Fitch Ratings last week downgraded to A from A-plus roughly $1.24 billion of debt issued on behalf of the Indianapolis Airport Authority.

Standard & Poor’s revised its outlook on Indianapolis International Airport to negative from stable on Dec. 15. Standard & Poor’s maintains an A underlying rating on the debt.

The actions come as the authority prepares to issue roughly $28 million of revenue bonds. Proceeds from the issue will be used to refund outstanding commercial paper.

“The downgrade reflects more limited financial flexibility in light of the airport’s high leverage and weakening trends in airport traffic and debt-service coverage levels,” wrote Fitch analyst Andrew Abramczyk in a report on the downgrade.

The move also reflects risk exposure tied to variable-ate debt and swaps in the airport’s debt portfolio.

The primary airport serving Indianapolis, it handles roughly 4.1 million passengers a year. The issuer for most of the debt is the Indianapolis Local Public Improvement Bond Bank.

Enplanements are down about 10% for 2009 and are expected to decline a total of 18% through 2012, Fitch said.

The airport benefits from a reserve fund of $314 million, a diverse airline carrier mix, limited capital needs, and a diverse and broad regional economy.

The Indianapolis airport is the United States’ 44th-largest passenger airport, as well as its eighth-largest cargo airport, due to a large FedEx facility. The airport derives 60% of its revenue from non-airline revenue, such as cargo-related revenue, which Fitch considers a strength.

“However, given the large debt burden, the level of variable-rate exposure, and the potential for ongoing subsidies of the fixed costs borne by the carriers, Fitch views the ongoing maintenance of healthy fund balances to be key to the stability of the rating,” analysts warned.

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