Charge and Subordinate Lien General Revenue Bonds, Series 2019C (Non-AMT) and Series 2019D (AMT). Concurrently, Moody's affirmed the Aa3 on the approximately $1,430.5 million outstanding Airport General Revenue Bonds and the Aa3 on the approximately $734.9 million Airport Passenger Facility Charge and Subordinate Lien Revenue Bonds and the A1 on bank bonds. The outlook is stable.

RATINGS RATIONALE

The Aa3 ratings reflect the strategic importance of Hartsfield-Jackson Atlanta International Airport (ATL) to the national air transportation system and the stable demand for origin and destination (O&D) traffic provided by the strong, diverse and growing Atlanta economy. The airport's position as the largest, and reportedly most profitable, hub in the system of financially strong Delta Air Lines, Inc. (Baa3 stable) additionally supports the airport's ability to recover modest increases in costs to fund the large capital improvement plan. While the airport retains substantial carrier concentration and transfer traffic risk, the relative credit strength of the two largest airlines at the airport, an inability to accommodate such large volumes of transfer traffic at another domestic airport, a 20-year lease agreement, and strong credit metrics largely mitigate these risks. The airport has a monopoly on air travel to the region that supports non-aeronautical revenues at high levels and leads to strong debt service coverage ratios (DSCR) for a predominantly connecting hub airport of around 1.5x.

Construction risk on the airport's large $4.1 billion five-year capital improvement plan presents the most significant downside risk and negatively weighs on the rating. Though the funding plan anticipates only 53% of the plan will be funded from bond proceeds, most projects are early in the planning and design phase and therefore lack committed contracts, introducing the risk that scope or cost increases will need to be funded by additional debt. If the CIP is completed within current estimates, adjusted leverage will reach a moderate level around $225 per origination and destination (O&D) enplanements that will trail most of the airport's heavily levered peers.

Moody's does not consider the recent proposed state legislation to move control of the airport to the state from the city to be a significant factor in the rating because ultimate rate making will be controlled and limited by Federal regulations on airport derived revenues. Additionally, Moody's expects that the city will rectify any revenue diversion that is identified in the FAA's current Section 16 review to maintain grant funding and PFC eligibility to fund the CIP.

The general airport revenue bonds (GARBs) and PFC hybrid bonds ratings are the same as each security has a subordinate lien on the other pledge, consolidating the overall revenue source. Moody's does not expect that GARBs will need to make a claim on PFCs above those currently planned nor will the PFC bonds need to utilize the subordinate GARB lien given Moody's expectation that DSCR will remain above 2.0x on PFC bonds. The A1 bank bond rating reflects the subordinate claim on net revenues after GARBs and PFC hybrid bonds.

RATING OUTLOOK

The stable outlook is based on our expectation for low enplanement growth over the next five years and the relative early design stage of most of the proposed projects.

FACTORS THAT COULD LEAD TO AN UPGRADE

-Significant progress on CIP design, contracting or construction completion that provides for certainty of the CIP being complete near the current budget while meeting current projections for DSCRs that are generally above 1.4x

FACTORS THAT COULD LEAD TO A DOWNGRADE

-Sustained senior lien net revenue debt service coverage ratio (DSCR) below 1.4x

-Sustained PFC and subordinate lien DSCR below 2.0x

-Any action by the FAA to reduce grant funding or PFC eligibility because of the revenue diversion policy

-Liquidity below 450 days cash on hand

-Any move by Delta to create an additional mid-continent connecting hub or an exit from the market by Southwest Airlines Co. (A3 stable)

LEGAL SECURITY

The senior bonds are supported by a pledge of net airport revenues, with a rate covenant of 1.10x coverage of senior lien bonds without the benefit of the coverage account (1.20x inclusive of the coverage account). The bonds are additionally supported by an additional bonds test requiring 1.20x coverage of pro forma debt service by historical revenues in the last two years and a cash funded debt service reserve account sized at maximum annual debt service. The city has discretion in the flow of funds from revenues and there is no monthly requirement for the funding of sinking fund accounts. However, senior lien debt sinking fund must be funded before the subordinate lien sinking fund.

The PFC and subordinate lien bonds have a first pledge of PFC collections and a subordinate pledge on general airport revenues. The bonds have a sum sufficient rate covenant and an additional bonds test that requires 1.20x coverage of maximum annual debt service by historic PFC collections, though collections can be adjusted to account for any national rise in the permitted PFC level. The bonds have a cash funded debt service reserve account sized at maximum annual debt service. The city has discretion in the flow of funds from GARB revenues and there is no monthly requirement for the funding of sinking fund accounts.

USE OF PROCEEDS

Series 2019A (Non-AMT), Series 2019B (AMT), Series 2019C (Non-AMT) and Series 2019D (AMT) bonds are being issued to finance (i) the design and construction of improvements to Hartsfield-Jackson Atlanta International Airport, (ii) making a deposit to the capitalized interest accounts, (iii) making a deposit to the debt service reserve account and (iv) to pay financing, legal, bond insurance and other issuing costs.

PROFILE

The City of Atlanta owns the airport, which is operated by Atlanta's Department of Aviation. The airport's terminal complex measures 7 million square feet and includes the domestic and international terminals building and concourses T, A, B, C, D, E and F. Within these concourses, there are a total of 193 gates, comprised of 152 domestic and 41 international. There are more than 30,000 public parking spaces at ATL. Since 1998, the airport has been the most traveled passenger airport in the world. The airport serves 150 U.S. destinations and more than 75 international destinations in 50 countries.

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.

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

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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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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