CPA eyes change in Fitch rating due to growth

Due to increased passenger traffic and the agency’s implementation of austerity measures, the Commonwealth Ports Authority succeeded in complying with its required bond coverage ratio for the first 11 months of fiscal year 2004.

In light of this development, CPA executive director Carlos Salas said the ports authority will try to schedule a meeting with Fitch Ratings to update the rating agency of CPA’s improved financial status.

“Our mission is primarily to convince Fitch that we are ready to be removed from negative watch status, because we are now well in compliance with our bond debt ration. We are financially back on track and things are looking stable,” Salas said.

Fitch Ratings placed CPA’s airport division on “negative credit watch” status since May 2003 for its failure to meet the 1.25 bond ratio requirement in FY 2002 and FY2003.

CPA’s bondholder requires that each of the airport and seaport divisions generate a net income that is at least 25 percent greater than the required bond payment.

In his latest report, CPA comptroller George Palican said the airport division posted a 1.94 bond ratio for the first 11 months of FY 2004—far surpassing the 1.25 ratio required by the bondholder.

From October 2003 to August 2004, the airport division earned total revenues of $11.8 million, a 22-percent increase as compared with the $9.7-million revenues during the same period last year.

Palican attributed this to increased number of flights and passenger loads.

Aviation revenues composed $7.6 million of total revenues, while the remaining $4.2 million came from non-aviation revenues.

Operating expenses also increased by almost 7 percent, from $8.6 million last year to $9.2 million this year. Palican said the increase was caused by urgent repair work that needed to be done at the Saipan International Airport’s air-conditioning system, as well as the significant amount of money that had to be paid to retiring employees.

Nevertheless, Palican noted that the actual operating expenses for the first 11 months of FY2003 was 5 percent lower than what the ports authority had budgeted for the period.

The increased revenues and relatively low operating expenses resulted in a $2.6 million net income for the airport division.

Palican stressed, however, that the net income does not mean extra money for the ports authority, as the amount is needed for bond payments and compliance with the bond coverage ratio.

The Fitch IBCA Rating Agency had twice given the airport division an investment grade rating of “BBB minus” in the last two years for its failure to meet the 1.25 bond ratio requirement.

Earlier this year, the rating firm commended CPA’s efforts to comply with its bond coverage ratio.

Fitch noted that, despite adverse conditions, CPA managed to preserve its liquidity position and improved its finances during fiscal year 2003 due to increased tourism activity and the implementation of cost reduction measures.

Fitch also expressed approval of CPA’s decision to apply for a passenger facility charge which, CPA said, will help restore its compliance with the bond ratio requirement.