Fitch affirms ‘B+’ rating of CPA airport revs; outlook at ‘stable’

NEW YORK—Fitch Ratings has affirmed the ‘B+’ rating on the Commonwealth Ports Authority approximately $7.8 million of outstanding senior series 1998A airport revenue bonds. The Rating Outlook has been revised to Stable from Negative.

Rating rationale

The Outlook revision to Stable reflects improvement in the airport system’s financial position, due to effective cost containment measures and financial relief from federal aid, mitigating near-term pandemic-related stresses. Federal relief funds and the use of full passenger facility charge collections provide sufficient cash flow to cover debt service and operations over the next few years, despite continued depressed enplanement levels. While traffic improvement remains below peers, immediate financial pressures are alleviated, and the airport is better positioned to restore metrics to historical levels.

The rating reflects a small air traffic base with risk of elevated volatility tied to the islands’ limited economy. Manageable capital needs coupled with robust balance sheet liquidity in excess of debt outstanding further support the rating. Additionally, the authority maintains insurance coverage and strong cash reserves and unrestricted liquidity that more than meet debt service requirements. In addition, Fitch recognizes the implementation of a new, improved airline use agreement in fiscal 2021, and the relatively low debt resulting in negative leverage throughout the forecast period.

Key rating drivers

Highly Volatile Enplanement Base – Revenue Risk (Volume): Weaker

The airport system is an essential enterprise, serving as the gateway to and within the Mariana Islands. The system serves a small enplanement base of approximately 568,091 passengers pre-pandemic in fiscal 2019, reflecting the overall population base and the island’s more limited, weaker economy. Traffic performance is potentially vulnerable to underlying economic stresses, given the significant component of traffic tied to the tourism industry, and service offerings are limited. Due to the pandemic, enplanements decreased 48% in fiscal 2020.

Limited Pricing Power – Revenue Risk (Price): Weaker

The authority operates under rates by ordinance, and implemented a new rate methodology for air carriers operating at CPA airports, effective Oct. 1, 2021. The rate methodology is based on space usage and requires that rates be calculated annually, utilizing the next fiscal year budget. If CPA determines that airport revenues are insufficient to cover operations, the authority may increase fees and charges to an amount sufficient to meet all obligations.

This enhanced pricing power allows for greater financial flexibility under an adverse operating environment. Successful implementation of the new agreement in the coming years, demonstrating the expected stronger cost recovery, may warrant a higher price risk score for the airport.

Moderate Capital Plan – Infrastructure Development & Renewal: Midrange

The authority’s capital improvement plan is modest at approximately $35 million. Existing projects include runway rehabilitation and perimeter fence replacement. The CIP is predominantly grant funded with only a small amount coming from CPA funds. To the extent a significant portion of PFC revenue is needed for debt service, it could hamper the airports’ ability to provide required matching funds, thus limiting grant receipts. However, CPA’s substantial build-up of liquidity partially mitigates this risk.

Conservative Capital Structure – Debt Structure: Stronger

The authority maintains 100% fixed-rate, fully amortizing senior debt. Annual debt service payments are essentially level, and final maturity on the bonds is in 2028. Structural features are strong and in line with most of Fitch’s rated airports. No additional bond issuances are anticipated in the near term.

Financial Profile

Debt service coverage ratio is estimated at 2.0x in fiscal 2020, benefitting from the receipt of federal relief funds. The authority has reserves in excess of debt outstanding, such that leverage is presently negative. The ability to treat all PFCs as revenues provides stability and has helped the airport maintain robust liquidity levels of over Fitch-calculated 600 days cash on hand in fiscal 2020. Fitch estimates cost per enplanement in fiscal 2020 to remain elevated at over $13 in fiscal 2020.

Peer group

Small hub size airports with weaker revenue characteristics and elevated CPE profiles such as Fresno (BBB+/Negative), Burlington (BBB/Negative), and Dayton (BBB/Stable), serve as comparable peers. These airports all have traffic bases below 1 million enplanements and experienced significant passenger declines related to the pandemic. However, in contrast to CPA, the peer airports have seen passenger volumes recovering to over 60% of pre-pandemic levels. CPA demonstrates higher coverage and significantly lower leverage, though these are necessary to mitigate its more volatile operating and financial profiles. (PR)