Greater Orlando Aviation Authority, Florida; Airport Primary Credit Analyst: Peter V Murphy, New York (1) 212-438-2065; peter.murphy@standardandpoors.com Secondary Contact: Joseph J Pezzimenti, New York (1) 212-438-2038; joseph.pezzimenti@standardandpoors.com Table Of Contents Rationale Outlook Rates By Resolution Capital Improvement Plan Related Criteria And Research WWW.STANDARDANDPOORS.COM APRIL 13, 2016 1 Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor s permission. See Terms of Use/Disclaimer on the last page. 1615557 300642892
Greater Orlando Aviation Authority, Florida; Airport Credit Profile Greater Orlando Aviation Auth arpt Long Term Rating AA-/Stable Affirmed Greater Orlando Aviation Auth 1st ln Unenhanced Rating AA-(SPUR)/Stable Affirmed Many issues are enhanced by bond insurance. Rationale Standard & Poor's Ratings Services has affirmed its 'AA-' rating on the Greater Orlando Aviation Authority (GOAA), Fla.'s bonds issued for Orlando International Airport (MCO). The outlook is stable. In our opinion, key credit strengths include the following: A large origin and destination (O&D) base (about 95% of the airport's total); An expanding service area that has a very strong tourist industry, which several major theme parks anchor; Retention of a strong enplanement base, increasing at a compounded annual average rate of about 1.5% per year the past four through 2015. This includes strong 7.4% growth in 2015, with increases in both domestic and international sectors; A moderate airline cost structure despite recent increases, with a slight improvement in cost per enplaned passenger to a low $4.50 in fiscal 2015 (year ended Sept. 30); and A relatively diverse revenue base, with about two-thirds of fiscal 2015 budgeted operating revenues from nonairline sources, including parking, rental car companies, and hotel operations. We believe that offsetting these strengths somewhat is a large, $3.1 billion capital improvement plan (CIP) covering fiscal years 2016-2023, that MCO's enplanement growth is fueling. This could affect coverage levels and cost structure, because we expect $1.8 billion of additional debt in the next seven years. The GOAA had about $800 million outstanding on the senior lien as of fiscal year-end 2015. Senior-lien bondholders benefit from a first-lien net revenue pledge, which can include available passenger facility charge (PFC) revenues up to 1.25x debt service with respect to senior-lien bonds issued for PFC projects. Also securing the bonds is a debt service reserve funded to the least of maximum annual debt service, 10% of bond principal outstanding, or 125% of the average annual debt service. Debt service reserves are cash-funded. The GOAA operates the airport system, which is composed of MCO and Orlando Executive Airport (ORL), a general aviation airport. The City of Orlando owns both airports, and the authority operates them under a 50-year agreement expiring in 2065. MCO serves commercial air carriers and ORL serves general aviation. ORL's revenues are not pledged to the bonds outstanding. WWW.STANDARDANDPOORS.COM APRIL 13, 2016 2
Greater Orlando Aviation Authority, Florida; Airport In fiscal 2015, MCO ranked fifth among U.S. airports in terms of domestic O&D passengers, and served more major markets in the U.S. based than any other airport. It also is the top-ranking airport in Florida in terms of both domestic enplaned and O&D passengers. We consider Orlando a unique destination market, because MCO's air trade area has the largest concentration of theme parks in the nation, with several parks having opened major new attractions in recent years. Orlando continues to attract both domestic and international visitors, and had the highest number of visitors of any U.S. city over the past five years. The area's economy is also diversifying; the ongoing development of a large medical complex has increased employment in research, medical care, and education. Also, the tourist-related attractions that Orlando is widely known for have been expanding, and plans from private companies in this sector indicate this will continue over the next few years. Orlando's air trade area includes the second-largest convention city in the U.S., after Las Vegas. The authority experienced a 7.4% jump in enplanements in fiscal 2015, following a slight rebound in enplanements in 2014. The 2015 figure represents an all-time peak for enplanements, topping that of 2008. Through the first nine months of fiscal 2015, domestic and international enplanements have increased 6% and 15.6%, respectively. We expect the airport's historically resilient air travel demand profile, increasing regional economy, and growth trend of its international business will bode well in the near term for the GOAA's enplanement growth. Management's long-term financial forecast contains what we view as moderately aggressive enplanement growth, at about 2.3% per year for fiscal years 2017-2022. MCO's air carrier mix is exhibiting what we consider greater concentration following recent mergers in the airline industry. Southwest Airlines Co. which account for approximately 26.8% of total enplanements in fiscal 2015, is the leading carrier by passenger volume, followed by Delta Air Lines Inc. (14.7%), and JetBlue Airways (13.6%). However, we believe MCO's airline concentration is less than that of most airports, and