OREANDA-NEWS. Fitch Ratings has assigned ratings of 'A+' to $176 million senior airport revenue bonds, series 2015A, and 'A' to $195 million subordinate airport revenue bonds, series 2015A and 2015B, being issued on behalf of Tampa International Airport (the airport) by the Hillsborough County Aviation Authority (the authority). Fitch has also affirmed its rating on $296 million in outstanding senior airport revenue bonds at 'A+' and $156 million in outstanding airport subordinated revenue refunding bonds at 'A'. The Rating Outlook for all bonds is revised to Positive from Stable.

The airport also has $99 million in parity senior bonds which are privately placed, and are not rated by Fitch.

The Positive Outlook reflects improving financial metrics which is likely to continue based on the airport's updated plan of finance for its ongoing capital improvement program (CIP), including reduced overall leverage compared to earlier plans. Positive trends in enplanements and overall operational performance will be key to reaching and sustaining a more favorable financial profile and could lead to a higher rating.

KEY RATING DRIVERS
The ratings reflect the airport's strong origin and destination (O&D) position in the Tampa and Central Florida market, providing stability through the recent downturn. The airport benefits from stable overall coverage in the 1.7x range and a reasonable cost per enplanement (CPE) in the $5 range. While a sizable capital program is underway with additional borrowing expected, leverage is expected to remain at levels consistent with the current rating levels.

Revenue Risk Volume: Stronger
Traffic Influenced by Competition: The airport's sizable O&D market, comprising nearly 90% of 8.7 million enplanements in 2014, is underpinned by a strong local traffic base. Enplanements recovered relatively slowly in the first few years post economic downturn; however, the rate of traffic recovery has accelerated in recent years with fiscal 2015 year-to-date enplanement growth of 6.5% demonstrating continued, robust growth. While the airport faces some competition from nearby Florida airports, the vigorous recovery of its service area as well as the airport's carrier diversity somewhat offset this concern.

Revenue Risk Price: Midrange
Cost Recovery Key to Borrowing: The airport's current use and lease agreement was recently extended to 2020, and covers one third of airport costs. Sizable non-airline revenues help maintain a low airline CPE in the $5 range, though this may rise modestly as the capital program progresses. The airport benefits from extraordinary coverage protection, allowing it to levy additional charges to airlines in the event that net revenues are insufficient to meet debt service covenants while also providing for a revenue sharing mechanism based on surplus net revenue generation.

Infrastructure and Renewal: Midrange
Capital Plan Partially Debt Funded: With the deferral of the north terminal development project, the airport's Master Plan CIP consists of a three phase plan to reduce traffic congestion, prepare the existing terminal for future growth, and to expand the main terminal. Phase 1 is estimated at $952 million, and will be funded with a mix of debt (72%, including GARB, PFC, and CFC debt), grants (20%), and other funds. Phase 2 and ongoing capital improvement needs outside the master plan bring total capital needs to $1.97 billion.

Debt Structure: Stronger (Senior); Midrange (Sub)
Conservative Debt Structure: Nearly all of the airport's debt is issued in fixed rate mode with 45% of currently outstanding debt scheduled to mature in less than five years, though additional borrowing for the CIP will result in maintenance of a relatively flat amortization profile going forward. Currently, 28% of outstanding debt is on the subordinate lien. The receipt of an FDOT grant and the decision to fund a portion of the CONRAC with standalone CFC bonds has reduced expected borrowing on the GARB and PFC-supported liens for Phase 1 of the Master Plan. Structural features are standard, including cash funded debt service reserves.

Robust Finances: The airport's 2014 net debt-to-cash flow available for debt service (CFADS) of 4.2x is comparatively low. Leverage is expected to initially rise to a still moderate 6x-7x due to borrowing associated with the CIP. The airport's debt service coverage ratio (DSCR) has risen to above pre-recession levels at 1.86x/1.71x for senior/all-in coverage in fiscal 2014, and averages 1.86x/1.65x range (senior/all-in) in Fitch's conservative rating case.

Peers: The airport's peers include other Florida airports with similar market characteristics, such as Greater Orlando Aviation Authority (rated 'AA-' by Fitch) and Broward County Fort Lauderdale (rated 'A'), with GOAA's higher rating reflecting a stronger liquidity position and slightly lower leverage.

RATING SENSITIVITIES
Positive: As the CIP progresses, improving enplanements and operating results that sustain a more favorable financial profile.
Negative: A measurable increase in leverage above current plans to support the capital program.
Negative: A withdrawal of the PFC pledge as security to the Authority's PFC-supported bonds that may adversely impact coverage ratios.

