Colorado Springs Airs Lowered to BBB-Plus by S&P

Standard & Poor's Ratings Services said it has lowered its rating on the Colorado Springs, Colo.'s airport revenue bonds issued for Colorado Springs Airport to BBB-plus from A-minus.

The outlook is stable.

"The downgrade reflects our view of the airport's weakened competitive position, highlighted most recently by the departure of Frontier Airlines and subsequent loss in traffic," said Standard & Poor's credit analyst Anita Pancholy.

More specifically, the lower rating reflects the following factors: declining enplanement, with year-to-date traffic through July 2013 down 17.0% due to Frontier's departure; a weak competitive positive given its proximity to Denver International Airport, 70 miles north; and lower Standard & Poor's-calculated debt service coverage (excluding transfers) at 1.14x in fiscal 2012, although we believe this is still adequate.

The rating reflects the view of a small hub, origin and destination airport with manageable capital needs and no planned additional debt.

Enplanements have declined at an average annual rate of 4.7% since fiscal 2009, although fiscal 2012 traffic increased by slightly less than 1% to 822,000. Following Frontier's departure in April 2013, the airport's enplanements have fallen 17.0% year-to-date through July compared to the same period a year earlier.

Like many airports, COS' traffic had declined due to airline capacity consolidation, weaker economic conditions, and rising fuel prices before 2011. US Airways Inc. (operating as Mesa Air Group) discontinued service at the airport in January 2010.

During this period, Frontier and Southwest Airlines increased service at Denver International Airport. Management does expect some additional traffic through the remainder of fiscal 2013 through added frequencies on existing carriers and some additional service. However, it is unlikely traffic will return to fiscal 2012 levels in the medium term, in the rater's opinion.

COS, about eight miles east of downtown Colorado Springs on 7,000 acres of land, has one cross-wind and two parallel runways.

The stable outlook reflects Standard & Poor's expectation that despite further declines in enplanements, COS will maintain its strong liquidity position and that debt service coverage levels will not deteriorate. The outlook further reflects the expectation that the airport will need no additional revenue bond debt to complete its capital improvement program.

Standard & Poor's could take a negative rating action if operating performance, namely debt service coverage, continues to trend negatively in the next 12-18 months. It does not expect to raise the rating during the two-year outlook period, given fluctuating traffic trends.

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