DALLAS — Fitch Ratings downgraded Dallas-Fort Worth International Airport to A-plus from AA-minus as it prepares to issue $301 million for its $2.7 billion terminal renovation program.
The downgrade also applies to $3.5 billion of outstanding joint revenue improvement bonds issued by Dallas and Fort Worth, which built the airport.
“The downgrade to A-plus reflects the significantly higher leverage position the airport will face after the planned $2.7 billion in additional debt is issued by 2015 due to the Terminal Renewal and Improvement Program (TRIP),” Fitch analyst Emari Wydick said in the report issued late Monday. “After the planned borrowing, DFW will have one of the highest debt burdens among peer airports, creating materially higher fixed costs for its operating budget.”
Standard & Poor’s affirmed its A-plus rating on the revenue bonds with a stable outlook. In 2009, Standard & Poor's shifted its outlook on the credit to stable from positive based on the prospects for a sharp increase in debt.
“The outlook revision reflects what we view as a weakening industry environment and stagnating airport traffic trends combined with weakening revenue trends likely to pressure near-term financial performance, long-term capital funding requirements, and uncertainty associated with an airline use and lease agreement under negotiation,” Standard & Poor’s analyst Kurt Forsgren wrote.
“We had revised the outlook to positive in April 2009 due in part to the benefits associated with the airport’s natural gas revenues as an ongoing source of funding,” he added.
Moody’s Investors Service affirmed its A1 rating with a stable outlook but also warned that the airport’s plan to issue up to $2.3 billion “will likely cause debt metrics to deteriorate beyond the parameters of the current rating level.”
With natural gas prices falling from record levels, DFW no longer expects revenues from drilling and production on the airport site to be a significant source of non-aviation revenues, according to analysts.
The drop in gas revenues has led DFW to rely more on debt funding for its capital plan than previously estimated.
TRIP will renovate terminals A, B, C, and E from 2011 through 2017. Those terminals were the first to open with the airport in 1974. Since then, it has added an international Terminal D and the Skylink people-mover that connects the terminals. Terminal D and Skylink were completed in 2005 and funded through a $2.7 billion bond program.
Paving the way for TRIP, the airport last week reached a new, 10-year use agreement with its major tenant, American Airlines. DFW officials expect to reach agreement with other carriers by Dec. 31.
Fitch noted that Dallas’ Love Field Airport will be more competitive in 2014 when restrictions on destinations are lifted. Currently, Love Field’s major tenant, Southwest Airlines, can fly nonstop only to cities in nearby states.
“Fitch will closely monitor the effects, if any, on air traffic at DFW,” Wydick wrote.