New York-based Fitch Ratings has affirmed the underlying 'A-' rating on the city of Houston for its $112 million consolidated rental car facility (conrac) bonds. The bonds were originally issued to finance the construction and maintenance of the 250-acre conrac at Houston Intercontinental Airport (IAH).
As well, Fitch Ratings affirmed the 'BBB+' rating on Hartsfield-Jackson Atlanta International Airport's conrac bonds.
Key Rating Drivers
• Sizable rental car market: Houston's sizable underlying origination and destination (O&D) market of nearly 9 million enplanements support IAH's local car rental market. Annual rental car transactions grew 8.7% to 3.6 million in 2011, the second consecutive year of growth after dropping to a low of 3.1 million in 2009. Rental car transactions have shown more volatility than both O&D and total enplanements at Houston, with transaction days initially dropping further but rebounding more quickly. Any meaningful modification in the operating profile of United Airlines, which accounts for more than 80% of the airport's enplanement base, could affect the conrac's ratings.
For Hartsfield-Jackson, a sizable underlying local market supports a high level of rental car transactions with 15 million O&D passengers. Annual rental car transactions exceed 5.7 million although the underlying activity, and customer facility charge (CFC) collections have exhibited volatility in recent years. Airport traffic at Atlanta is highly dependent on Delta Air Lines' service (77% of total enplanements), and thus rental car demand would be exposed to the carrier's operating decisions.
• Rate setting flexibility: Houston's rental car CFC has been effective since 2001 and covers all car rental operators whether located on-airport or off. The CFC is assessed without cap or sunset by approval of the airport director. The airport's adjustable CFC rate structure has been increased twice in recent years (to $3.75 in November 2009 and to $4.25 in April 2011), generating higher CFC revenues while remaining in-line with CFCs charged at other large hub airports and comprising roughly 8.5% of average daily rental car rates.
At Hartsfield-Jackson, imposition of the CFC has been effective since 2005 and also covers all car rental operators whether located on-airport or off. The CFC is assessed without cap or sunset by an ordinance of the Atlanta City Council. The CFC rate is currently $5 per day, and has been increased twice over the past three years to ensure adequate cash flow for debt service and operating costs.
• Modern infrastructure with limited capital needs: Houston's conrac has been operating since 2003, with limited near-term capital expenditure requirements and no expectations for future borrowing.
The recent completion of the Hartfield-Jackson conrac negates construction risk with minimal capital expenditures over the intermediate term. The project faced higher total costs than initially planned and resulted in the project assuming a subordinate loan. The car rental project support is enhanced by facility agreements which were signed by all rental car companies serving the airport. These agreements extend to the end of the maturity of the outstanding bonds.
Additional information on the full ratings outlook and analysis on the two conrac's is available at www.fitchratings.com.
For rating criteria for infrastructure and project finance: http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832