OREANDA-NEWS. Fitch Ratings has affirmed Maryland Transportation Authority's (MDTA) approximately $200.2 million in outstanding passenger facility charge (PFC) revenue bonds at 'A' and approximately $148.1 million in outstanding parking revenue bonds at 'A-'. The Rating Outlook on the PFC bonds remains Stable, and the Outlook on the parking bonds has been revised to Positive from Stable.

MDTA functions as a conduit issuer for the Maryland Aviation Administration (MAA), a unit of the Maryland Department of Transportation (MDOT), which holds a lease for and operates Baltimore Washington International Thurgood Marshall Airport (BWI).

The rating affirmations reflect the limited revenue streams' inherent volatility directly correlated with passenger volume, which in both cases likely limit the ratings to the 'A' category. Further, the ratings reflect low leverage and high debt coverage for both the Parking and PFC debts. Historically, BWI has strong PFC collections as well as a stable enplanement base, but the airport relies heavily on a single carrier (Southwest), which further heightens concentration risk. Continued financial metrics with respect to the parking bonds would lead to the airport aligning well with higher-rated peers.

Specific 2016 DSCR metrics include PFC of 3.2x and parking of 3.1x. BWI's PFC debt is rated similarly to other Fitch-rated PFC credits, but the deeper enplanement base, larger PFC revenue stream, and greater coverage bring BWI above New Orleans's 'A-' rating. While BWI's parking debt boasts low leverage and strong coverage, revenue is constrained by a single stream. Although higher rated Fitch parking credits (Miami) fall in a system of locations across a city rather than at a single airport location, continued financial metrics could offset this differential.

KEY RATING DRIVERS

Narrow Revenue Streams on Both Liens: The airport's narrow parking revenue stream is somewhat offset by moderate flexibility to increase rates because the last increase was in December 2009. In the case of the PFC revenue bonds, the narrow revenue stream and the limited flexibility provided by PFC receipts represent the primary risk related to these bonds. PFC collections have been applied to around 90% of passengers historically.

Stable Concentrated Enplanement Base: BWI's enplanement base has demonstrated a relatively strong resilience to the recent economic downturn. The large presence of low-cost carriers as well as the overall economic strength of the Baltimore-Washington D. C. area has anchored the traffic base. Concentration risk associated with Southwest (Southwest; Issuer Default Rating 'BBB+', ROS) service exists and comprises nearly two thirds of enplanements slightly mitigated by a mostly origination and destination (O&D) base at 71.9% of total enplanements.

Moderate Levels of Financial Leverage and Coverage: The airport's fiscal year ends June 30; 2016 figures are unaudited. Net debt/cash flows available for debt service (CFADS) is a moderate 2.03 for the parking bonds and 3.8 for the PFC bonds. The airport has historically maintained ample coverage on both liens, with around 3x coverage on the parking revenue bonds (specifically 3.1x in 2016) and likewise above 3x on the PFC revenue bonds over the last five years (3.2x in 2016).

Moderate Capital Plan: The airport's six-year plan calls for $412 million in spending, with specific project work ($374 million) about evenly split between major projects and system preservation. There are no additional debt plans, with sources including ongoing PFC funds and state transportation trust funds making up the majority.

Steady Parking Rates: Although rates have remained unchanged since 2009, the airport has nonetheless managed to retain high according DSCR as indicated above. The MDTA would approve parking rate increases.

Peers: BWI's PFC debt is rated similarly to other Fitch-rated PFC credits, but the deeper enplanement base, larger PFC revenue stream, and greater coverage bring BWI above New Orleans's 'A-' rating. While BWI's parking debt boasts low leverage and strong coverage, revenue is constrained by a single stream. Although higher rated Fitch parking credits have multiple revenue streams, continued financial metrics could offset this differential.

RATING SENSITIVITIES

Positive - Parking: Continued DSCR above 3x could lead to an upgrade.

Positive - PFC: Continued DSCR above 3x could lead to an upgrade.

Negative - Additional leverage on either credit that would result in deterioration of debt coverage ratios to levels inconsistent with the current ratings. In particular, PFC debt service coverage below 2x and leverage in the 6x-7x range would likely result in rating pressure.

Negative - Parking: Increased competition in rate setting with offsite parking lots would reduce the airport's parking volume and stress the rating.

CREDIT UPDATE

Fiscal 2016 (year ends June 30) marks the second consecutive increase in enplanements, up 8.1% year-over-year, following a 2.5% increase in 2015. BWI's enplanements grew at a compounded annual growth rate (CAGR) of 1.8% between fiscal 2011 and 2016, reaching an all-time high of 12.3 million (FYE June 30). The airport's current hybrid airline agreement is in effect through June 30, 2019. The airport's favorable cost structure helps to offset concern regarding the presence of several competing airports in the service area, and the signatory airline agreement provides stability.

As the airport currently levies the PFC at the maximum $4.50 rate, total revenues generated from the charge are dependent on the level of passenger traffic at the airport which constrains the rating. PFC collections for fiscal 2016 totaled approximately $48.1 million, an increase of about 7.4% from fiscal 2015 due to the aforementioned strong enplanement increase. The number of connecting passengers increased again slightly, leading to PFC growth growing only slightly less than actual enplanement increases. Fiscal 2016 coverage decreased to 3.2x in FYE2016 from 3.3x at FYE2015 year due to the recent issuance. Under Fitch's rating case (1.9% increase in 2017, followed by flat growth in 2018 and a 6% reduction in 2019 scenario), the minimum coverage is still estimated to remain above 2.5x in the medium term.

The airport has 24,800 parking spaces. The parking rate structure introduced in December 2009 has yielded strong cash flow from parking operations. Fiscal 2016 gross revenues increased 5.3% to $75.4 million, and debt service coverage of 3.1x for fiscal 2016 remains consistent with historical levels. On-airport occupancy levels average approximately 53% including all types of rate-payers (hourly, daily, express, long-term). MAA's parking contract with SP Plus started Jan. 1, 2015 and expires Dec. 31, 2019, during which MAA receives an 87.17% commission.

SECURITY AND DEBT STRUCTURE

The PFC revenue bonds are secured solely by a first lien on the $4.50 charge assessed on all eligible enplaning passengers at the airport. The parking revenue bonds are secured by all revenues from all airport parking facilities payable to the MAA by the parking concessionaire.

Three series of PFC bonds were issued in 2012, with total issuance of about $186.4 million, including $43.4 million of variable-rate debt (currently representing 23%). The latter is not hedged, and functions with an LOC currently backed by Wells Fargo (Fitch 'AA-/F1+' Stable). In 2014, an additional $40 million in principal PFC series 2014 bonds was issued. MADS occurred in 2016, and the amortization profile calls for relatively level requirements of about $17.1 million annually through 2032 before two final years of payments below $3 million. The rate covenant is sufficiency only. An additional bonds test allows for issuance backed by the current $4.50 PFC provided that PFC revenues for the most recent year and for five years following the issuance of additional bonds be at least 150% of the debt service on outstanding and future bonds and 100% of required fund deposits. The reserve fund is based on the standard three-pronged test, with a June 30, 2016 cash balance of $17.2 million.

Parking bonds were issued in 2012 at $190.6 million. Principal is paid off fairly evenly over the life of the bonds, with debt service occurring in a relatively narrow range ($17.3 million - $18.6 million over the remaining period to 2027. The associated rate covenant is 1.25x and 1x on all other debt. A two-part additional bonds test requires 1.20x historical (most recent fiscal year) and 1.25x projected three years (later of issuance and capitalized interest period). Similar to the PFC, the reserve fund is cash-funded at three-pronged test ($19.8 million).