OREANDA-NEWS. Fitch Ratings has affirmed the 'AA-' rating on the Raleigh-Durham Airport Authority's (North Carolina) (the Airport Authority, or RDU) approximately \$660.905 million airport revenue bonds. The Rating Outlook is Stable.

RATING RATIONALE

The rating reflects stable historical traffic levels supported by a healthy and growing local economy. On-going active management of a competitive cost structure results in a consistently low airline cost per enplanement (CPE). Maintenance of a strong unrestricted cash level supports the airport's healthy liquidity levels, and coverage remains strong.

KEY RATING DRIVERS

Revenue Risk: Volume - Midrange
Strong Service Area: The economic strength of the airport's growing service area, which encompasses NC's Research Triangle Region, supports the airport's 96% origination and destination (O&D) traffic base. The service area is characterized by high income levels, lower than average unemployment, and strong population growth. Fitch rates the general obligation bonds of the cities of Raleigh and Durham 'AAA' with a Stable Outlook.

Revenue Risk: Price - Midrange
Robust Cost Recovery Prospects: Flexible rate-setting mechanisms allow RDU to pass through costs with few restrictions, though the short-term nature of the airline leases could provide less protection in a downside economic scenario. The airport maintains a competitive cost position with an average CPE of \$6.92 as of December 2014. RDU benefits from a well-diversified air carrier mix led by Delta Airlines (Delta, rated 'BB', Positive Outlook) at 28% of fiscal 2014 enplanements.

Infrastructure Development and Renewal - Stronger
Manageable Capital Program: RDU's multi-year capital improvement program (CIP) is very modest at approximately \$150 million and does not require additional borrowing or include non-routine projects. The recently completed terminal renovations provide the airport with the flexibility to meet demand growth, and operating cash flow should be sufficient to meet the forecast CIP.

Debt Structure - Stronger
Strong Debt Structure: RDU's conservative debt profile consists of 90% fixed-rate debt, fully amortizes over the tenor of the bonds, and includes a maximum annual debt service (MADS) reserve requirement. RDU has a formal policy to maintain a minimum \$50 million unrestricted cash reserve fund.

FINANCIAL METRICS

Liquidity is healthy with 979 days cash on hand while coverage remains adequate at 1.42x (passenger facility charges [PFCs] treated as revenue). Leverage is within historical performance at 6.7x net debt-to-CFADS. CPE remains competitive after slightly rising to an average of \$6.92 as of December 2014 due to a terminal rate increase).

PEER GROUP

Amongst its peers at the 'AA-' rating level, such as Orange County (John Wayne) senior debt, RDU displays a lower CPE while liquidity is very strong with 979 DCOH. Volume remains on the lower side in the 4.6 million enplanement range, and coverage is slightly low compared to peers at 1.42x (PFCs treated as revenue).

RATING SENSITIVITIES

Negative:
Enplanement decline: A loss of 10% or more enplanements, due to airline consolidation, capacity cuts, regional economic weakness or other factors, could lead to a rating downgrade.

Less conservative debt structure: The airport's vulnerability to financial stressors could be exacerbated if RDU moderates its cash reserve position or incurs additional indebtedness.

CREDIT UPDATE

RDU's revenues have seen consistent growth while the Airport Authority continues to maintain a reasonable cost structure. Enplanements decreased 0.8% in FY2014 over the prior year; however, RDU has experienced a 6.08% rise FY to date (6 months through September) and carriers have recently increased average capacity at the airport. Prior to the most current fiscal year, the airport has experienced slight increases in enplanements year over year since FY2011. Further, enplanements remain below pre-recession levels, and growth remains below the national rate. The service area remains fundamentally strong, though Fitch will continue to monitor enplanement trends and airline capacity reductions as potential indicators of a structural change in the local market.

Revenues increased slightly, up 0.7% in FY2014 over the prior year while FY to date 2015 (through September) has seen a rise of 9.1%. RDU has expressed that the terminal fixed rent rate was recently raised by approximately 20% and went into effect in April 2014; this provides explanation for the rise in FY to date revenue.

The Airport Authority continues to efficiently manage operations, and operating expenses exhibited low year-over-year growth rates of 1.8% in FY2013 and 1.6% in FY2012. More recently, FY2014 expenses rose 5.2% which is mainly due to facility and administration cost increases while FY to date 2015 (through September) actual operating expenses are down 7.4% vs budget due to a combined decrease in repair & maintenance, material and supplies and salary, benefits & employee related expenses.

RDU maintains a strong unrestricted cash balance of \$140 million as of December 2014. This reduction over last year's balance is mainly due to the use of unrestricted cash to partially pay for the renovation of Terminal 1 which was completed on April 13, 2014. The Airport Authority expects unrestricted cash will remain over \$125 million and does not anticipate additional debt issuances.

Fitch considers recent performance indicative of RDU's long-term financial profile, as debt service is scheduled to remain level going forward. Fitch-calculated DSCRs, in which PFC commitments are included as part of revenues rather than as debt service offsets, slightly decreased to 1.42x in FY2014 from 1.57x in FY2013. RDU has irrevocably committed PFCs to debt service according to a fixed schedule through 2016, though the Airport Authority intends to fully apply PFCs toward debt service indefinitely. The Airport Authority reported a DSCR of 2.35x (2.10x without fund transfers) for FY2014, as per indenture.

Fitch's base case scenario assumes moderate traffic growth that is in line with historical averages while revenues also reflect past performance. Under such assumptions, resulting CPE levels remain competitive, reaching a maximum of \$6.97 by 2019. Over the forecasted period, coverage approaches a low of 1.47x while leverage reaches a high of 6.10x in fiscal year 2015 and decreases sharply over the next four years to 3.10x.

The Raleigh-Durham International Airport is located in Wake County, between the cities of Raleigh and Durham, approximately 10 miles from downtown areas of both cities. The Airport's service area is primarily the Raleigh-Durham-Cary CSA comprising Wake, Durham and Orange counties and five additional nearby counties. Wake, Durham, and Orange counties are part of the larger region known as the Research Triangle Region, a service area characterized by high levels of per capita personal income, well below-average unemployment, a large university population, and limited airport competition within a two-hour drive.

SECURITY

The airport revenue bonds are secured by the net revenues of the Airport Authority.