SAN FRANCISCO - Fitch Ratings upgraded $3.8 billion of San Francisco International Airport revenue bonds to A-plus from A Monday, citing relatively strong performance during an economic downturn that has badly battered most of the nation's other airports.

Fitch also affirmed its F-1 rating on the airport's short-term debt and revised the outlook to stable from positive.

The upgrade "reflects the airport's continued positive performance of both passenger traffic and financial results, despite the current economic conditions, as well as the airport's ability to produce solid financial metrics and debt service coverage levels through economic cycles and industry challenges," said analysts Jesse Ortega and Seth Lehman in a report published Monday afternoon.

The upgrade comes as the airport prepares to bring four series of tax-exempt, fixed-rate bonds to market in October and November with a total par amount that could be from $765 million to $1.37 billion. The amount depends on the results of an optional tender on $600 million of bonds that are subject to the alternative minimum tax and qualified for refunding under the American Recovery and Reinvestment Act's AMT tax holiday.

The upgrade brings the Fitch rating in line with Moody's Investors Service A1 rating on the airport's debt and puts its one notch above Standard & Poor's A rating.

San Francisco International, known as SFO, has dodged some of the economic pain that's hit competitors, thanks to growth in domestic discount airline traffic. Its enplaned passenger traffic rose 2.1% in July, compared to the same month a year earlier. Enplanements are down 2.5% calendar year-to-date.

But that's much better than Bay Area rivals, which were hit first by a steep rise in jet fuel prices and then by cuts in flight schedules as the recession deepened in late 2008 and early 2009.

Norman Y. Mineta San Jose International Airport - which Fitch downgraded to A-minus from A-plus earlier this month - saw enplanements decline 15.8% from a year ago in July. Oakland International Airport's July enplanements fell 16.7% from a year ago.

"SFO's passenger enplanements held relatively steady" in fiscal 2009, the analysts said. "Growth in the airport's overall domestic passenger base counterbalanced the airline industry capacity reductions."

The airport's unaudited 2009 results showed an operating ratio of 44% and debt service coverage ratio of 1.44 times. Those results help offset the weak economic environment, continued exposure to struggling United Airlines, a complex debt portfolio and high fixed costs, the report said.

The airport is in the process of reconstructing its Terminal 2 and making airfield improvements that will together cost $1 billion by 2014.

The four new bond issues include $445 million of new money - Series 2009E - to be sold in early November. Series 2009F will be sold in November or December to refund $232 million of fixed-rate AMT bonds. Series 2009D will rollover $88 million of notes that mature Dec. 1. Series 2009C will refund some of $600 million of non-callable AMT debt that was issued between 2004 and 2008.

SFO issued a tender notice on Sept. 18 and has given investors until Oct. 13 to offer their bonds up, said John Kim, a principal at De La Rosa & Co., which is managing the tender along with Morgan Stanley. He wouldn't say how much debt the airport hopes to get back from investors.

Issuers have had mixed results with tender offers. Airports in Sacramento, Dallas and St. Louis were unable to buy bonds back from investors at a price that would allow them to reap savings on the AMT holiday, but the Port of Los Angeles got about half of the bonds it wanted back from investors in a $550 million tender in June.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.