Fitch Ratings said it has upgraded St. Louis, Mo.'s $740.2 million outstanding airport revenue bonds to BBB-plus from BBB.

St. Louis also has $63.1 million of series 1997, 2011A&B and 2012 series airport revenue bonds that are not rated by Fitch. The rating outlook remains stable

The rating upgrade reflects the continued stable traffic trends following years of volatility due to the loss of the American Airlines hub and the economic recession. Fitch's baseline expectation is for leverage and airline costs to remain stable going forward. The airport's prudent management of operating expenses and capital expenditures has strengthened the airport's financial profile.

Lambert-St. Louis International Airport (STL) is the primary air service provider for the St. Louis MSA with limited competition within the metropolitan area. The airport's traffic profile has shifted in recent years and currently serves primarily as an origination and destination (O&D) airport which represents 86% of their total enplanement with an enplanement base of 6.4 million. The largest carrier is Southwest Airlines representing 49% of the traffic.

The airline use agreement, which runs through 2016, provides a hybrid compensatory rate setting approach but also recovers all necessary operating and debt service costs through a residual-oriented financial backstop. Airline costs are on the higher side, at $14.55 per enplanement, but expected to remain flat going forward as long as either traffic activity holds stable or cost increases stay moderate.
The airport's debt is all fixed rate with a flat to declining debt service repayment profile.

Some financial limitations exist due to elevated leverage and modest coverage levels. Net debt to cash flow available for debt service (CFADS) equals to 7.6 times (x) while debt service coverage increased to 1.34x in FY2012. The airport has adequate liquidity with 509 days cash on hand (DCOH), including the reserves held in the airport's development fund.

Modest five-year capital improvement plan (2011-2016) totals $260 million, 46% of which is grant funded. No additional borrowing is needed, but Fitch anticipates some withdrawals from the airport development fund to complete projects which may potentially impact the airport's liquidity position.

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