Kroll Bond Rating Agency Assigns Long-Term Rating of AA- with a Stable Outlook to Salt Lake City, UT Airport Revenue Bonds

Kroll Bond Rating Agency Assigns Long-Term Rating of AA- with a Stable Outlook to Salt Lake City, UT Airport Revenue BondsNEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) has assigned a long-term rating of AA- with a Stable Outlook to Salt Lake City, UT’s Airport Revenue Bonds, Series 2017A (AMT) and Series 2017B (Non-AMT). The estimated principal amount is $900.5 million.

The rating is based on KBRA’s U.S. General Airport Revenue Bond Rating Methodology. In the process of assigning the rating, KBRA reviewed multiple sources of information and met with the City’s Department of Airports management.

The Bonds are limited obligations of the City, payable solely from and secured by a pledge of (1) Net Revenues, (2) certain funds and accounts held by the Trustee under the Master Trust Indenture, and (3) other amounts payable under the Master Trust Indenture. Net Revenues are defined in the Master Trust Indenture as Revenues generated by operation of the Airport System less the Operation and Maintenance Expenses of the Airport System. Passenger Facility Charge (PFC) revenues do not constitute pledged revenues, but they can be used to offset airport revenue bond debt service.

The Series 2017 Bonds are being issued to finance a portion of the design and construction of the Terminal Redevelopment Program (TRP) and North Concourse Program (NCP). A portion of the Series 2017 Bond proceeds will fund Common Debt Service Reserve Fund deposits, as directed in the Master Trust Indenture. Proceeds of the Bonds will also fund capitalized interest through June 30, 2020.

Salt Lake City International Airport (SLC) has embarked on a major capital program that implements key elements of its Master Plan initially drafted in 1997. The airport’s planned capital projects, referred to as the TRP and NCP will replace aging facilities and accommodate projected growth in passenger traffic. The current facilities, which were designed to accommodate up to 11 million annual passengers are now serving 22 million passengers in 2016.

SLC’s collective costs related to its planned capital projects are estimated at $3.1 billion. The primary funding sources are Airport Revenue Bonds ($1.85 billion, net of financing costs), Airport funds ($587 million), PFC revenues ($323 million), federal grants ($204 million), and customer facility charge revenues (CFC) ($174 million).

From a financial perspective, SLC is well positioned as it prepares to undertake the TRP and NCP programs. Rate setting and cost recovery mechanisms are balanced and should, along with continued strong managerial oversight, allow for comfortable debt service coverage levels and growth in airline costs as SLC moves from having no debt outstanding to being significantly leveraged. Projected debt service coverage at final project completion in 2024 is 1.62x.

Favorable financial trends include revenue growth that has outpaced the growth in expenditures and enplanements during the past five fiscal years, as well as non-airline revenues that are diverse and have increased by 28.4% since 2012, which is higher than total operating revenue growth for the same time period. Other favorable factors include airline revenues that currently represent a modest share of total operating revenues and current cash balances, which are in excess of 1,000 days in 2016, that have been accumulated in anticipation of TRP and NCP funding needs. KBRA also favorably notes the strong level of expenditure growth management, which has fostered relatively flat airport expenditure growth trends versus a compound annual growth rate of 4.7% for all airport operating revenues between fiscal year 2012 and FY 2016.

SLC’s highly experienced management team has consistently demonstrated a strong ability to effectively manage day-to-day airport operations while also successfully addressing long-term capital project needs. There is a high level of coordination between the SLC management team and the signatory airlines. The TRP and NCP projects are the result of a collaborative relationship with the airlines, who have fully supported both programs. SLC management is focused on maintaining below average airline costs and has incorporated this focus into daily operations and future terminal operations after TRP and NCP are complete. Airline cost per enplanement was $3.69 in 2016 and is projected to increase to $9.32 after project completion in 2024.

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SLC serves as one of Delta Air Lines’ primary connecting hubs across the United States. The majority of enplanements at SLC are concentrated in Delta, which accounts for 70.2% of total enplanements. SLC provides Delta with a strategic presence in the western half of the United States, allowing Delta to provide a more efficient service given the airport’s proximity to a number of highly frequented destinations in the northwest, southwest, and western United States. As Delta has indicated, the absence of SLC as a primary connecting hub would leave a significant geographic void in Delta’s operations.

The geographic region, or air service area, that serves as the airport’s primary air service catchment is the Salt Lake City-Provo-Orem Combined Statistical Area (CSA). The CSA consists of 10 counties and as of 2015, represents approximately 82.3% of the statewide population. SLC is the only airport within the air service area with regularly scheduled commercial service. The closest airports to SLC with a comparable scale of service are more than 400 miles away, which severely limits competition for air service. The estimated population of the air service area was 2.5 million in 2015. Between 2000 and 2015, the air service area population increased by approximately 33.0%. This level of growth equates to an annualized rate of approximately 1.92%, which is significantly higher than the nationwide rate of 0.87% over the same period.

The Air Service Area is supported by a diverse business environment and strong tourism industry, both of which lend strong support to origination and destination air travel to and from the region. It is also home to a number of postsecondary education institutions including the University of Utah, Brigham Young University, and Utah State University. Forbes Magazine has ranked the State of Utah as the best state for business and is ranked within the top 10 states nationwide in exports, technology and entrepreneurship, favorable state and local tax burden, infrastructure, and economic performance.

SLC’s management team has policies and procedures covering crisis management, concession practices, marketing practices, community outreach, labor relations and, among other scenarios, seismic events and emergency action plans. There is also frequent budget to actual review which enables management to respond and control revenue deficiencies or cost overruns. In KBRA’s view, the SLC management team is well positioned to continue its strong management of airport operations as it undertakes the TRP and NCP programs and after the programs are complete.

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).


Kroll Bond Rating Agency
Andrew Clarke, 646-731-2380
Senior Director
Gopal Narsimhamurthy, 646-731-2446
Senior Analyst
Harvey Zachem, 646-731-2385
Managing Director
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