Fitch affirms Commerce RI’s RIAC revenue bonds at ‘BBB+’

PROVIDENCE – Fitch Ratings has affirmed the “BBB+” rating on approximately $217 million in outstanding airport system revenue bonds previously issued by the R.I. Economic Development Corporation (now the R.I. Commerce Corporation) on behalf of the R.I. Airport Corporation.
The rating outlook is stable, and reflects a small market airport that has experienced weakening traffic in recent years due to competition in the greater New England air trade service area, according to Fitch, a trend that easily could continue.
T.F. Green Airport is predominantly served by low-cost carriers and maintains a higher than average cost per enplanement level, which is expected to be $12.50 in fiscal 2015, Fitch said. In addition, the rating also reflects RIAC’s relatively high leverage ratio, expected to increase to approximately 7.5x net debt-to-cash flow available for debt service in fiscal 2015.
Leverage and cost per enplanement level are both considered elevated for an airport of its size and market position.
Fitch said the airport also is “vulnerable to a competitive New England airport environment that has contributed to nine consecutive years of enplanements declines.” Concentration risk exists with Southwest Airlines Co. (rated “BBB” with a positive outlook by Fitch), representing 46 percent of enplanements in fiscal 2014, it said.
Infrastructure development and renewal was given a “midrange” outlook, as the airport’s $283 million capital improvement plan is expected to be funded with a combination of grants, new debt and passenger facility charge revenues. The airport expects to issue approximately $32 million in debt in fiscal 2015 for a runway extension project.
Fitch listed the following issues at Greene as negatives:

  • Annual traffic levels falling below the 1.7 million to 1.8 million enplanement range are likely to place greater pressure on airline costs and would lead to the consideration of a rating downgrade
  • Higher than anticipated debt issuance that materially increases leverage while diluting debt service coverage
  • While coverage levels are expected to narrow with the planned bond issue, cash flow coverage levels falling under the 1.2x level would likely lead to a lower rating

Fitch said the airport’s “traffic profile and size, coupled with vulnerabilities to economic conditions or competition, currently restrict a higher rating at this time.”
It said RIAC’s operational performance remains stable despite continued weakness in traffic levels. Enplanements in fiscal 2014 held steady, falling only 0.4 percent, after a 3.2 percent decline in fiscal 2013. Enplanements in the first three months of fiscal 2015, however, are an additional 5.3 percent less than a year earlier. Fiscal 2014 operating revenue increased 2.4 percent from fiscal 2013, led by an increase in non-aviation revenue of 2.8 percent.

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