WASHINGTON — Having already assigned a negative outlook to Garvees, Fitch Ratings said downgrades could occur for such bonds without a backup pledge of revenues if lawmakers don’t approve a longer-term reauthorization of highway and other surface transportation programs by March 31.
“Continued short-term extensions beyond March 31, 2012, without any progress on a longer-term program, which addresses the fundamental mismatch between [highway trust fund] receipts and outlays, could lead Fitch to lower its opinion of the strength of the federal program from strong to midrange,” the rating agency said in a 2012 outlook report on U.S. transportation infrastructure. “A change of opinion on the federal program would result in a downgrade of the ratings on Garvee bonds without a state backup pledge.”
Fitch said Garvees, short for grant anticipation revenue vehicles, are the biggest potential problem spot in the transportation sector for the coming year. Garvee bonds are backed by anticipated federal transportation grants.
The agency outlook concluded that, overall, widespread negative rating actions are unlikely to occur in 2012 for U.S. transportation credits it rates unless fuel prices surge or the Euro Zone debt crisis triggers a shock to the larger financial system that causes declines of more than 5% in the volume at U.S. airports or on toll roads.
Fitch assigned a stable outlook for U.S. toll roads, saying, “Most ratings will not be immediately affected by slowing growth or small reductions in traffic volumes, given continued pricing power.”
But the rating agency said, “The political environment may also play a role as elected officials may be less willing or able to raise tolls in the next year or two than when the [financial] crisis first began in 2007.”
Fitch said that, generally, there should be greater stability in airport ratings next year relative to this year and last, but that credit quality could decrease in airports where leverage is elevated and debt service depends on growth, or at airports with limitations on cost recovery.
The rating agency has maintained a negative outlook on 16 U.S. airports and a negative watch on one since Dec. 8. The negative watch is on the airport in Burbank, Calif.
Fitch analyst Seth Lehman said in a release, “With macro indicators and airline consolidation indicating limited to no growth for U.S. airports, Fitch’s outlook for airports may skew to negative during the course of the year.”
Fitch is paying close attention to the recent Chapter 11 bankruptcy filing of American Airlines, the third-largest U.S. airline, Lehman said, because bankruptcy proceedings are unpredictable and could result in operational changes that adversely impact its key domestic hubs in Dallas-Fort Worth, Miami, and Chicago.
The rating agency is also watching the integration of United and Continental and Southwest and AirTran to see if it will result in either of the airlines pulling out of any airports, he said. He cited the example of Southwest, which has a significant presence in Norfolk, Va., and Air Tran, which was in nearby Newport News. The newly consolidated airline decided to pull out of Newport News.
At the other end of the spectrum, JetBlue has been aggressively expanding its network and capacity and this has been beneficial to airports it frequents in Boston and Orlando, Fitch said.
In the outlook, Fitch said, “Given both the current economic climate and the continued capped rate of the passenger facility charge (PFC), airports will be under pressure to either leverage existing revenue streams further (i.e. terminal concessions or parking) or create new revenue sources. Absent these successes, airports that operate with both rising debt service costs and tepid traffic performance could be facing more financial pressure.”