DALLAS - S&P Global Ratings has assigned its ‘A’ rating to the City of Austin, Texas’ $203.1 million series 2017A and series 2017B $143.7 million airport revenue bonds, issued for Austin Bergstrom International Airport (ABIA). At the same time, S&P Global Ratings has affirmed its ‘A’ rating on the airport’s system revenue bonds outstanding. In addition, S&P Global Ratings has affirmed its ‘AA’ rating on Austin’s series 2005 variable-rate demand obligations, the latter following application of its joint criteria. The outlook on all ratings is stable.
The rating reflects our assessment of the following factors:
A strong and growing service area economy that benefits from low unemployment rates and an increasing population
Very strong historical enplanement growth averaging 5.8% from 2012-2016, which we expect will remain at least favorable
A stable financial profile that we expect will allow the airport to absorb additional debt and support its capital plan on a pay-as-you-go basis. Offsetting these credit strengths are what we consider the following weaknesses:
A large yet manageable plan, which could expand due to faster-than-expected growth
A high debt burden with this issue and an anticipated 2018 issue.
A first lien on the airport system’s net revenues secures the bonds. ABIA is approximately eight miles southeast of downtown Austin. It opened in 1999 and consists of a passenger terminal with 25 gates, more than 12,000 parking spaces, a consolidated rental car facility, and air cargo and general aviation facilities. The department of aviation is a department within the city. We expect a portion of passenger facility charges (PFCs) to pay debt service for the 2017A and 2017B bonds as well as debt service on the airport’s debt outstanding.
Bond proceeds will fund costs of the airport’s terminal and apron expansion and the construction of an additional parking garage. The terminal expansion will add an additional four gates, 80,000 square feet of new terminal concourse space, and 12,500 square feet of concession space. The additional gates will be flexible in design to accommodate larger aircraft, particularly international and longer-haul domestic flights.
“The stable outlook reflects our expectation that over the next two years, ABIA’s enplanement trend swill remain generally favorable,” said S&P Global Ratings credit analyst Anita Pancholy. “It also reflects our expectation that the airport will effectively manage and implement its capital plan as growth continues,” Ms. Pancholy added.
We consider an upgrade unlikely during the two-year outlook period given the airport’s additional debt needs and anticipated erosion of DSC.
In our view, we could lower the rating if the airport exhibits weaker-than-projected DSC levels, or if it requires what we consider a significant amount of additional debt to fund its capital plan.