DALLAS - Fitch Ratings has downgraded $120 million of taxable revenue bonds sold in 2001 for a car rental facility at Houston Intercontinental Airport. Citing declining coverage ratios, Fitch cut the rating on the debt one notch to A-minus from A.
"The downgrade reflects an elevated risk profile, as a steep reduction in rental car transactions at Houston Intercontinental Airport's consolidated rental car facility will likely necessitate draws on project fund balances to meet debt service coverage in 2009," analysts wrote.
Standard & Poor's also rates the taxable bonds A-minus. Moody's Investors Service maintains an A2 rating on the debt. The bonds are insured by Financial Guaranty Insurance Co.
Last month, Standard & Poor's lowered its rating on Houston's airport system subordinate-lien revenue refunding bonds to A from A-plus ahead of an issue of $450 million of senior-lien bonds. Moody's lowered the subordinate-lien rating to A2 from A1. The senior-lien bonds carried ratings of AA from Standard & Poor's and Aa3 from Moody's, with no Fitch rating.
City officials see the decline in car rental income as a symptom of the larger economy and the falling passenger volume at airports across the country.
Through the first six months of 2009, rental car transactions and customer facility charge collections are each down 18.5% compared to last year. At the current level through the remainder of 2009, total collections will be only $9.6 million to $9.7 million, representing an annual decline of 14%-15%, according to Fitch.
Debt service coverage, without taking into account rolling coverage from the use of reserves, would fall to less than 0.9 times in 2009, according to Fitch. Comparatively, CFC collections were slightly over $11.3 million in 2008 and generated 1.07 times coverage.
The downgrade on the airport bonds does not affect a $500 million issue of general obligation bonds that Houston expects to price Wednesday or Thursday. The city could issue an additional $40 million but that will depend on potential refunding candidates on the day of pricing. The bonds will include a $75 million Build America Bonds component and another $420 million of tax-exempt bonds. The issue will be used to refund commercial paper and other bonds and certificates of obligation.
Loop Capital Markets will lead the underwriting team that includes nine co-managers.
The city earned ratings of AA from Standard & Poor's and Aa3 from Moody's, with no Fitch rating. The outlooks are positive.
While feeling the impact of the global recession, Houston has withstood some of the harshest effects. Shielded by its energy economy, the city has not seen a housing bust as deep as those of other markets and has not had to cut city services as much.
