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ACAA Credit Rating Is Raised By Moodys On Revenue Bonds For PIT

ALLEGHENY COUNTY AIRPORT AUTHORITY CREDIT RATING IS RAISED BY MOODY’S ON REVENUE BONDS FOR PITTSBURGH INTERNATIONAL AIRPORT

PITTSBURGH, PA (May 21, 2013) – The Allegheny County Airport Authority recently received high marks in rating reports from Moody’s.

“This is great news for the Allegheny County Airport Authority. It demonstrates that despite the numerous challenges Pittsburgh International Airport has faced, that the Airport Authority has acted in a fiscally responsible fashion to ensure long term success for one of our region’s most important assets,” stated Allegheny County Executive Rich Fitzgerald.

“I think this is a successful result based upon recent events such as the lease agreement for gas drilling at the airport. The ratings agency recognized that Pittsburgh has been successful in converting from a hub to a market where most begin and end their trips here,” said David Minnotte, Chairman, Allegheny County Airport Authority.

From Moody’s Report:

Moody's Investors Services has upgraded to A3 from Baa1 the rating of the Allegheny County Airport Authority's Airport Revenue Bond. The outlook on all bonds is revised to stable from positive.

SUMMARY RATING RATIONALE
The rating upgrade to A3 from Baa1 is based on an increasingly economically varied origination and destination market, strong management that balanced the demands of protecting financial margins while attracting new air service, and the increased liquidity provided by an upfront payment from a third party operator for natural gas drilling rights. Additionally, non-airline related revenues from royalties from natural gas on the property will be applied against the rate base to lower airline costs and will provide additional unrestricted liquidity to pursue capital projects at the airport. The rating is still constrained by the airport's high operating costs due to stranded assets from the US Airways de-hubbing and an underfunded county-wide pension system which could place upward pressure on labor costs in future years. However, the authority is currently at peak annual debt service with annual requirements falling significantly after FY2017.

STRENGTHS

  • Strong market position for air service with no significant airport competition within 100 miles
  • Airport receives non-airline revenues from state gaming ($12.4 million per year), from the commercial development of land surrounding airport, and should also derive revenues from royalties from natural gas extraction on the airport
  • Airline operating agreement provides for full residual recovery of operating costs and debt service through signatory airlines through 2018
  • Strengthening economy in service area

CHALLENGES

  • Low financial liquidity (238 days cash on hand, FY 2012) and high airline cost per enplanement ($14.24, FY 2012) relative to residual airport and A3 medians, respectively
  • Gas revenues streams are inherently volatile, which could result in quick changes in revenues required from airlines under the residual rate making agreement. Such rate volatility could affect service levels

OUTLOOK
The stable outlook is based on a stability in the service area economy with upside potential for economic growth, continued stability in enplanement levels, and continued stability in the airport financial liquidity position.

WHAT WOULD CHANGE THE RATING UP
Sustained growth in the local economy, proven revenues from gas drilling royalties that reduce airline cost per enplanement below median levels, or accumulated liquidity above 600 days cash on hand could place positive pressure on the rating.

WHAT WOULD CHANGE THE RATING DOWN
Enplanement declines greater than 5%, reduced cash levels, or a reversal in the growth of the local workforce or local economic conditions could place negative pressure on the rating.

 

May 20, 2013

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