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

Airport Multi-Tenant Special Facilities Bondswhen the collection occurred. A fully funded debtservice reserve also provides security if delays ortiming issues with regard to debt service paymentare significant. Possessing a relatively diverse airlinecarrier mix also mitigates airline bankruptcy risk.Additionally, credit risk exposure to the airlineshave been limited by changes to law to make clearthat collected PFCs are indeed held by airlines anddue to the appropriate airport operators. Statutoryrequirements under current aviation authorizationlegislation (Public Law 108—176—Dec. 12, 2003;Vision 100—Century Of Aviation ReauthorizationAct) provide for airlines in bankruptcy to segregatePFC revenue into a separate corporate account(“PFC Account”), preventing the airline in bankruptcyfrom commingling future PFCs with corporaterevenues during bankruptcy proceedings; andnot pledging PFCs as collateral to any third party.FAA WithdrawalEven if properly structured, there is always the riskthat the FAA will withdraw PFC revenues, based onimproper use of the funds. If PFC revenues werewithdrawn, an analysis would be conducted to determinethe effect on the public agency’s general airportrevenue bond rating in cases where it is a doublebarrelstructure (see below). If a large amount ofdebt is supported by the PFC, a withdrawal of theright to levy the fee would lead to credit concerns.Any such action also would call into question thepublic entity’s management capabilities.Double BarrelFor many airport issuers, double-barrel bonds thathave a first lien on PFCs and an additional subordinatelien on net airport revenues will remain anattractive option when exploring the issuance oflong-term debt. The advantage of this structure isthat it eliminates the two major risks attributable tostand-alone PFC bonds; that is, lack of rate-settingability to cover revenue declines and terminationrisk. While there may or may not be a rating distinctionbetween double-barrel and stand-alonePFC bonds, based on legal provisions and protections,each approach is a viable option, and thefinal structure that management chooses willdepend on their individual circumstances.Standard & Poor’s would expect an airport tomanage its double-barrel PFC program similarlyto a stand-alone program and ensure continuedreceipt of PFCs. This structure would allowlower coverage requirements and managementflexibility with respect to PFC authorization andcollection. The double-barrel pledge may be anoption for issuers who otherwise exhibit solidcredit fundamentals, but may show some exposurebecause of airline concentration or higherlevels of connecting passengers.The limitation of double-barrel bonds is that theyoften require majority-in-interest support of the airlines,because, ultimately, airline rates and chargeswould have to be increased to cover PFC debt serviceif authorization were revoked.Airport operators may, pursuant to Vision 100,use PFCs for making payments for debt service onindebtedness incurred to finance a project at theairport that is not an eligible airport-related projectif the Secretary determines that such use is necessarydue to the financial need of the airport.Regardless of structure, Standard & Poor’s willevaluate airport coverage of all debt from all availablerevenues, including PFCs. Those facilities thatprovide higher margins will generally, other thingsbeing equal, have higher ratings. ■Airport Multi-TenantSpecial Facilities BondsIncreased involvement of airports in financing specialfacilities has led Standard & Poor’s RatingsServices to develop criteria for rating multi-tenantspecial-facility debt. The criteria apply to uniqueprojects and facilities and permit the analysis toscrutinize and give weight to the market demand,rather than defer entirely to the tenants’ credit profile.An emphasis on project essentiality and structuralfeatures that enhance bondholder protectionscould result in the transaction receiving a higherrating than that of the participating airlines, on acase-by-case basis. However, there are inherent limitsto the degree of credit elevation above that ofthe airlines’ rating. Given the credit characteristicsof the airlines, it is likely that many of these projectratings will be below investment-grade. In addition,single-tenant airport special facility bonds will notbe rated higher than the tenant’s corporate rating.Airport CharacteristicsAirports considered for these ratings must beamong the strongest and largest in the country. Awww.standardandpoors.com139