CHICAGO — Fitch Ratings on Monday downgraded more than $220 million of general airport revenue bonds issued for Kansas City International Airport by one notch due to a decline in debt-service coverage ratios and increased exposure to non-airline related revenues.
Fitch downgraded to A from A-plus $176.3 million of city-issued, senior-lien revenue bonds and downgraded to A-minus from A $47.6 million of subordinate-lien bonds.
Analysts affirmed the A rating assigned to the airport’s $108.5 million of passenger facility revenue bonds. The outlook is now stable on all the GARBs.
Passenger travel levels declined 7.8% in 2008, and then by 8.4% last year due to the effects of the recession and decreased capacity at the airport. Passenger levels have increased by about 1% for the first few months of 2010.
Debt-service coverage has declined to 1.05 times this year from 2.04 times in fiscal 2007.
Airport managers have projected a sharp increase to a 1.6 times coverage ratio next year that relies on a 1.2% increase in passenger travel, increased lease revenue, and increased reliance on other non-airline revenue. A weakness of the credit is the lack of a minimum debt-service coverage ratio.
Non-airline revenues make up about 70% of the facility’s total operating revenue with parking fees representing about 40%. The airport has increasingly become reliant on customer facility charges and transportation facility charges to maintain coverage ratios.
“Although these revenues are not pledged to any bond series and the primary use of these revenues is for costs associated with the airport’s rental car facility, they are considered general revenues of the airport,” Fitch wrote. “If management is unable to meet its budget it may result in lower coverage levels and further rating action on the GARBs, particularly on the subordinate-lien GARBs, which are more dependent on the effective financial management of the airport.”
The airport’s GARB credit benefits from its strong competitive position, which is built on a virtual monopoly in the region.
It also enjoys a high origination and destination traffic base, a stable pool of carriers, a relatively low cost structure, and modest future capital needs with no near-term financings planned.
City voters authorized $395 million of new airport borrowing in 2000, but only $154 million has been tapped.
Though the passenger facility charge bonds are backed by a narrow revenue stream, the charges provide an adequate and stable revenue stream with a healthy coverage cushion of at least 2.2 times.
The airport is operated by the Kansas City’s Aviation Department.
