KBRA Upgrades City of Salt Lake, UT Airport Revenue Bonds to AA; Assigns AA, Stable Outlook to Airport Revenue Bonds, Series 2023A
30 Jun 2023 | New York
KBRA upgrades the long-term rating on the City of Salt Lake, UT Airport Revenue Bonds to AA from AA-. Concurrently, KBRA assigns a long-term rating of AA to the City's Airport Revenue Bonds, Series 2023A (AMT). The Outlook is Stable. Airport Revenue Bonds are payable solely from and secured by a pledge of Net Revenues of the Airport System. Salt Lake City International Airport ("the Airport") is owned by the City of Salt Lake ("the City") and is operated and managed by the City's Department of Airports ("the Department").
The upgrade reflects the significant progress made by the Department in implementing and financing the $5.1 billion New SLC, a large, multi-phase capital improvement program that substantially replaces all of the Airport's landside and terminal complex. As of July 1, 2023, nearly 99.5% of remaining project costs ($2.4 billion) are fully covered under component guarantee maximum price contracts. Moreover, of the approximately $4.0 billion in Airport Revenue Bonds expected to fund $3.8 billion of New SLC projects, just $830.3 million of par remains to be issued, representing less than one third of the total. An additional factor supporting the upgrade is the successful renegotiation of the Airline Use Agreement with nearly all of the Airport’s Signatory Airlines. Each Signatory has signed an extension through at least June 30, 2034, with several airlines, including Delta Air Lines (“Delta”), SLC’s hub carrier, extending through June 30, 2044. In KBRA’s view, such actions demonstrate continued strong support for the New SLC, along with confidence in Department management that projects will continue to be implemented in a fiscally responsible manner.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- Experienced management team, with a demonstrated ability to implement a complex, multi-year capital program.
- Economically diverse air trade area supporting robust business and leisure travel demand.
- Continued manageable airline costs and healthy liquidity, though New SLC implementation has had some impact.
Credit Challenges
- Disproportionate reliance on Delta for enplanement activity.
- Elevated near term debt metrics, which are expected to improve over time through anticipated enplanement growth and limited future debt.
Rating Sensitivities
For Upgrade
- More rapid reduction in leverage than anticipated, resulting in lower airline costs and higher coverage.
- Material increase in liquidity following New SLC implementation.
- Significant, sustained growth in origination & destination traffic.
For Downgrade
- While not expected, additional borrowing beyond what is currently contemplated to complete the New SLC.
- Substantial reduction in passenger traffic stemming from structural changes to Delta’s hubbing strategy.
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