Fitch Ratings has affirmed Reno-Tahoe Airport Authority's (RTAA) approximately $25.0 million of outstanding airport system revenue bonds at 'A'.
According to a release, the Rating Outlook is Stable. RTAA also has approximately $30 million in Series 2011 subordinate lien notes that are not Fitch rated.
KEY RATING DRIVERS
MEDIUM HUB WITH VOLATILITY AND SOME CONCENTRATION: Reno Tahoe International Airport (RTIA) had 1.8 million enplanements in fiscal year (FY) 2012 (ending June. 30), a decline of 6.4 percent year-over-year compared to FY 2011. The airport's large leisure based traffic is down 2.4 percent for the first nine months of FY 2013. Airline concentration risk exists as Southwest Airlines represents 54.3 percent of enplanements.
Revenue Risk - Volume: Weaker
LOW HISTORICAL COST PROFILE AND STABLE FRAMEWORK: The airport's cost per enplaned passenger (CPE) remains low relative to peers at $6.81 for FY 2012, increasing to the $7 range for FY 2013 and potentially higher in following years. RTAA has a use and lease agreement through FY2015 that provides the airport with a larger cost recovery base, providing more cushion to volume declines.
Revenue Risk - Price: Midrange
STABLE DEBT STRUCTURE: All of RTIA's senior debt is fixed rate with debt service payments flat at approximately $2.5 million through maturity. The subordinate notes mature in 2017 and are strengthened with PFC revenue support and no refinance risk, but the Series 2011B notes (up to $15 million authorized) are in un-hedged variable rate mode.
Debt Structure: Stronger
LOW LEVERAGE AND STRONG LIQUIDITY: RTAA's total net debt-to-cash flow available for debt service (CFADS) is 0.22x and well below smaller regional airport peers. In FY 2012, the airport's senior lien debt service coverage ratio (DSCR) increased to 4.06x from 1.66x in FY 2011 due to debt service obligations significantly dropping off. The subordinate DSCR was solid at 3.27x and is projected to remain over 1.3x as debt service escalates to approximately $6.4 million. The airport maintains healthy liquidity with $39.0 million in unrestricted cash, equivalent to 420 days cash on hand.
Debt Service and Counterparty Risk: Stronger
MODERATE INFRASTRUCTURE PLAN: The three-year capital improvement plan (CIP) is modest at $97 million and will be funded through federal grants, the existing Series 2011 subordinate notes, passenger facility charge (PFC) monies, and minimal internal funds.
Infrastructure Renewal & Development: Midrange
RATING SENSITIVITIES
--Additional leverage that would measurably increase debt metrics above current levels or dilute coverage;
--Continued declines in enplanement levels leading to meaningful dilution of existing debt service coverage levels;
--Inability to control costs, maintain revenues, or retain balance sheet liquidity to preserve historical levels of financial flexibility.
SECURITY
The bonds are secured by the net revenues of the RTIA.
CREDIT UPDATE
RTIA has a monopoly position in Northern Nevada, with its nearest competitors being Sacramento International Airport (115 miles away), Oakland International Airport (180 miles), San Jose International Airport (190 miles), San Francisco International Airport (200 miles), and Las Vegas McCarran International Airport (350 miles). RTAA's balance sheet is an important offset to the airports large leisure base and more volatile operating activity.
Operating revenues were $42.7 million in FY 2012 up from $42.1 million in FY 2011, but non-airline revenues declined 4.3 percent primarily driven by a 9.2 percent drop in concession revenue. Operating expenses in FY 2012 were $33.8 million, up 1.3 percent from $33.4 million in FY 2011. Approximately 31 percent of RTIA's total operating revenue is supported by the airlines. Non-airline revenues comprise the remaining 69 percent with the largest share derived from auto rentals and parking which account for 45 percent of total revenues.
RTIA's CPE in FY 2012 was $6.81 up from $5.45 in FY 2011, largely due to management using $4.4 million in cash to defease part of the annual debt service payment in FY 2011. CPE is expected to rise to approximately $7.22 for FY 2013 and should remain under $9.00 over the next four years.
The Authority is anticipating to borrow $8 million of the $15 million available on the Series 2011B subordinate lien notes in FY 2013 for their capital plan.
The RTAA operates two airports, RTIA and Reno Stead Airport. RTIA is classified by the Federal Aviation Administration (FAA) as a medium-hub airport and is located four miles southeast of Reno's central business district on 1,400 acres of land.
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