S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Airport Revenue BondsDemand informationoffset by nonairline revenue sources. This obligationeffectively guarantees certain revenues, but isonly sufficient to satisfy rate covenant coveragerequirements. Therefore, unlike a compensatory airport,the total revenues collected in any given yeardo not represent an accurate measure of the airport’strue earnings capacity. In general, a residualairport will have lower, but more stable, debt servicecoverage than a compensatory airport, but thecoverage level is less meaningful in a residual setting.In addition, the ability of the airport to generatesignificant levels of nonairline revenues can, in aresidual agreement environment, reduce airlinecosts, or, under a compensatory agreement, creatediscretionary funds to finance facility improvements,thereby reducing overall debt requirements.Standard & Poor’s analysis of other financialconditions is similar regardless of rate-settingmethodology. Among important factors are historicaland projected revenue diversity, debt burden,and airline costs per enplanement. Analyzed on apro forma basis, this last measure is particularlyuseful because it incorporates future debt servicecosts and indicates the degree to which concessionscan offset airline costs. Truly discretionary sourcesAirport Information Requirements■ Relevant passenger and airline activity statistics by fiscal and calendar yearincluding origination/destination statistics; connecting passenger data, airlinemarket share data, flight schedules, average fare information, recent passengersurvey data.■ Service area economy and market studies.■ Passenger forecasts.Financial information■ Audited financial statements (five years).■ Current operating budget.■ Airline rates and charges analysis.■ Summary of relevant Passenger Facility Charge programs and authorizations.■ Five year detailed capital improvement program and funding sources.Other documentation■ Trust agreements, bond indentures and all supplemental indentures.■ Sample airline use and lease agreement.■ Financial feasibility reports detailing forecast revenues, expenses andcapital requirements with resultant cost estimates.of cash and overall cash position are also importantas well as access to other sources of liquidity.The presence of a fully funded debt servicereserve is also significant, since pledged revenuesmay be affected by factors beyond management’scontrol, such as construction delays, litigation, andweather. The need for other reserves varies with theproject’s nature and construction schedule.In addition, the role played by other sources offinancing for airport purposes must be noted. Whileit is uncommon, GO or excise tax supported debtpaid from airport revenues on a subordinate basisprovides a cushion to revenue bonds; GO debt paidfrom general tax sources is viewed as an equitycontribution to an airport and strengthens the overallfinancial position. For instances that involvesubordinated GO or excise tax supported debt paidfrom airport revenues, Standard & Poor’s includesthis debt when evaluating airport’s debt burden andall-in debt service coverage.An independent feasibility study is useful in estimatingfuture airport utilization and financialprospects. The consultant typically projects futureenplanements and aircraft operations and derives afinancial forecast loading in anticipated capitalrequirements. Standard & Poor’s evaluates the consultant’sassumptions and methodologies to arriveat its own estimates. While Standard & Poor’s maynot always agree with such reports, they usuallyplay an important role in the rating process.Other ConsiderationsDespite their relative importance, demand, legal,and financial factors are not the only elementsexamined in rating airport revenue bonds. The size,structure and purpose of the financing program andneed for additional debt financing are also important.Considerations such as the influence of localpolitics, management’s experience with large constructionprojects, and the presence of budget controlsplay significant roles.Airport revenue bonds are different from otherrevenue bonds because of the presence of a privateintermediary—-the airlines—-between the users ofthe service and the entity that pays debt service.However, strong airport demand, solid legal provisions,and prudent management of the airport’sfinancial operations can alleviate some of the problemsintroduced by airline intermediaries and theirvolatile industry. ■www.standardandpoors.com135