Phoenix Airport has a total of $1.3 billion of airport revenue debt outstanding
New York, November 29, 2012 -- Moody's Investors Service has affirmed the Aa3 senior lien and A1 junior lien bond ratings of the City of Phoenix International Airport. The rating outlook is stable. The City operates and manages Phoenix Sky Harbor International Airport, Phoenix-Goodyear Airport, and Phoenix-Deer Valley Airport.
SUMMARY RATING RATIONALE
The rating is based on the airport's strong market position as the dominant air service provider in Phoenix and Arizona, stable financial operating results, and continued growth in enplanement levels. The stable outlook is based on the steady operational and financial performance by the airport despite increasing risks of higher debt, airline capacity reductions, and fragile national economic conditions.
* Strong market position in a large and growing service area population with a relatively stable economy
* Track record of well-maintained and stable finances with no exposure to variable rate debt or derivative contracts
* Strong market share by both U.S. Airways (corporate family ratings upgraded to B3) and Southwest Airlines (Baa3, stable outlook) creates a competitive airline environment that moderates airfares
* High revenue concentration in US Airways and Southwest Airlines and risk of changed operations should US Airways combine with American Airlines
* Operating risk associated with its compensatory rate making methodology and lack of long term airline leases
* Potential cost overruns associated with the Sky Train Construction project and additional operating expenses needed to manage the train system could negatively affect the airport's cash flow and liquidity; though this concern has decreased with the near completion of Phase I
* Total outstanding debt amount per O&D enplanement is $115, well above Moody's US Airport sector median of $77.61, with some additional debt planned
The stable outlook reflects Moody's expectations that enplanement levels will remain stable or grow moderately above the current level and debt service coverage and liquidity will remain near current levels as the airport progresses through its capital program.
What Could Change the Rating - UP
Significant improvement in debt service coverage and liquidity, continued revenue diversification through increases in non-airline revenue sources, or significantly increased enplanements by carriers other than US Airways or Southwest Airlines could exert upward ratings pressure.
What Could Change the Rating - DOWN
Enplanement declines or other financial factors that cause sustained debt service coverage to fall below 1.50 times based on Moody's net revenue coverage calculations or that cause financial liquidity to fall below Moody's US airport medians could pressure the rating down.
The principal methodology used in this rating was Airports with Unregulated Rate Setting published in July 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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Kurt Krummenacker VP - Senior Credit Officer Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Chee Mee Hu MD - Project Finance Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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