While this rating change focuses on MWAA's airport operations, the ratings cut may also raise the cost of borrowing for its toll road operations, specifically, the Dulles Toll Road.
Fitch Ratings assigns an 'AA-' rating to the Metropolitan Washington Airports Authority (MWAA or the authority) Series 2011 C (AMT) approximately $134 million Airport System Revenue Refunding Bonds, Series 2011 D (Non AMT) approximately $9.0 million Airport System Revenue Refunding Bonds, and Series 2011E (Taxable) approximately $49 million and downgrades the authority's $5.1 billion outstanding airport revenues bonds to 'AA-' from 'AA'. The Rating Outlook is revised to Stable from Negative.
The downgrade reflects Fitch's view that the authority will maintain a stable yet narrower level of debt service coverage cushion when compared to both its historical performance and previous forecast estimates. Expected debt service coverage ratios will remain close to the 1.30 times(x)level even under conditions of future growth in traffic performance and contained increases in operating expenses. To the extent the airports face moderate to severe stresses to its traffic profile, Fitch believes that the authority may be required to effectuate its extraordinary coverage protection measures, as permitted under the airline use agreements, to satisfy its 1.25x rate covenant terms. Still, the very strong market position afforded by the authority's two major airports within the economically strong Washington DC air trade area provide for a strong credit mitigation to manage well in an uncertain aviation environment.
The authority's ongoing use of borrowings in recent years to fund a majority portion of its Capital Construction Program (CCP) has resulted in an elevated debt burden profile and will require increased reliance on airline charges to meet total airport cash flow requirements. In Fitch's opinion, the rising debt burden places an added measure of risk to the authority's financial profile given the downward revisions in forecasted traffic growth, especially when compared to earlier projections in prior years. In Fitch's view, the forecasted financial metrics would no longer be consistent with 'AA' rating pursuant to Fitch's criteria for airports.
Key Rating Drivers:--The authority's competitive position, complementary service offerings of both Dulles and National, the inherent strength of a dual airport system serving a domestic hub and growing international traffic segment, and a strong underlying economic region;--Historically well-managed financial operations of the airports, a firm airline use and lease agreement with extraordinary coverage protections, and a manageable cost structure given the authority's growing international traffic profile and strong market position;--A primarily fixed rate capital structure, with approximately 16% of the authority's debt in variable rate mode and the remaining 84% in conventional fixed rate mode;--An elevated leverage position and debt burden of 12.2x Net Debt/CFADS, $250 debt per enplanement, and an adequate liquidity position of 447 days cash on hand as of May 2011;--The authority's CCP program is nearing completion and requires only minimal additional bonding in the near-to-medium term. Major upgrades and renovations have been completed at both airports, resulting in modern facilities and an overall good condition of infrastructure.
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