The transportation market seems to be stabilizing, Fitch Ratings analysts said at a conference in New York City last week, before the agency publishes its 2011 outlooks for the sector.
While the actual economic decline and its effect on the sector have been “unprecedented,” ratings have not suffered as much as people expected, according to Cherian George, a managing director and head of the Americas in Fitch’s global infrastructure project and finance group.
Only 10% to 20% of transportation bonds faced negative impacts this year and those were mostly negative outlooks as opposed to rating downgrades, he said.
“We clearly think there’s an increasing stability,” George said.
The gradually recovering economy is partly the cause, he explained. State transportation departments have relied on fuel taxes paid by drivers for much of their revenue, and airports have mostly relied on landing fees paid by airline passengers for theirs. When the economy fell into a recession, those revenues plateaued or declined as people and businesses looked for ways to save money. But the revenues have since begun to climb back to previous levels, George noted.
Fitch has not yet published its 2011 outlook for transportation sector credits. An initial commentary on the sector’s outlook may be released as soon as December, but full outlooks will not be released until after the start of 2011, George said.
Looking ahead to the post-election financing environment, voters’ decisions this week will likely have an influence on what portfolio managers are concerned about, said Michael Craft, a research analyst in the fixed-income division of Fidelity Management and Research Co. Ballot initiatives and government appropriations in 2011 “will be a big risk factor to us,” Craft said during a panel, though he did not specify which ones.
In addition, the prospect of brand-new governors and state legislators and different public-private partnership laws will factor into market participants’ decisions about bidding on P3s, said Anne Hird Rabin, a senior vice president at Hochtief PPP Solutions.
“It takes a few million dollars just to submit a bid, so it’s … absolutely a concern,” Rabin said.
The conference also tackled airport credits. Panelists were mostly positive about the forecast for a the sector in 2011.
“We were bullish [on airports] going into 2010,” said Mark Streeter, a managing director at JPMorgan. “Results have exceeded my expectations.”
Streeter said airports’ access to capital has been impressive in 2010.
Airports over the past decade have weathered some huge changes, noted BlackRock director Christopher Fornal. Those changes included a number of airline mergers, bankruptcies, and the overall economic decline.
Streeter thinks airline consolidation has actually been good for financiers, airlines, and airports, in part because it has instilled a discipline in the pricing of airline tickets.
However, as credit rating agencies have noted in reports, some smaller airports are at risk as airlines consolidate or shift their capacity and their routes, according to Spencer Ballard, who heads LeighFisher’s business and finance group, handling bond feasibility reports for state and city airport authorities.
With that in mind, “we like large [origin and destination] airports in major markets with more of an international focus than domestic focus,” Fornal said of the airport bonds that his team is interested in buying.