OREANDA-NEWS. November 11, 2015. Fitch Ratings has affirmed the 'A-' rating on \\$238.5 million New York City Industrial Development Agency's special facility revenue bonds, series 2005 (Terminal One Group Association, L.P. Project; TOGA). The Rating Outlook is Stable.

The 'A-' rating reflects the project's strong demand profile with increasing diversity from contract-based foreign-flag carriers, favorable enplanement and cost trends, manageable capital needs, low project leverage and stable cash balances. The single-facility nature of the terminal project and ongoing competitive pressures at neighboring terminals present some longer term risks. The Stable Outlook reflects expectations for the project to continue to perform at near base case levels.

KEY RATING DRIVERS

Revenue Risk - Volume: Midrange
Expanding International Service, Moderate Competition: Terminal One at JFK International Airport (JFK) has a proven operational history since opening in 1998. Enplanements were 3.1 million in 2014, up an impressive 14.4% from 2013. Approximately 34% of enplaned passenger traffic is derived from the project's four signatory airlines (Air France, Japan Airlines, Korean Airlines, and Lufthansa) which are also equity-holders in TOGA, and the remaining 66% is derived from contract carriers. New York City has a strong market for air traffic and ranks as the largest international gateway airport in the U.S. Competition risk is more acute for contract carriers given the existence of other international terminals within JFK and other NY area airports.

Revenue Risk - Price: Stronger
Solid Cost Recovery Framework: TOGA has demonstrated a stable framework for debt repayment. The legal structure provides an unconditional and irrevocable obligation by TOGA to make lease payments equal to debt service without set-off or abatement. The repayment obligation is joint-and-several between all four TOGA partners with full step-up provisions in case of delinquencies or default. While the blended cost per enplanement at the terminal is relatively high at \\$32.68, the signatory carriers are benefitting with lower overall costs under \\$10 per enplanement.

Infrastructure Development & Renewal: Stronger
Since 1999, TOGA has made a significant investment in capital improvements, and project delivery has been successful to date. Most recent projects completed include concession area enhancements, gate improvements to handle A380-gauge aircrafts and a new \\$51.4 million central baggage inspection system. TOGA's contribution of \\$6.9 million for the baggage system can be covered from rates to carriers, while the remaining costs were funded through grant reimbursements.

Debt Structure: Stronger
The project bonds are fixed rate and are solely secured by lease payments without recourse to other terminal-related revenues or to the Port Authority of New York and New Jersey itself. Additional legal security is given over both a 25% operating and maintenance reserve and a 25% annual debt service rolling coverage account. These accounts are supplemented by a fully cash-funded debt service reserve fund held by the trustee.

Stable Cost Structure and Financial Profile: Additional revenues from contract carriers, concessionaires and interest earnings subsidize costs to signatory carriers. Signatory airline costs, including those for ramp operations, have been declining due to the growth in other revenue sources. No major capital expenditures are necessary in the near term; however, TOGA is considering an expansion on the property adjacent to Terminal 2. Costs and financing plans associated with the new project are still under discussion.

Peer Group: The nearest comparable peer to TOGA is JFK's International Air Terminal (JFK IAT or Terminal 4) which operates under a similar relatively unique business model as TOGA and competes for New York international travel with other terminals at JFK and Newark Airport. TOGA is currently less leveraged and less single-carrier concentrated relative to IAT. However, TOGA has a smaller operating scale with a 2014 overall enplanement base that is less than half that of IAT's.

RATING SENSITIVITIES

Positive - Due to inherent risks common with single-asset projects, positive action is unlikely at this time;

Negative - Cost Recovery: While not expected in the near term, an upward shift in the terminal's cost structure or weaker non-aeronautical revenue generation than forecast;

Negative - Leverage: Any further significant construction works at the terminal be funded by TOGA which materially increase leverage.

CREDIT UPDATE

Terminal One opened in the fall of 1998 and serves as an essential facility for a number of the world's leading international carriers. In 2014, aggregate enplanements were 14.4% higher than 2013 at 3.1 million. Signatory carrier enplanements have remained stable over the past few years at around 1 million, and Air France remains the largest carrier at the terminal with over 14% of the terminal's total market share. However, enplanement growth has largely been driven by the expansion of contract carriers such as Alitalia, Turkish Airlines, Aeroflot and Aero Mexico.

Strong traffic performance equated to TOGA generating operating revenue collections of \\$133 million in fiscal 2014, 90% of which came from payments from contract carriers, concessions, and other revenue. Costs associated with the terminal increased approximately 17% driven by growth in operations. Following traffic increases from contract carriers, signatory carriers cut CPE to approximately \\$9.71 net of ramp costs, and, when excluding ramp costs, achieved a \\$5.63 credit per enplanement. The terminal maintains sound liquidity with approximately 72 days cash on hand.

TOGA is currently in the process of refunding its total indebtedness. Fitch plans to meet with management in the upcoming months to obtain greater detail regarding the issuance and future expectations. Please refer to a forthcoming report for further detail.

SECURITY

Facility rental payments made by the lessee, TOGA, secure the series 2005 special facility revenue bonds.