we believe that the strong demand for the Orlando travel market, coupled with the large number of carriers serving it, mitigates any concentration risk. We consider all-in DSC (Standard & Poor's-calculated) to be good, having ranged from 1.47x-2.0x from 2011-2015. Indenture coverage, which includes 125% of PFC-eligible debt service as revenues (whereas Standard & Poor's counts 100%), was 2.02x in fiscal 2015, including senior and subordinated debt service. The authority's financial forecast indicates what we view as continued good coverage of 1.6x-1.7x (Standard & Poor's-calculated) through fiscal 2019. Audited figures for fiscal 2015 indicate cost per enplanement ($4.50) improved compared to fiscal 2013 figures, due to strong growth in concessions revenues and operating cost reductions. The GOAA's unrestricted cash and investments as of fiscal year-end 2015 totaled approximately $259 million, or about 393 day's operating cash on hand, according to our calculations. In addition, the authority has access to three lines of credit totaling $550 million that it will use for interim CIP financing, and management plans to retire any borrowings on these lines with long-term financing. The GOAA entered two bond transactions (series 2013A and 2013B) directly with banks in 2013, totaling $82.8 million. We believe the optional tender provisions in the transaction documents present low contingent liquidity risk, due to the remote likelihood of the events triggering the tender option, and the sufficient amount of time between the event and any early payment due date. WWW.STANDARDANDPOORS.COM APRIL 13, 2016 3
Greater Orlando Aviation Authority, Florida; Airport Outlook The stable outlook reflects our expectation that, over the next two years, MCO will sustain its demand profile, given the local economy's diversity and the market's attractiveness. The outlook also reflects our expectations that management will proactively implement revenue and expense adjustments and reassess the timing of debt financing capital needs to ensure a manageable debt burden and solid financial performance, in the event demand growth does not meet expectations. Upside scenario Given the authority's large debt plans, we do not expect to increase the rating over the next two years. Downside scenario Should demand weaken or the planned additional debt erode DSC significantly from currently high levels (Standard & Poor's-calculated), we could lower the ratings. Rates By Resolution The authority has operated under rates by resolution since Nov. 1, 2013. The previous agreement with signatory airlines, which expired in September 2013, included revenue sharing provisions that employed a hybrid rate-setting methodology, which continues under the rates-by-resolution provisions in place. Under the current resolution, covering fiscal years 2014-2016, the GOAA retains an escalating amount of revenues remaining after expenses before distributions to airlines. These thresholds are $45 million in fiscal 2014, $50 million in fiscal 2015, and $55 million for fiscal 2016. Management expects to continue under rates by resolution for fiscal years 2017-2019, and that it will retain a higher share in during that period. Capital Improvement Plan The authority's CIP for 2016-2023 totals $3.07 billion, and includes expansion to MCO's north and south portions, airside and intermodal transportation projects, and other improvements. Specific projects include airfield improvements, baggage handling systems, electrical upgrades, and north terminal capacity projects that include ticket lobby circulation and airside improvements. The GOAA reviews its CIP annually, after assessing volume and safety issues and the project schedule, so it does not know actual expenditures or the exact timing. The authority plans to fund approximately $1.8 billion of the CIP from future general airport revenue bonds (GARBs) and PFC revenue supported bonds. About two-thirds of the debt will is expected to be GARBs, and one-third PFC bonds, according to management's plan. Given the CIP's long timeframe, management has some flexibility in the timing and amount of issuance, and can delay or cancel debt issuance if demand or other factors warrant it. The long-term CIP is well-planned, in our opinion, and demand-driven. We expect the plan, if fully implemented, will result in a substantial increase in MCO's current capacity, but we do not expect that it will add significantly to its debt ratios. The most recent annual audited figures indicate debt per enplaned passenger as of fiscal 2015 is moderate, in our view, at about $45 per enplaned passenger, although we expect this figure to rise as the capital plan is implemented. WWW.STANDARDANDPOORS.COM APRIL 13, 2016 4
Greater Orlando Aviation Authority, Florida; Airport Related Criteria And Research Related Criteria Criteria: Airport Revenue Bonds In The U.S. And Canada, Nov. 15, 2013 USPF Criteria: Assigning Issue Credit Ratings Of Operating Entities, May 20, 2015 USPF Criteria: Contingent Liquidity Risks, March 5, 2012 USPF Criteria: Methodology: Definitions And Related Analytic Practices For Covenant And Payment Provisions In U.S. Public Finance Revenue Obligations, Nov. 29, 2011 Criteria: Use of CreditWatch And Outlooks, Sept. 14, 2009 WWW.STANDARDANDPOORS.COM APRIL 13, 2016 5
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