OREANDA-NEWS. Fitch Ratings has affirmed the 'A' rating on the city of Charlotte's approximately $58.2 million special purpose facility taxable revenue bonds (Consolidated Rental Car Facility Project bonds), issued on behalf of Charlotte Douglas International Airport (the airport, CLT). The Rating Outlook remains Stable.

The A rating reflects sustained multi-year growth in transaction days due to the strength of CLT's sizeable origin and destination (O&D) market of more than five million enplaned passengers. The rating is further driven by a stable-to-increasing history of customer facility charge (CFC) collections and rental car revenues, as well as substantial debt service coverage ratios projected to remain well above 2.0x.

KEY RATING DRIVERS

Stable Demand Profile: The consolidated rental car facility (CONRAC) at CLT ('A+'/Stable Outlook) has a stable and growing operating history supporting over two million annual visiting O&D deplanements. The rental car market is well-diversified, with the largest share of transaction days coming from National at 27%.

High Degree of Rate-making Flexibility: The airport's current CFC rate of $4.00 as well as annual levels of rental transactions generates a strong coverage of existing debt service obligations. The airport also maintains the ability to raise rates at its discretion, though further increases are not expected in the immediate future. Fitch views the current CFC rate as competitive across peers for a bond-financed car rental project. The airport may also levy contingent rent on the rental car companies to ensure sufficient resources to cover all costs.

New Facility: Construction has been completed on the consolidated rental car facility (CONRAC), which comprises the first three levels of a seven-level parking garage that positions rental cars closer to the main airport terminal building. There are no plans to issue additional debt.

Strong but Limited Security Package: The structure is underpinned by a first lien on CFC monies and, if needed, contingent rent, a closed loop of funds, and cash-funded project reserves. With the bonds maturing in 2041, there is exposure to a longer tenor than other peers in this sector.

Manageable Leverage: The project benefits from strong free-cash flow and healthy debt service coverage ratios averaging 2.5x DSCR, excluding the use of rolling coverage, and high cash-funded reserve accounts that result in leverage below 4.5x, which is expected to evolve downward over time.

Peers: Fitch-rated peers include CONRACs at Miami Airport

(rated 'A-', Outlook Stable) and the Greater Orlando Aviation Authority (GOAA;'A', Outlook Stable) due to similar market share distribution and financial metrics, with GOAA and Charlotte benefitting from lower overall leverage.

RATING SENSITIVITIES

Negative: A considerable drop in rental car transactions in the range of 20% - 30% could adversely affect pledged revenue and coverage levels absent an increase in the CFC rate.

Positive: Given the narrowness of the pledged revenue stream, the current rating is unlikely to migrate to a higher level.

SUMMARY OF CREDIT

The Charlotte Airport CONRAC facility benefits from a sizeable O&D passenger market in excess of five million and the expansive number of markets served through the presence of the large American Airlines ('BB-'/Outlook Stable) hub. Airport traffic trends continue to be favorable as O&D has grown by 6.8% in fiscal 2015 and 3.1% in fiscal 2014, reflecting the strength of the local Charlotte economy. Visiting O&D deplanements, which more directly impact rental car transaction days, were up 10.7% in fiscal 2015 to 2.4 million passengers. The rental car market share remains diversified with National comprising the largest share at 27%, followed by Hertz at 24%.

Rental car transaction days were up 8.5% in fiscal 2015, far exceeding expectations, and the five-year compound annual growth rate remains at a strong 5.5%. This has resulted in total CFC collections of $10.8 million, with an industry competitive rate of $4.00 per transaction.

In Fitch's base case, visiting O&D deplanements and rental car transaction days are assumed to grow 2% in fiscal 2016 followed by more modest growth thereafter. This results in debt service coverage ratio averaging over 2.5x through 2020. Including a fully cash-funded coverage account, DSCR averages in the 2.8x range. In Fitch's rating case, a large near-term shock in rental car transaction days is assumed followed by modest recovery thereafter. Under this scenario, cash flow DSCR averages 1.74x, or 1.99x when including the coverage fund. Under base case assumptions, leverage, as measured by net debt to cash flow available for debt service, evolves down to under 4x by 2020. In the rating case, leverage remains above 5x. CLT benefits from approximately $10 million in reserves.

Fitch continues to note the limited nature of car rentals as the only revenue stream available to service debt as a limiting factor for the rating. Demand for car rentals is exposed to the variability of discretionary spending, more so during an economic downturn, which can affect both the number and duration of rental car contracts.

SECURITY

The series 2011 bonds are secured by a pledge of the CFC collections received or receivable by the city and, if necessary, any contingent rent paid by the rental car companies. In addition, the city has pledged the amounts on deposit in the CFC stabilization fund, rolling coverage fund, supplemental reserve fund, and debt service reserve fund, which combined currently total approximately $10 million, or 2.2x maximum annual debt service payable through maturity.