OREANDA-NEWS. August 24, 2015. Fitch Ratings has affirmed the 'A+' rating on Columbus Regional Airport Authority's (OH) \\$54 million senior lien airport revenue refunding bonds, series 2007. The airport's senior parity indebtedness also includes approximately \\$54 million in unrated, directly-placed bank loans. The Rating Outlook is Stable.

The authority's rating reflects a relatively stable traffic profile that serves a medium-sized metropolitan area of Ohio, consisting of many corporate headquarters and universities. The authority maintains a broad mix of major carriers, with no one carrier accounting for more than 33% of enplanements, and a cost per enplanement (CPE) level comparable with its peers. The authority exhibits strong debt service coverage and low leverage, even under a stressed enplanement scenario. The authority is currently limited to this category due to its size and traffic profile.

KEY RATING DRIVERS

Revenue Risk-Volume: Midrange
Diversified Traffic Base; Some Volatility: Port Columbus International Airport's (Port Columbus) air trade area served a 99% origin and destination (O&D) traffic base of 3.2 million enplanements in 2014. The airport maintains a well-diversified mix of low cost and legacy carriers, led by Southwest Airlines Co. (Southwest, rated 'BBB+'/Outlook Positive by Fitch) with 33%. The airport faces some measure of competition risk.

Revenue Risk-Price: Stronger
Strong Cost Recovery Framework: Under the current hybrid use and lease agreement (through 2019), the authority has strong provisions for cost recovery and prudent carrier revenue sharing arrangements that either maintain at least 2.0x debt service coverage or one year's worth of operating expenses. Given the proximity of several competing airports, Fitch recognizes that there may be some pressure on the authority's CPE, \\$8.08 in 2014, but the terms of the agreement are intended to maintain cost competitiveness.

Infrastructure Development Renewal: Stronger
Manageable Capital Spending: The five-year capital improvement program (CIP) assumes no additional senior parity debt. The authority is currently utilizing a subordinated revolving credit facility to fund a portion of its short-term capital needs in addition to on-going federal grants and passenger facility charges (PFCs). Customer facility charges (CFCs) are being used to construct a quick-turnaround consolidated rental car facility (CONRAC).

Debt Structure: Stronger
Conservative Debt Structure: Senior lien debt is fixed-rate with level debt service of approximately \\$11.7 million through 2021, which subsequently declines through final maturity in 2030. The authority's subordinated variable-rate bank loan exposes the authority to some refinance risk. At the current rating level, Fitch does not expect the subordinated obligation to represent a large part of the overall capital structure.

Financial Metrics
Low Leverage; Healthy Coverage: Robust liquidity of \\$110 million, or approximately 665 days cash on hand, supports operations and completely offsets senior lien financial leverage on a net debt-to-cash flow available for debt service basis. Senior debt service coverage is expected to remain above 2x in the near term.

Peer Group: Amongst its peers within the 'A+' rating level, such as Milwaukee (WI) and San Antonio (TX), the authority exhibits stronger liquidity, lower leverage and stronger debt service coverage. CPE levels are elevated for the rating at all three airports, but still within a reasonable range.

RATING SENSITIVITIES
Negative - Traffic Performance: Material contraction or elevated volatility in passenger traffic;

Negative - Operational Flexibility: Deterioration of the authority's non-aviation revenue that limit its ability to manage CPE levels;

Negative - Financial Metrics: The dilution of debt service coverage for a sustained period below 2x;

Positive: The authority's size and traffic profile restrict the likelihood of a higher rating in the near term.

CREDIT UPDATE

Port Columbus' traffic base has held very constant. In fiscal 2014, traffic grew 1.9%, bringing annual enplanement growth to a 0.3% rate since 2009. Additionally, traffic is demonstrating rather robust growth in fiscal 2015, with enplanements currently up 5% through July. Fitch's base case, consistent with the long-term historic average, forecasts continued enplanement growth of 1% annually over the next five years.

Supporting the authority's overall enplanement growth are new service routes by its carriers. Southwest began service to Washington D.C., Dallas, Boston and Oakland, which should incrementally add to the authority's traffic base, while Allegiant Air (serving Rickenbacker Airport), Delta Air Lines (Delta, 'BB'/Outlook Positive), and Vacation Express expanded or began offering new service to various destinations.

Over the last fiscal year, debt service coverage levels remained stable, to 2.57x in 2014 from 2.58x in 2013. CPE dropped to \\$8.08 in 2014 from \\$9.06 in 2013, exemplifying the authority's practice of maintaining affordability for its airlines via airline credits. Leverage of -1.35x in 2014 reflects a substantial level of available cash, completely offsetting outstanding debt.

The authority's 2014 operating profile, reflected by a 26% operating margin, is the strongest it has been since 2010. Operating revenue continues to perform well despite slow enplanement progress, growing 3.8% annually since 2009. Diversified non-airline revenue makes up the bulk of the authority's revenue, at 66% in 2014, led by parking at 34%. Non-airline revenue grew 6% in fiscal 2014, due to new hotel operation revenue, and parking revenue growth of 4%.

Expenses have grown 5% annually over the last five years; however, management has efficiently controlled these costs through various initiatives. These include a 15% reduction goal in utilities for 2011-2015, which saved approximately \\$700,000, and a reduction of personnel benefit costs, which has consequently reduced wage and benefits expense.

A new five-year use and lease agreement was signed in January 2015, and is largely the same as the last. However, revenue-sharing has been changed in order to drive new service, and the square footage of the in-line baggage area is now included in the calculation of airline leased space in order to increase terminal cost recovery.

The authority's five-year CIP amounts to \\$327 million, with a majority of this designated to the CONRAC facility, mid-field development, and the remainder of the terminal modernization program. The authority placed \\$40 million in fixed rate senior lien bonds with Huntington Bank in March 2015 in order to refinance a balance outstanding on the revolving bank facility, related to this modernization program.

Fitch's base case assumes moderate enplanement growth and reasonable cost escalation, and results in average senior debt service coverage near 2.4x through fiscal 2020. The rating case assumes a moderate near-term enplanement shock, consistent with recent stresses, and larger cost increases. This scenario results in average senior debt service coverage of 2.2x, while CPE migrates closer to \\$9. In both cases leverage remains nil.

SECURITY

Senior lien indebtedness is secured by the net revenue of Port Columbus and Bolton Field. PFC revenue is not pledged to the bonds; however, it is available to support eligible annual debt service of approximately \\$4.8 million. Revenue from Rickenbacker Airport is not pledged under the indenture, and repayment of its expenses is subordinate to senior lien debt service.