ATL credit rating says proposed state takeover wouldn’t hurt airport’s ability to borrow money
By David Pendered
The potential state takeover of Atlanta’s airport did not weigh on the airport’s recent credit rating by analysts who say federal law will control debt payments no matter who controls the facility, according to a recent rating action by Moody’s Investors Service.
The credit rating is the latest clear sign from Wall Street that the airport’s ability to raise funds through debt won’t be impacted by the proposed state takeover of the city-owned airport.
The rating was applied to the pending sale of an anticipated $255 million in bonds to refinance existing debt, according to the Sept. 27 rating action by Moody’s Investors Service. On Oct. 16, the Atlanta City Council voted unanimously to approve the bond package and sent the authorization immediately to Mayor Keisha Lance Bottoms for her administration to initiate the sale of bonds.
Meanwhile, in three months the General Assembly could resume its debate of an airport takeover in the legislative session that begins in January 2020.
Senate Bill 131, which provides for state control of Atlanta’s airport, has been approved by the House and Senate, though in different versions that would have to be reconciled before a plan is sent to Gov. Brian Kemp for his consideration.
This is the precise language presented in a Sept. 27 bond rating action by Moody’s Investors Service:
- “Moody’s does not consider the recent proposed state legislation to move control of the airport to the state from the city to be a significant factor in the rating because ultimate rate making will be controlled and limited by Federal regulations on airport derived revenues.
- “Additionally, Moody’s expects that the city will rectify any revenue diversion that is identified in the FAA’s current Section 16 review to maintain grant funding and PFC eligibility to fund the CIP.”
The second matter refers to a federal review of airport spending and its potential impact on the use of a type of hybrid bonds to pay for construction underway at the airport.
The rating action characterizes Atlanta’s airport as a good bet for investors for a number of reasons, including this one nugget:
- “The airport has a near monopoly on air travel to the region….”
The rating action observes that the airport benefits from metro Atlanta’s economy, described as “strong, diverse and growing….”
Analysts evidently don’t have access to all financial information about airline profitability. Nonetheless, they felt comfortable enough to make the following observation:
- “The airport’s position as the largest, and reportedly most profitable, hub in the system of financially strong Delta Air Lines, Inc. (Baa3 stable) additionally supports the airport’s ability to recover modest increases in costs to fund the large capital improvement plan.
- “While the airport retains substantial carrier concentration and transfer traffic risk, the relative credit strength of the two largest airlines at the airport, an inability to accommodate such large volumes of transfer traffic at another domestic airport, a 20-year lease agreement, and strong credit metrics largely mitigate these risks.“
Though analysts dismissed concerns for lenders of a state takeover, they did cite concerns related to the sheer size and early status of the $4.1 billion, five-year expansion program underway at Hartsfield-Jackson Atlanta International Airport.
The rating action notes that the project hasn’t reach the point to have awarded committed construction contracts. This exposes the project to potential risks of cost increases that may have to be be funded by future debt.
This situation contributed to Moody’s awarding this bond package a rating that’s just below the middle of a ranking that’s viewed as low credit risk. On a rating scale of Aaa, Aa, and A, the rating was Aa3, with the modifier 3 indicating the lowest end of the Aa rating.
The pending bond package is to be used to refinance revenue bonds sold in 2010, and to pay certain costs related to issuing the bonds, according to the rating action.