SUMMARY OF CREDIT
The 2015 bonds are being issued to fund various Phase 1 projects in the Master Plan, including terminal improvements, the concessions consolidated warehouse, the authority portion of the Automated People Mover (APM), as well as roadway and taxiway improvements. The 2015 bonds include $176 million in senior GARBs for non-PFC eligible projects, and $195 million in PFC-supported subordinated GARBs for 60% of the APM cost and other PFC-eligible projects. Both senior and subordinate bonds will be fixed rate and have a final maturity of 2044. Additionally, proceeds will be used to fund certain reserve accounts, fund capitalized interest on a portion of the 2015 bonds, refund a portion of the 2013A SunTrust note, and pay certain costs of issuance.

The airport, located approximately five miles west of the City of Tampa's central business district, has experienced somewhat slower enplanement recovery in recent years. From fiscal 2007 to fiscal 2010, enplanements declined 3.5% annually, and fiscal 2011 marked the first increase since the recession began, with 0.6%-0.7% growth annually through 2013. 2014 saw a return to more robust growth at 2.1%, with enplanements rising to 8.7 million. For the first eight months of fiscal 2015 through May, enplanements are up a healthy 6.5%, reflecting increased service at the airport.

Meanwhile, operating revenues have shown more resilient growth coming out of the recession, with 3%-5% revenue growth in the 2011-2013 period and a 7.4% increase for fiscal 2014. Over the past five years, operating revenues have grown at an average of 3.3%. Operating expenses have been well controlled, with7.5% growth in 2014 matching revenue trends and the five year growth rate of 2.7% tracking inflation. CPE remains competitive just above $5, and is expected to increase only modestly in coming years. The DSCR fell to a low of 1.38x in fiscal 2010, following years in which it ranged from 1.6x-1.9x. In fiscal 2014 senior/all-in DSCR reached 1.86x and 1.71x respectively, above prior year's projections.

Fitch considered various sensitivity cases reflecting the full borrowing program for the first phase of the airport's master plan and a portion of Phase 2 borrowing (see below). Under the base case of 1.5% average enplanement growth and with no uplift in revenue per passenger rates, the authority is expected to generate DSCRs in the range of 1.8x to 2.3x for the senior bonds and 1.6x to 1.9x for senior and subordinate bonds. Under a conservative rating case, which contemplates an 8% recessionary drop in enplanements followed by three years of recovery for an average growth rate of 0.8%, DSCRs remain in the range of 1.6x to 2.0x for the senior bonds and 1.5x to 1.8x for senior and subordinate bonds.

The authority is undertaking considerable borrowing in the context of its master plan-driven CIP. The master plan update includes three phases and totals $2.5 billion, allowing the existing main terminal building to accommodate up to 34.7 million passengers, and delaying construction of a new north terminal (expected in previous master plans once passenger volumes reached 25 million a year) to 2041. Phase 1, already underway, is estimated at $952 million, with the largest projects being the design and construction of a consolidated rental car facility (CONRAC) and APM system connecting the terminal to parking, rental car facilities, and regional transportation networks. The authority anticipates to fund its CONRAC project via standalone CFC bonds later in 2015. The airport has also received a $194 million FDOT grant, to be distributed between 2014-2018, which will cover several Phase 1 projects. Both these developments serve to reduce borrowing requirements on the GARB credit, and provide added flexibility to the authority's capital structure for Phase 2 projects. With the current borrowing and additional borrowings of $126.7 million and $104.5 million in 2017 and 2020 respectively, all-in net debt to CFADS is only expected to rise to 7x from the 2014 level of 4x, though under Fitch's base case this falls off to the 5x range within five years.

In May 2015, the authority's most recent PFC application was approved at the $3.00 level, which is lower than previous authorizations received at the $4.50 level. While several corrective measures are under consideration, and will be monitored by Fitch, the lower PFC, if unchanged, will result in reduced available receipts to offset future bond payments.

SECURITY:
Senior revenue bonds issued by the authority are payable solely from airport revenues derived from the operation of the airport system (Tampa and three general aviation airports) after the payment of operation and maintenance expenses. Available PFC revenues are included in the definition of revenues and eligible PFC-project bonds are paid from a first lien on available PFC revenues with a back-up pledge of airport net revenues. Pledged PFCs are limited to 125% of PFC-eligible debt service.

Subordinate revenue bonds are payable from airport system net operating revenues after payment of operating expenses and senior lien debt service. Remaining PFCs after application for senior lien debt service are available to pay PFC eligible debt service on the sub lien.