Fitch Ratings still gives Pensacola airport bonds negative rating outlook, but hold BBB rating

According to news reports, Fitch Ratings has affirmed its ‘BBB’ rating on the city of Pensacola’s (Florida) approximately $34.1 million in outstanding series 2008 airport capital improvement revenue bonds issued on behalf of Pensacola International Airport (PNS). However, the Rating Outlook remains Negative.

Fitch sees that airport’s Revenue Volume, Revenue Price and Debt Service and Counterparty Risk as weak.

“PNS’ direct air service is somewhat limited to serving traffic into connecting hub markets, with enplaned passengers on regional jets comprising a relatively large 43% of the total base. Carrier concentration remains elevated with Delta Airlines (Issuer Default Rating [IDR] ‘B+’; Outlook Stable) accounting for nearly half of total enplanements and now serving a single destination — Atlanta.”

Also the airport operates on a month-to-month basis under an extension of the prior airline use and lease agreement which expired in 2008. “The agreement is technically compensatory on the terminal side and residual on the airside, but ultimately costs in the terminal that are not chargeable to the airlines are included in the calculation of landing fees.”

“Airport leverage is elevated at 9.9x net debt/cash flow available for debt service, meaningfully above other airports rated ‘BBB.’ Low debt service coverage marginally above 1.0x without capital fund transfers and low balance sheet liquidity remain credit concerns. PNS is currently working with the FAA through a potential reimbursement for land purchases which could add to its cash balances.”

On the positive side is Infrastructure Development & Renewal which are seen by Fitch as strong.

“Minimal Capital Expenditure Needs: PNS recently completed its 2008 expansion and renovation program ($36 million), and its upcoming capital program is modest through fiscal 2017. Spending needs should be met by grant funds, with no debt required in the medium term. A $6.3 million loan was extended to the airport in 2012 and is being used to meet capital needs from fiscal 2012 onwards. In addition, PNS was recently awarded an $11.1 million grant from the Florida Department of Transportation (FDOT) for airside improvements.”

Also on the positive side there is a marked improvement in PNS’ operating expense profile over the last year and eight months. Operating expenses in fiscal 2012 declined by nearly 12% as the airport began outsourcing staff in certain areas and renegotiated existing contracts with service providers. These actions created enhanced efficiencies compared to previous arrangements for police, janitorial, parking management, and building maintenance services, and have led to additional year-over-year decreases of nearly 5% through eight months of fiscal 2013.

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