St. Louis airport bonds win Fitch upgrade

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CHICAGO – St. Louis Lambert International Airport won an upgrade from Fitch Ratings citing favorable operating trends, good news that comes as the city is exploring whether to privatize the airport.

Fitch on Friday raised the rating to A-minus from BBB-plus on $325 million of airport revenue bonds. The airport has another $306 million of debt that’s not rated by Fitch. A stable outlook was assigned.

“The upgrade reflects continued favorable trends in enplanement growth combined with stable debt service coverage ratios and an improving leverage position,” Fitch wrote.

The rating reflects St. Louis Lambert's status as a medium hub airport with stable financial metrics, limited competition from other airports, manageable capital needs in the medium term, and expected maintenance of coverage levels consistent with recent norms, Fitch added. The rating also incorporates “modest” carrier concentration as Southwest Airlines accounts for 53% of total passengers.

The airport’s capital needs are modest with a $170 million capital program from fiscal 2017 to fiscal 2021. It relies on $86 million of debt. All of the airport's debt is fixed-rate. Maximum annual debt service of $69 million is scheduled in fiscal 2018.

Passenger levels increased by 7.7% to 7.2 million in fiscal 2017, building on 6.5% growth in fiscal 2016. Revenue decreased by 1.5% to $141 million in fiscal 2016, but was largely due to a reduction in air carrier fees from lower landing fee rates. Preliminary results for fiscal 2017 indicate revenue growth of 15.2%, partially due to increased charter activity.

On the city’s potential privatization plans, Fitch wrote: “Privatization is only in the exploration phase and there is not a strict deadline to pursue the privatization. The airport continues to operate under its current structure, and Fitch will continue to monitor the situation for any potential credit implications.”

Advisors interested in helping St. Louis explore a privatization under the federal pilot program have until Oct. 20 to submit proposals.

The city is seeking “a qualified and experienced advisory team” to assist it in developing the airport lease RFP, evaluating responses, negotiating favorable terms for the city, obtaining Federal Aviation Administration approval, and closing the transaction, the RFP says.

The city is considering a private lease as a means to “to improve and expand airport services for its business and recreational travelers as well as businesses that utilize airport facilities,” according to the RFP.

Lambert debt is rated A-minus by S&P Global Ratings and A3 by Moody's Investors Service.

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Public-private partnership Ratings Transportation industry City of St. Louis, MO Missouri