Cleveland's airport enjoys two upgrades ahead of bond sale

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Cleveland Hopkins Airport’s upcoming $110 million airport revenue bond offering will feature higher ratings thanks to a one-notch upgrade by two major credit rating agencies.

Moody’s Investor Service raised the rating on Cleveland’s airport system’s revenue bonds to A3 from Baa1 and S&P Global Ratings raised its rating to A from A-minus. The outlooks are stable. Fitch Ratings revised the outlook on its BBB-plus rating to positive.

Cleveland Hopkins is planning to issue $90.3 million of series 2018A refunding bonds and $21 million of series 2018B bonds. Proceeds from the bonds will refund airport revenue bonds for debt service savings and pay for capital improvements.

The airport anticipates a savings of roughly $5 million on the refunded bonds, which will be applied to lower debt service in fiscal 2020 to 2027, according to Moody’s. The airport did not provide details on the timing of the offering.

Moody’s credits the upgrade to the airport's strong enterprise risk profile and financial risk profile that has been lifted by the airport's transition from a connecting hub to a more traditional origination/destination profile.

“The upgrade to A3 reflects the transformation of Cleveland to a primarily origination and destination airport, a strong reversal of prior enplanement declines due to de-hubbing by United Airlines and growth by several low cost carriers, including some new international carriers,” Moody’s said in a report.

Origin and destination passengers account for 97% of enplanements. The airport’s well-diversified mix of airlines include United, Southwest Airlines, Delta Air Lines, American Airlines, Frontier, Spirit and JetBlue. United remains the airport’s leading carrier.

Cleveland's total traffic base is approximately 4.56 million enplanements, with solid positive growth trends since 2015. In fiscal 2016 and 2017, enplanements grew by 3.9% and 8.5%, respectively, according to Fitch. Enplanements are up approximately 9.9% year-to-date in 2018 reflecting new or increased service from Frontier, Spirit and JetBlue.

The airport's financial profile is stable and supported by a new airline agreement finalized on Jan. 1, 2017, that allows it to adjust terminal rents and landing fees to recover annual debt service and operating costs. The agreement has a five-year term, with two two-year options to extend.

Management has also focused on lowering the airport’s high per-passenger rates – some of the highest in the U.S. According to S&P, cost per enplanement for 2017 was $17.42 down from $21.56 in 2014 and is projected to fall to $15.39 in 2019. “Continued enplanement growth and management's focus on non-airline revenues should contribute to a lower CPE,” said S&P.

The Cleveland airport system also includes Burke Lakefront Airport.

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Ratings Airport revenue bonds City of Cleveland, OH Ohio