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25 Jan 2019
New York, January 25, 2019 -- Moody's Investors Service has upgraded Niagara Frontier Transportation Authority, NY's outstanding revenue bonds to A3 from Baa1 and has assigned an A3 to approximately $87 million in Airport Revenue Bonds, Series 2019A AMT and Airport Revenue Bonds, Series 2019B Non-AMT. The outlook is stable.
The upgrade to A3 from Baa1 incorporates the de-risking of the authority's debt profile reflected in the proposed refunding of all outstanding variable rate debt to fixed rate securities and the associated elimination of liquidity constraints from required collateral postings. The upgrade also incorporates the reversal in declining enplanement trends evidenced by two consecutive years in positive enplanement activity, and our expectation that positive enplanement growth will continue for a third consecutive year. In addition, the credit profile is strengthened by newly added non-stop air service not offered at nearby competing airports, enhancing Buffalo Niagara International Airport's (BNIA) competitive positioning relative to nearby airports in western New York and Canada.
The A3 considers BNIA's exposure to the economic challenges of the Buffalo service area and to Canadian passengers (40% of enplaned passengers from the service area) whose loyalty can be challenged by currency exchange rates and competition from Greater Toronto Airports Authority (Aa3 stable). The rating also considers a demonstrated track record of strong fiscal stewardship during periods of unfavorable enplanement activity, and our expectation that credit metrics will improve owing to recent enplanement trends, lack of liquidity constraints, and no new additional debt needs outside of the proposed issuance.
The stable outlook reflects our expectations that the Buffalo airport will continue to experience positive enplanement growth for a third consecutive year. In addition the outlook also incorporates our expectations that the airport will successfully complete baggage claim and terminal area improvements in order to enhance the passenger experience and accommodate the expected growth in enplanement activity which is projected to translate into improved credit metrics.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Improved financial metrics including sustained liquidity over 600 days cash on hand
- Improvement in share of O&D passengers from the Buffalo MSA
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Net revenue debt service coverage below 1.30x
- Days cash on hand below 300 days
The proposed issuance will be on parity with all outstanding bonds. The bonds are secured by a senior lien pledge of net airport system revenues. The airport system is currently defined as only BNIA. Bondholders are protected by an additional bonds test that requires 1.25 times coverage. The rate covenant requires sum sufficient coverage utilizing an unlimited amount of transfers from the airport development fund, which is the bottom bucket of airport revenues. A series specific debt service reserve fund is cash funded and is sized according to the standard three prong test.
USE OF PROCEEDS
The proposed refunding portion of the issuance is expected to result in net present value savings of approximately 3%. Approximately $28.3 million of the proposed issuance will be used to refund Series 2004A and 2004C variable rate bonds to fixed rate securities while approximately $1.5 million will be used to pay the corresponding swap termination fee. The proposed new money portion of the transaction of approximately $60.7 million will be deposited into a project fund to finance capital improvements for the baggage claim and terminal area. In addition, there is approximately $8 million that will be placed into a debt service reserve fund, while $1.3 million will be applied to the cost of issuance. Once completed, BNIA will have 100% fixed rate debt on its balance sheet.
BNIA is a medium hub airport located approximately 10 miles east of Buffalo's business district in Cheektowaga, New York. The airport consists of two air carrier runways, a 462,000 square foot terminal building with 26 gates, and 8,262 parking spaces.
The principal methodology used in these ratings 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.
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