"Fitch Downgrades Metropolitan Washington Airports Authority to 'AA-', Outlook Revised to Stable"

Saturday, September 10, 2011

Uh, Oh, MWAA Bonds Downgraded
By James A. Bacon
Bacon's Rebellion


As if the Metropolitan Washington Airports Authority didn't have enough
problems with the Rail-to-Dulles project, the Fitch rating service has just
downgraded its bonds to AA-. Reports Reuters: "The downgrade reflects
Fitch's view that the authority will maintain a stable yet narrower level of
debt service coverage cushion when compared to both its historical
performance and previous forecast estimates."
 
The airport still has great strengths, including the strong competitive
position of Dulles and National airports in the Washington metropolitan
market, well-managed financial operations, a firm airline use-and-lease
agreement and traffic volume that has held up well since the recession.
 
However, stated Fitch, "The authority's ongoing use of borrowings in recent
years to fund a majority portion of its Capital Construction Program (CCP)
has resulted in an elevated debt burden profile and will require increased
reliance on airline charges to meet total airport cash flow requirements. In
Fitch's opinion, the rising debt burden places an added measure of risk to
the authority's financial profile given the downward revisions in forecasted
traffic growth, especially when compared to earlier projections in prior
years. In Fitch's view, the forecasted financial metrics would no longer be
consistent with 'AA' rating pursuant to Fitch's criteria for airports."
 
Fortunately, the authority has nearly completed its $5.1 billion 2001-2016
capital construction. Major projects left within the CCP at Reagan include
runway overlay and rehabilitation and in-line baggage screening systems. At
Dulles, the remaining projects include an in-line baggage screening system
and taxiway Y reconstruction.
 
The airports are a critical economic driver for Northern Virginia, so any
development that makes it more difficult to finance capital improvements
comes as bad news. The reduced financial flexibility also may complicate the
bond financing of Phase II of the Rail-to-Dulles project. I'll provide
details as I find out more.

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