OREANDA-NEWS. Fitch Ratings has assigned an underlying rating of 'A' to $193 million in Port of Seattle, WA (the port) Subordinate Lien Revenue Refunding Bonds, Series 2008. The bonds are on parity with the port's outstanding subordinate lien revenue bonds, series 1997 and 1999. The Rating Outlook is Stable.

Fitch currently rates the port's first lien, intermediate lien, subordinate lien, and passenger facility charge (PFC) revenues bonds: 'AA', 'A+', 'A', and 'A', respectively. Please see the rating action commentary dated July 6, 2016 ("Fitch rates Port of Seattle First Lien 'AA' & Intermediates at 'A+'; Affirms Outstanding") for more details.

KEY RATING DRIVERS

The ratings reflect the Port's strong position in the Seattle market for both air service at Seattle - Tacoma International Airport (Sea-Tac) and cargo at the seaport. First lien coverage is strong at over 4.5x, while intermediate and subordinate lien coverage is also strong in the 1.6x range per Fitch's calculations. The considerable gap between first lien and intermediate lien coverage supports the two notch differential between the liens, as does the difference in leverage at each lien level. While a sizable capital program is underway with additional borrowing expected for roughly 50% of the plan, leverage is expected to remain consistent with the current rating levels as debt amortizes. The credit compares favorably to consolidated peers with port and airport operations including Massport and Oakland, with lower CPE levels and comparable leverage.

Revenue Risk - Volume: Stronger

Strong Asset Base: The port operates Seattle-Tacoma International Airport (Sea-TAC), the primary regional air passenger service provider with a virtual monopoly in the Seattle area (70% origination and destination for FY 2015). Delta's (Delta Air Lines rated 'BBB-'/Stable Outlook) expansion at the airport, as well as competitive responses from Alaska (Alaska Air Group, rated 'BBB-'/ Negative Watch) and other carriers, has enabled a faster pace of traffic growth in recent years, with 2015 enplanements up 12.8% and international enplanements up 14.4%. The Northwest Seaport Alliance between the Ports of Seattle and Tacoma, which had its financial start in January 2016, may have a stabilizing effect on cargo volumes in Puget Sound, though the ports continue to operate in an extremely competitive west coast port environment with shippers continually making adjustments between the various ports to the gulf and east coast.

Revenue Risk - Price: Midrange

Diverse Revenue Base: The port has large and diverse revenue streams between and within its airport, seaport, and other divisions, including tax levy revenues that are assessed over the Port District that is co-terminus with King County. The airport division contributed roughly 76% of 2015 total operating revenues while other businesses generated 24% of revenues; included in this are businesses licenced to the seaport alliance, which generated 12% of revenues. The airline use and lease agreement is hybrid compensatory with both coverage payment triggers and some surplus revenue sharing components.

Infrastructure Development/Renewal: Stronger

Large Scale Capital Program with Future Borrowings: The port contemplates a sizable $2.4 billion capital program for 2016 through 2020 with 86% of the capital budget focused on aviation. Financial flexibility could be strained if most or all of the contemplated $1.21 billion in future borrowings are issued for this capital program during the forecast period. The utilization of the port's multiple lien levels for the additional debt could affect the respective coverage ratios at each lien.

Debt Structure: Stronger (Sr); Midrange (Intermediate and Sub)

Conservative Debt Structure: 89% of the port's debt is in fixed rate mode. Structural features are sound. Fitch notes that all lien levels are open for future borrowings, though the outstanding debt benefits from amortizing profiles with level or declining annual debt service requirements.

Financial Metrics

Stable Coverage, Moderate Leverage: The port's debt service coverage ratios (DSCRs) have historically been healthy with senior, intermediate, and all-in coverage of 4.6x, 1.7x, and 1.6x in 2015. Historical and projected DSCRs in the plan of finance indicate much higher DSCRs for first lien debt than for intermediate and subordinate lien debt, supporting the two notch differential to the intermediate lien. Senior leverage, as represented by net debt to cash flow available for debt service (CFADS), is cash positive, while total leverage is moderate at 6.3x. Debt per O&D enplanement is higher than average at $138. Cost per enplanement (CPE) was above average vs. large-hub airports in 2015 at $10.12, though this represents a drop from 2014. Management expects CPE to rise to $12.91 by 2020.

Narrow PFC Revenue Stream but Strong Legal Covenants & Metrics: A substantial overall air traffic market supports large annual PFC collections. At current PFC leverage, fiscal 2015 PFC collections provide very strong coverage of 3.9x maximum annual debt service (MADS).

Peer Analysis: Port of Seattle compares favourably to other consolidated entities with airport and port operations, such as Massport (rated 'AA') and Oakland (rated 'A+'/'A-'), or multiple airport systems, such as MWAA (rated 'AA-'). While Seattle's leverage is higher than Massport, it is comparable to levels seen at Oakland and is higher lower than MWAA's. CPE compares favourably to Oakland, Massport, and MWAA.

FACT Tool: U. S. Airports (Opens in an Excel worksheet): www. fitchratings. com/site/fitch-home/re/876822.html

RATING SENSITIVITIES

Negative - Increases in overall leverage that materially affect DSCRs on any lien level and/or reduce all-in debt service coverage meaningfully below current forecasts could pressure the ratings or result in different rating distinctions between the various revenue bond liens.

Negative - Significant increases in the port's operating costs or notable declines in annual port and aviation sector revenues could weaken credit quality.

Negative - Lower PFC coverage levels as a result of additional leveraging or declining trends in PFC receipts could place pressure on the PFC lien at the current rating level.

Positive - Given the current rating levels and the ongoing capital program with sizable borrowings expected, upward rating migration is unlikely at this time.

SUMMARY OF CREDIT

Please see the rating action commentary dated July 6, 2016 ("Fitch rates Port of Seattle First Lien 'AA' & Intermediates at 'A+'; Affirms Outstanding") for a detailed analysis of the credit.