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

Airport Multi-Tenant Special Facilities Bondsthese facilities, including other factors discussed inthis article. For a multi-tenant special facilityfinancing that has a higher level of legal and structuralrisks, however, Standard & Poor’s may not beable to elevate the rating above the corporate creditrating of the lowest rated key tenant.Most multi-tenant special facility financings havebeen based on a lease structure with a special-purposeentity as the lessor and issuer of the rated securitiesand the airline operators as lessees. Standard &Poor’s reviews the ownership, organizational structureand operating constraints of the lessor in light ofthe special-purpose entity criteria applicable to theentity to assess the risk that the bankruptcy of anyrelevant transaction participant may detrimentallyaffect the issuer’s full and timely payment of therated securities in accordance with their terms.Typically, in a multi-tenant special facility financing,the contractual terms governing the use of anair carrier’s portion of the facility are in a leaseagreement between the air carrier and the lessor.Although lease provisions vary depending on thetransaction, leases that are more supportive of higherratings typically include provisions to keep utilizationof the facility at a level sufficient to supportpayments on the rated securities. These provisionswould include, for example, minimum utilizationstandards that the tenant must attain or the airportwould have the right to relet the space, therebyensuring the continued optimal use of the facility.The airport, or landlord, would be allowed to reletspace within 90 days of any default and remove atenant from occupancy (“use-it-or-lose-it” provisions).Stronger provisions would provide for relettingwithin a shorter interval after a default. Theairport itself would have the right to use its bestefforts to relet the space of defaulted tenants. If athird party, such as a developer, is involved in thelease arrangements, the lease would preserve theairport’s right to relet the space to the exclusion ofthe third party and otherwise to protect against thepotential bankruptcy of this intermediary. The termof the lease would be at least as long as the term ofthe rated securities to prevent financially viable airlinesfrom walking away from their obligationswhile the securities are outstanding.Other transaction terms that are more supportiveof higher ratings would include debt maturities ofno more than 20 years, debt service reserves equalto maximum annual debt service, limiting or prohibitingadditional debt issuances at the same levelof priority, staggered lease and debt service paymentdates, and a charge-back to the tenants of allcosts associated with the project or sufficient debtservice coverage levels to cover operating costs.Air CarriersDiversity of the air carriers involved is a strength inthese financings. Ideally, this type of debt is issuedto provide space for a group of airlines, not for oneor two tenants. In addition, the relative creditstrength of the air carriers involved will be considered.The credit rating in a special facility transactionwill be highly correlated to the underlyingcorporate credit ratings of the tenant airlines.Unrated airlines with significant stakes in theproject must undergo some review by Standard &Poor’s to assess their creditworthiness. Carrierswith higher Standard & Poor’s ratings will beviewed most positively, as will those that are usingthe facility to support O&D traffic. An importantaspect to the rating is understanding the relativeimportance of the project within the air carrier’sexisting system and strategy.Financial FactorsStandard & Poor’s will evaluate projected cash flowsurrounding all facilities. Depending on the project,Standard & Poor’s may require sensitivity analysesthat assume various vacancy levels. Projects thatcan withstand lower use rates or occupancy levelswill receive higher ratings. These projections shouldproject lease revenues adjusted under conservativeassumptions, although inflationary increases can beassumed if allowed under the lease documents.Interest income should be estimated at low levels,and airline payments should be as independent aspossible from the activity levels experienced solelyat the special facility. Expenses should be estimatedusing reasonable inflationary increases. Coverageon a projected basis should be a minimum of 1.50xfor the strongest of projects, with higher coveragelevels given additional positive weight. ■www.standardandpoors.com141