Fitch Ratings affirms the outstanding 'A-' rating on the Philadelphia Parking Authority's $162.77 million Airport Parking Revenue Bonds. The Rating Outlook on the bonds is Stable.
Key rating drivers
Healthy Revenue Profile
The parking system maintains a sound revenue profile of $62.6 million, benefiting from the authority's position as the sole provider of on-airport parking. Still, demand in terms of parking transactions has been pressured over recent years in conjunction with airport traffic activity. In addition, the PPA faces intensified competition from a large supply of competitively priced off-site airport parking options. Philadelphia International Airport (PHL) has a strong and stable origin and destination enplanement base, comprising 55% of the total 15.6 million enplanements. Total enplanements have declined at an average 1% per year, but have stabilized over the past 2 years.
The authority's has a history of implementing parking rate adjustments, which has helped the authority maintain a solid operating profile. Competition from outside facilities may constrain the capacity to implement future adjustments.
Fixed Rate Debt Structure
The authority's debt profile is conservative and consists of all fixed rate debt and level annual debt service. Maximum annual debt service (MADS) occurs in FY2013 then declines to maturity over the next 16 years
Low Leverage and High Coverage Metrics
The PPA's debt burden is moderate with net debt to cash flow available for debt service at approximately 3.70x. The debt service coverage ratio (DSCR) on the airport parking bonds is consistently above 2.0x, with a 2012 coverage ratios of approximately 2.5x. The authority transfers annual surplus cash flow transfers to the Department of Aviation (DOA) on a subordinate basis, thus internal liquidity levels are low.
Manageable and Internally Funded Capital Plan
The authority has recently addressed pressing capital needs within its short-term garages and requires limited capital expenditures and no parity borrowings going forward.
- Continued decline in parking transactions and / or enplanements that would weaken margins.
- Additional borrowing to fund airport parking expansion.
- Increased competitive environment from off-site parking facilities.
The airport parking bonds are secured by airport parking revenue at PHL, after deduction of operating expense and city parking tax. PPA has the exclusive right to operate parking facilities on airport property through a lease agreement with the City of Philadelphia.
Airport parking volume at PHL has historically been more volatile than airport enplanements, with the number of airport parking transactions declining at a more rapid rate than overall enplanement activity during the 2008 - 2009 economic downturn. A price increase in FY2011 mitigated some of the impact of declining parking transactions, but revenue remains below peak levels and has declined at an annual rate of 3% over the past four years. In FY2012, revenue was barely above flat year-over-year, with continuing declines in transaction volume, mitigated by an increase in revenue per transaction driven by longer stays.
PPA's ability to raise rates provides downside protection as transaction levels fluctuate; however, Fitch believes overall financial health will weaken if demand continues to soften or parking patrons become more elastic to rate increases. Of the 11 private companies competing with PPA (essentially for economy parking only), seven offer rates that are lower than the comparable PPA economy rate of $11 per day, including city tax.
The authority is approaching maximum annual debt service (MADS) in FY2013 at approximately $18.4 million and annual debt service obligations will step down to $17.6 million in 2014 and $14.6 million through 2024. Between 2024 - 2030 debt service continues to step down each year. Debt service coverage in fiscal 2013 is expected to be at or above 2.3x. Under various sensitivities, including reductions in parking revenue and higher operating and maintenance expenses, debt service coverage remains above the 1.70x range.
In Dec. 2009, the authority used $10 million in short-term financing, subordinate to bond debt service, to address structural repairs to parking garages. The final payment on the loans is due Jan. 1, 2014. The authority expects to finance moderate capital spending needs out of cash flow.
About the Philadelphia Parking Authority
The authority was created as a public authority in 1950. The legal life of the authority extends through 2037. The PPA controls 18,967 parking spaces at PHL, which includes 11,011 spaces in parking structures and 7,956 surface parking spaces. In addition to airport parking, PPA owns and/or operates nine parking facilities in Center City Philadelphia, manages 50 neighborhood parking lots and performs other parking and traffic enforcement activities for the City.
Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Airports'(Nov. 28, 2012).