Fitch Ratings has downgraded the City of Pensacola’s series 2008 airport capital improvement revenue bonds ($35.2 million) to ‘BBB’ from ‘BBB+.’ Fitch, in a press release, stated the Rating Outlook remains Negative. Last month, Moody’s Investors Service downgraded the rating of Pensacola Airport Enterprise’s outstanding revenue bonds from A3 to Baa1.
Fitch is concerned that the City needs to use fund balance transfers to meet its covenanted debt service coverage requirement level. The downgrade reflects an increased risk profile to the airport’s financial flexibility and airline cost stability which is likely to continue under conditions of stagnant traffic levels,in Fitch’s view.
The overall tight liquidity position may limit the ability to continue this practice and therefore place more reliance on growth in non-airline revenues or raising airline rates and charges. The lack of a structured airline agreement indicates some uncertainty to rate setting flexibility to recover airport costs.
What is needed is an improvement in operating revenues supported by traffic growth to reverse the trends of narrow coverage and liquidity levels.
The 2008 airport bonds and airport expansion were approved by the 2007-2008 Pensacola City Council —Mayor John Fogg, Jack Nobles, Marty Donovan, Jewel Cannada-Wynn, Mike DeSorbo, Mike Wiggins, PC Wu, Ronald Townsend, John Jerralds and Sam Hall. Frank Miller was the airport director, Tom Bonfield was city manager and his two assistant city managers were Robert Payne and Al Coby.
