Moody's Investors Projects Negative Outlook For RI Airport Corporation

Moody's Investors Projects Negative Outlook For RI Airport Corporation

Moody's Investors Service has affirmed the "A3" rating of Rhode Island Airport Corporation's outstanding airport revenue bonds. The "Baa1" rating of the Rhode Island Airport Corporation Consolidated Rental Car Facilities First Lien Special Facility Bonds used to finance rental car facility, "Interlink" has also been affirmed. The outlook on these bonds has been changed to negative.

According to Moody's website, the A3 rating is considered "upper-medium grade," while the Baa1 rating is considered "medium grade and subject to moderate credit risk."

Why These Ratings?

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The A3 rating considers the market of the corporation's main passenger airport, T.F. Green Airport, which includes the entire state of Rhode Island and southeastern Massachusetts, as well as the corporation's stable financial performance despite declines in the number of people flying out of T.F. Green. The rating is additionally supported by above-median liquidity that provides significant protection against a drop in debt service coverage, which has been carefully managed between 1.15 and 1.20 times through the enplanement declines. The limited amount of future borrowing required to finance the five-year capital plan also supports the rating. The rating is negatively pressured by competition from other airports in the New England region, specifically Boston-Logan International Airport, and the sluggish performance of the Providence MSA.

The Baa1 rating for the special facility bonds reflects the InterLink's stable financial operations since opening, as evidenced by net revenue debt service coverage levels that have been in-line with initial expectations, and healthy liquidity levels to support the project's credit profile. Total available liquidity measured $17.5 million as of June 30, 2014 which is well above the project's approximately $1.5 million annual operating expenses. Additionally, the rating is supported by the residual nature of the car rental concession agreement that allows RIAC to bill the companies for any deficiency in facility operating, maintenance or debt service costs.

Outlook

The negative outlook reflects Moody's view that RIAC may face credit pressure over the next couple of years as annual debt service requirements increase by nearly $3 million, or about 15%. Enplanement growth and/or the ability of the airport to achieve refunding savings that keep key financial metrics at current levels would likely lead to stabilization of the rating. Additionally, the negative outlook for the special facilities bonds reflects that the CFC rate is currently at the maximum allowed level after a 2015 increase to $6.00, which removes some flexibility to manage through continued enplanement declines.

This negative outlook can be improved upon by an increase in the local demand for plane tickets. This would lead to growth in enplanements and more money for the airport.