OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to Miami-Dade County, Florida's approximately $740 million aviation revenue refunding bonds series 2016A&B, issued on behalf of the Miami-Dade County Aviation Department (MDAD). Fitch has also affirmed the county's $5.52 billion parity aviation revenue bonds at 'A'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The rating reflects the airport's strong position in the south Florida market for both domestic and international air service. Miami stands-out as one of nation's strongest international gateway airports with a dominant position for Latin American and Caribbean air services. The airport's capital program is essentially complete while the financial metrics have exhibited stability in recent years. The rating also incorporates leverage at the upper end for U. S. airports which is expected to remain elevated for the foreseeable future.

Revenue Risk - Volume: Midrange

LEADING INTERNATIONAL GATEWAY AIRPORT: MIA is a well-positioned, leading international gateway airport to serve the building Latin American market. Despite shifting trends in the aviation industry and competition from nearby Fort Lauderdale Airport, overall traffic activity remains robust with approximately 21.4 million enplanements. The passenger base is well-balanced for both origination/destination (O&D) and connecting passengers as well as international and domestic operations. The airport serves as a hub for American Airlines, which serves 68% of total passengers.

Revenue Risk - Price: Stronger

RESIDUAL RATE SETTING: All of the airport's costs are adequately covered by the use agreement rate setting mechanisms. The current agreement expires in 2017. Although airline costs have been relatively high, with the cost per enplanement (CPE) at approximately $20, Fitch expects stability at current traffic levels based on the combination of improving non-airline revenue trends as well as lower post-construction operating costs.

Debt Structure Risk: Stronger

CONSERVATIVE DEBT STRUCTURE: All of the airport's debt is fixed rate and fully amortizing. Debt service is mostly level in the range of $380 to $400 million through final maturity in 2045. Nearly all of the debt service reserves are funded with cash and investments.

Infrastructure Development/Renewal Risk: Stronger

CAPITAL PROGRAM COMPLETION: Substantially all of the previous $6.5 billion capital program has been expended aside from a small amount of carryover projects and the overall budget has remained intact over the past several years. MDAD is now starting a more modest, multi-phase and demand driven terminal optimization program, with the first phase through 2018 sized at approximately $650 million. Only modest additional borrowings are foreseen over the near term.

HIGH LEVERAGE AND MODEST COVERAGE: Airport debt levels (approximately $275 per enplanement and 12x net debt/CFADS) in conjunction with past financings for a terminal driven capital program are very high. Leverage should slowly moderate over the next five years but still remain elevated at 11x - 12x. Debt service coverage ratios (DSCR) on a historical basis are stable at close to 1.54x but are supported by fund balance transfers and debt service offsets from passenger facility charge deposits.

PEERS: Peers to Miami Airport would include other major hubs and international gateway airports, such as Dallas-Ft. Worth (DFW, rated 'A') and Chicago O'Hare (rated 'A'). Each of these airports has sizable traffic bases, significant hubbing operations and large debt burdens to support capital programs. Both DFW and O'Hare airports currently have similar leverage in the 12x range but lower CPE levels (DFW at near $10 and O'Hare at about $15).

RATING SENSITIVITIES

--Negative: Material losses or increased volatility in aviation activity, considering the particular exposures to Latin American economies and the operations of American Airlines.

--Negative: Operating costs that trend materially above current forecast parameters also leading to upward revisions to airline costs.

--Negative: Development of a new capital program that results in raising leverage metrics.

--Positive: Expansion of the traffic base of carrier mix diversification that leads to improved financial and cost flexibility may lead to a positive rating development.

SUMMARY OF CREDIT

The county intends to issue approximately $740 million in parity aviation revenue refunding bonds for the purposes of generating level debt service savings through bond maturity in 2041.

