CPA is off negative credit watch

International credit rating agency Fitch Ratings has removed the Commonwealth Ports Authority from negative watch, following CPA’s rebounding enplanement levels, recovering financial position, and the scheduled implementation of a $4.50 terminal fee in 2005.

Fitch also affirmed the “BBB-” rating on CPA’s $17.9-million airport bonds. CPA, however, received a negative rating outlook.

Citing the 2002 technical default and low passenger figures, Fitch Ratings placed CPA on Rating Watch Negative in May 2003 and affirmed the watch in February 2004. A Rating Watch Negative notifies investors that the rating of a firm or entity faces probable downgrade.

But in a press statement issued Monday, Fitch announced that it has removed CPA’s airport revenue bonds from the watch.

The agency noted that with debt service coverage of 1.26x in fiscal year 2004, CPA posted a substantial improvement over FY 2002 and FY 2003 when CPA failed to meet its required bond ratio. The 1.26x bond ratio means that CNMI airports generated a net income that is 26 percent greater than the required bond payment.

CPA executive director Carlos Salas was not available for comments as of press time. He was scheduled to arrive last night after meeting with the rating agency.

Fitch attributed CPA’s improved financial standing to efforts by management to reduce expenses and add new revenue sources. Fitch also cited the rebounding Japanese tourism market and the CNMI’s marketing campaign to attract more visitors, particularly from China.

The recent approval by the Federal Aviation Administration for CPA to implement a $4.50 passenger facility charge further strengthened CPA’s credit quality, Fitch said.

CPA expects to collect some $3 million each year from the new fee. Of this amount, $560,000 is available to offset the authority’s annual debt service, or about a third of its annual obligation.

“Fitch believes CPA’s decision to collect [passenger facility charge] bolsters credit quality by providing additional revenue source for debt service and maintain compliance with the rate covenant,” the rating agency said.

Fitch also said the “BBB-” investment grade rating on CPA’s airport revenue bonds reflects “CPA’s solid cash and investment levels, modest debt level, and monopoly position for air travel within the Commonwealth.”

“BBB” ratings, according to Fitch, indicate that there is currently a low expectation of credit risk. This is the lowest investment grade category. The “+” and “-” signs are appended to the ratings to denote relative status within the rating category.

Aside from CPA’s strong liquidity levels and modest debt levels, the fact that the authority’s three airports provide the only commercial air service to the CNMI adds to CPA’s credit quality, Fitch noted.

“However, the CNMI’s dependence on international tourism makes it particularly vulnerable to outside influences on travel demand, including international and national economic trends, as well as significant weather-related events,” Fitch added.

The negative outlook, on the other hand, indicates that Fitch is more likely to downgrade CPA’s rating over the next one to two years.

“The negative outlook is based on concerns regarding CPA’s willingness to raise airline fees in a timely manner and avoid future technical defaults, long-term ability to preserve adequate liquidity and uncertainty regarding funding for future capital improvement projects,” Fitch said.