Fitch Affirms Greater Orlando Aviation Authority, FL's Special Facility Revs at 'A'; Outlook Stable
The rating affirmation reflects the consolidated rental car facility's (CONRAC) strong and sizable rental car market in Orlando, rate setting flexibility, adequate fund balances for upcoming capital projects, and stable history of customer facility charge (CFC) collections generating debt service coverage ratios (DSCRs) comfortably above 2.0x. The rating is constrained to 'A' category as the CONRAC is dependent on a single revenue stream that is sensitive to tourism and leisure activity.
KEY RATING DRIVERS
Sizable Rental Car Market: Orlando benefits from a sizable O&D market (95% of total enplanements), and is the largest rental car market in the U.S. by gross revenues. Visiting traffic is driven by the geographically dispersed nature of Orlando's business centers and theme parks, making rental cars an attractive and necessary transportation link. However, there is some vulnerability of demand for car rentals from exposure to the leisure market and more general declines in activity due to the cyclical nature of the industry.
Strong Rate Setting Flexibility: The CONRAC has a competitive \\$2.50 CFC rate with no anticipated increases through debt maturity in October 2017. GOAA has the flexibility to modify its CFC rate at any time without the need for outside approval. GOAA's facility also benefits from car rental facility agreements executed by all rental car operators serving at the airport. These agreements currently run until 2020, which exceeds the maturity of the CFC bonds.
Conservative Debt Structure: Debt is all fixed rate, with level annual debt service obligations and a short maturity profile with bonds maturing in October 2017. No additional CFC-backed borrowing is currently anticipated.
Strong Coverage and Robust Liquidity Position: Coverage is stable at or above 2.0x with no dependence on transaction growth. The bonds benefit from strong liquidity reserves, with \\$83.2 million in reserves as of fiscal year end 2015, up from \\$68.8 million in fiscal 2014. GOAA's healthy liquidity position results in outstanding debt being completely offset by cash reserves.
Modern Facilities: The CONRAC has been in operation since April 2010, with minimal capital spending needs for the existing facility. The \\$109 million South Automatic People Mover (APM) parking facility, which will help to relieve congestion at the CONRAC, is currently under construction with estimated completion in 2017. The program is expected to be fully funded with internal liquidity, and management indicates that no CFC-backed borrowing will be needed to complete this project.
Peer Group: Rated peers include CONRACs at Houston Airport
(rated 'A-' by Fitch) and Charlotte (rated 'A') due to similar market characteristics, with GOAA and Charlotte benefiting from lower debt and higher coverage levels.
Negative - A considerable drop in rental car transactions without a consequent increase in the CFC rate may adversely affect coverage levels, which could pressure the rating.
Positive - Due to the CONRAC's exposure to the inherent volatility associated with the rental car market, upward migration is unlikely.
SUMMARY OF CREDIT
Orlando's CFC rate of \\$2.50 continues to compare favourably to CFCs charged at other large airports, and Fitch believes this rate level is more than sufficient to meet GOAA's existing special facility debt obligations going forward at current traffic levels. Orlando's CFC revenues totalled nearly \\$24 million in fiscal 2014, up 3.8% from fiscal 2013. For the first ten months of fiscal 2015 through July, CFC revenues are up 4.3% over a year prior. Coverage in fiscal 2014 was healthy at 2.56x (2.81x including the fully funded coverage account of \\$2.37 million).
Fitch's base case assumes transactions are flat at the sponsor's expected 2015 levels for fiscal 2016 through 2017, while Fitch's rating case includes declines in transaction days of 13% over fiscal 2016 through 2017. Under both scenarios, pledged revenues generated by the CFC are sufficient to provide 2.33x or greater debt service coverage (2.59x with coverage account). Fitch notes that GOAA's ability to increase the CFC with board approval only (no need to consult with County officials or concessionaires) provides further downside protection for bondholders, though no rate increases are expected to be necessary in the future.
The car rental project's structural elements provide protection for bondholders. Project liquidity is robust, evidenced by \\$83.2 million in aggregate fund balances, equalling over 100% of the total amount of bonds currently outstanding. This includes a \\$5 million CFC stabilization fund (funded with CFCs already collected at time of issue), \\$2.365 million coverage fund (funded at time of issue with bond proceeds), \\$9.45 million debt service reserve fund (funded at time of issue with bond proceeds), and a \\$66.3 million facility improvement fund (funded with CFCs collected on a go-forward basis, up from \\$52.07 million a year prior). Furthermore, car rental facility agreements have been executed by all operators serving the CONRAC. The agreements run until 2020, exceeding the maturity of the CFC bonds.
The capital improvement program for the CONRAC remains largely unchanged. The \\$109 million South Automatic People Mover (APM) parking facility will be funded with a combination of Facility Improvement Fund (FIF) moneys and future CFC collections. The project is currently underway with estimated completion in April 2017. Remaining future projects including a return to terminal road, bus and taxi hold areas, and cell lot, are expected to come online in FY2018 upon liquidation of the series 2009 bond reserves. No additional CFC-backed borrowing is expected to be needed to complete these projects, and management indicates that no projects that require additional CFC-backed bonds are currently anticipated.
Fitch continues to note that 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. This is particularly true in Orlando, which is dependent on tourism and leisure activity for much of its visiting traffic.
The 2009 bonds are a special limited obligation, payable solely from CFC payments received by GOAA. Bonds are also secured by interest earnings on available funds and other pledged funds. Revenues and other airport funds of GOAA are not pledged to the payment of the 2009 bonds.