MIA's enplanement activity continues to demonstrate growth with an increase of 5.7% in fiscal 2015 to 21.4 million enplanements. For the first seven months of fiscal 2016 indicates additional positive growth of more than 6%. The overall passenger traffic growth rates appear to be benefitting from the relative strength of domestic operations as well as international traffic, particularly to Latin American markets that have close economic and cultural ties to the Miami metropolitan area. The airport is served by a diverse mix of airlines, including 9 scheduled domestic carriers, 45 scheduled foreign flag airlines, and 29 all cargo carriers. Miami's leading role for international operations is not only relevant for passenger operations but as well for air cargo. Miami currently ranks in the top two positions for U. S. airports in terms of nonstop international destinations and international air cargo tonnage.

Still, Fitch views future traffic stability as an ongoing risk given the high concentration of traffic from American's operations as well as the airport's exposure to Latin American economies. American and its affiliate American Eagle collectively represents 66% of MIA's total passenger traffic and support a key part of the airport's domestic and international traffic operations. American's market share of total passenger traffic has remained mostly stable over the past several years and the American merger with US Airways did not have material changes to the operational activities.

In addition to general economic conditions, both domestically as well as internationally across Latin American (Latam) regions, MIA's base of service also faces ongoing competitive threats for its domestic O&D traffic from nearby Ft. Lauderdale Airport (FLL). FLL currently has a much lower cost profile and is served by a more broad and diverse mix of domestic legacy and low cost carriers. FLL is well underway of its own substantial expansion and redevelopment plan on both its airfield and terminal facilities, and could create a more challenging environment for MIA with regards to sustaining the traffic growth off its existing passenger traffic base. FLL's more recent growth has also been in certain markets in the Carribean and Latam regions, which may heighten the competitive landscape relative to the past.

Taking into consideration the airport system's residual rate-setting methodology, financial operations have been largely stable over the past several years with debt service coverage holding in the 1.45x to 1.55x range, taking into account Improvement Fund transfers. Airline revenues account for about 50% of total revenues and have increased measurably in recent years to support the airport's growing cost base. However, non-airline commercial revenues have also risen in conjunction with the rising traffic levels. Coverage is typically at or near the 1.20x - 1.25x range net of the use of such transfers.

MIA's approximately $5.7 billion in senior-lien debt translates to approximately $275 per enplanement based on the 2015 traffic base and very limited additional debt is planned over the next several years to complete the funding of the current capital program. Estimated net debt to CFADS for fiscal 2015 is high for large hub airports at 12x but will ultimately moderate. Airport unrestricted fund balances at about $275 million in FY2015, or 249 days cash on hand, have been largely stable but somewhat constrained given the residual airline agreements.

Fitch notes that the airport's prior $6.5 billion capital program is substantially complete and remains consistent with budget estimates in recent years. At this time Fitch views the capital program risk as of minimal to the credit profile although the airport recently launched a new multi-phase terminal optimization program. The first phase is currently budgeted at $650 million, with additional borrowings to fund just less than half of the costs. Airport CPE was slightly under $20 in fiscal 2015, a modest decrease from $20.56 in fiscal 2014. These levels were historically high even for international gateway airports; however, forecasts indicate a stable outlook for airport costs. The combination of rising passenger levels, growing non-airline revenues, and containment in operating costs results in CPE rising to less than $22 - $23 range by 2020. Earlier forecasts assumed CPE levels rising to $30 and higher over the same time period.

Fitch's base case assumes a 1.5% average growth in traffic coupled with operating revenue increases averaging 2.5%. Coverage levels should remain the same, at about 1.30x, while average CPE peaks at about the $23 level by 2022. The Fitch rating case assumes a flat traffic growth profile, taking into account a nearly 10% loss in 2017 followed by annual recovery of 1.3% in subsequent years. Given the residual rate-setting approach, the coverage ratios are largely the same as the base case; however, CPE goes slightly higher in each year to maintain the same net cashflow. In both cases, leverage evolves to about 10x by 2020, which is consistent for the 'A' rating level.