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15 May 2019
New York, May 15, 2019 -- Moody's Investors Service ("Moody's") has assigned an Aa3 rating to the Charlotte (City of) NC Airport Enterprise's $183 million Airport Revenue Bonds, Series 2019A (Non-AMT) and Series 2019B (AMT). The outlook is stable.
The Aa3 rating reflects a solid credit profile based on the airport's maintenance of extraordinary financial operations, resilient enplanement levels, and the strength of the local demand for air travel. The airport's financial performance - particularly its cost per enplanement and liquidity levels - offset the airport's primary credit risk of reductions to American Airlines connecting operations and increased leverage to fund capital improvements. Based on the airport's financial position and cost structure as well as origin and destination (O&D) demand, we believe it could withstand a substantial loss of connecting traffic and remain on solid financial footing.
Challenges facing the airport are (1) the completion of a large capital plan that is far beyond the scope of what the airport has attempted before 2017, temporarily pressuring financial margins and (2) the potential for greater infrastructure needs beyond what is currently envisioned due to growth in the local service area. Mitigating these risks are management's track record of conservatism in forecasting, which provides further comfort that the airport will successfully transition through this period of higher leverage as well as the ongoing explicit approvals by the airport's signatory airlines to support the demand-driven scale and timeline of the airport's capital plan.
The stable outlook is based on our view that the economic strength of the service area economy will continue to drive strong O&D demand, providing ample cash flow to minimize the amount of debt required to fund the airport's expansion and renovation plans. We expect that the airport will retain its position in the American Airlines route network.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Successful completion of a capital plan which satisfies the airport's medium- to long-term infrastructure, in light of its higher than forecasted passenger growth
- Sustained and projected debt service coverage ratio (DSCR) above 2.50x
- O&D enplanements above 8 million
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Sustained decrease in O&D enplanements
- Sudden and severe reduction in connecting traffic by American Airlines
- Material impact on financial margins from capital program: sustained decrease in net revenue DSCR below 2.0x, debt per O&D enplanement above $400, days cash on hand below 700
- Cost overruns or delays on the airports capital program that negatively affects airport operations or increase leverage above expectations
All bonds are secured by Revenues after O&M. The bond order defines Revenues as operating revenues from certain cost centers, transfers and proceeds of business interruption insurance. Passenger facility charges (PFCs) are not pledged. Bondholders are protected by a rate covenant that rates remain sum sufficient for annual debt service requirements and 1.25 times including 25% from the rolling coverage account. Debt service reserve requirements are funded at the standard three-prong test. Bonds issued prior to 2014 benefit from series-by-series reserves. Bonds issued in 2014 and after have a common reserve account.
USE OF PROCEEDS
Series 2019 bonds are being issued to finance (i) certain capital improvements at Charlotte-Douglas International Airport, (ii) refinance a portion of the Series 2017D BANs, (iii) capitalized interest on the current offering, (iv) fund the debt service reserve fund and (v) pay the costs of issuance.
Charlotte-Douglas International Airport (CLT) is classified by the FAA as a large hub and is the largest airport in the state of North Carolina and a connecting hub for American Airlines. CLT is located approximately seven miles from Charlotte's central business district.
The Terminal Complex consists of the passenger terminal building, aircraft parking apron, public automobile parking facilities, rental car facilities, employee parking lots, Airline fueling facilities, and public roadways. At 1.8 million square feet, the existing terminal building was constructed in 1982, but has since been renovated and expanded to five concourses with 102 gates and 87 loading bridges. CLT's airfield has four runways, associated taxiways, runway safety areas and runway protection zones. All runways are equipped with precision landing systems and are able to handle scheduled service from virtually all types of aircraft. The aircraft parking apron is 220 acres of paved concrete contiguous to the terminal building, accommodating 111 aircraft parked at the concourses and 21 remote parking positions for overnight parking. CLT's parking facilities total 29,821 spaces made up of a combination of structured and surface, self-parking and valet parking. On-site rental car facilities include and comprise a quick turn-around service facility on the ground level and two levels of rental car parking with approximately 2,900 ready/return and quick-turn-around parking spaces. Remote storage and a service facility is located off-airport. Other facilities include the CLT Center, which houses much of the airport's administrative space, 44,000 square feet of general aviation terminal facilities and 480,120 square feet of aircraft hangars and operations space, cargo facilities, airline maintenance and training facilities, an airline flight kitchen facility, Army National Guard and North Carolina Air National Guard facilities, fueling facilities and two aircraft rescue and firefighting facilities.
The airport is owned and operated as a department of the city. It has been run as an enterprise of the city since its establishment in 1935. The Aviation Director reports directly to the City Manager.
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.
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