NEWS

WIRES

OTHER

Fitch Affirms DFW Rental Car Bonds at 'BBB+'; Revises Outlook to Stable

The bonds are secured by revenues generated by a daily customer facility charge (CFC) levied on each rental contract for vehicles rented at DFW. Revenues and net revenues for DFW are not pledged to the payment of the rental car bonds.

The Rating Outlook revision to Stable from Positive reflects the nearly 15% decline in the 10-month year-to-date fiscal 2009 (October-July) transaction days and revenues that are almost 3.0 times (x) higher than DFW's enplanement declines over the same period. Rental car transaction days have proven to be more sensitive to economic cycles than airport passenger volumes since renting a car is less essential than air travel. In addition, given the narrower scope of rental car customers, transaction days have traditionally captured only 30%-40% of origination and destination (O&D) traffic. Despite the transaction volatility, the rental car facility has generated sufficient cashflow to build total reserves to approximately $34 million. While nearly $20 million of the funds will be drawn down over the next few years to fund bus replacement, it is Fitch's expectation that this liquidity coupled with the coverage account and the flat-to-declining annual debt service obligations should provide sufficient financial cushion at the current rating level. Fitch also notes that the Wright Amendment, which currently limits service at Dallas Love Field National Airport will be repealed effective 2014, and could become a source of competition for DFW's O&D traffic in the Dallas-Fort Worth market.

The 'BBB+' rating is based on the demand for rental cars generated by the sizeable underlying market area served by DFW and several cash funded reserve funds that provide enhanced liquidity for the bonds. The bonds benefit from a flat-to-declining debt service profile with no additional borrowing expected in the next one-to-five years, as well as minimal near-term capital expenditures. In addition, competition from other modes of transportation is limited. Offsetting concerns include the narrow revenue stream represented by the CFC, the facility's vulnerability to changes in the dynamics of the rental car industry and/or transaction day profile, and the facility's sensitivity to fluctuations in travel demand.

Transaction days and revenues declined 3.2% in fiscal 2008 and are estimated to decline an additional 14.7% in 2009 to 4.2 million and $16.9 million, respectively, or levels last seen in 2004. Coverage of annual debt service requirements from operating cashflow improved to 1.42x in fiscal 2008 but is expected to decline to 1.21x in fiscal 2009. On an indenture basis, which includes a debt coverage account (rolling 0.25x coverage), total resources available has provided at least 1.38x coverage since fiscal 2002 with estimated fiscal 2009 coverage at 1.46x. Under a somewhat conservative rental car transaction scenario, accounting for the expected 14.7% loss in 2009 followed by an additional 7% reduction in 2010 and no growth in 2011, the lowest debt service coverage from operating cashflow occurs in 2010 of 1.13x but grows to 1.27x in 2011 due to a $1.7 million decline in debt service. DFW's ability to increase the CFC with board approval only (no need to consult with County officials or concessionaires) provides downside protection for bondholders.

All required reserves are now fully funded with the debt coverage fund at $3.7 million, albeit funded by a surety policy from MBIA. Other reserves total approximately $34 million, are all cash funded and reserves represent almost 2.5 years of maximum annual debt service, excluding the surety-funded debt coverage fund. As reserves are now at their planned levels, management plans to retain the $4.00 fee.

DFW is one of only four airports averaging more than 800 departures per day and served 29.1 million enplaned passengers in fiscal 2008 (ended Sept. 30), representing a 2.7% decline from fiscal 2007. The traffic declines have continued, as year-to-date fiscal 2009 (through June) enplanements are down 5.1% compared to the same period in fiscal 2008. However, this decline fares well compared to many other large U.S. airports. The 12-county Dallas-Fort Worth-Arlington MSA is the nation's fourth largest MSA (after New York, Los Angeles, and Chicago), and its July 2008 population was 6.3 million, representing a 22% increase from 2000. The DFW region is home to 23 Fortune 500 companies, including AMR Corp. (parent of American Airlines, American), JCPenney, AT&T, Southwest Airlines, and ExxonMobil.

Additional information is available at www.fitchratings.com.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Emari Wydick, +1-312-606-2308 (Chicago)
Mike McDermott, +1-212-908-0605 (New York)
or
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com