Bob Hope Airport received a warning this week that its credit rating is likely to suffer if it issues bonds to cover most of the construction costs for its proposed $120-million transit center.
On Tuesday, Fitch Ratings put out a “negative watch” for the Burbank-Glendale-Pasadena Airport Authority, questioning the proposed financing of the center.
Airport officials plan to borrow between $90 million and $100 million for the project, which would house rental car offices and fleets, as well as a hub linking passengers from taxis, buses and Metrolink trains to the airport terminal. Officials plan to pay off the bonds with revenue from a $6 daily fee on car rentals and monthly payments from firms occupying space in the new building.
On Tuesday, Fitch warned that rental car fees are “a volatile revenue stream that could result in further reliance on general airport revenues or the use of the authority’s balance sheet.”
Fitch analysts also noted that air travel has suffered declines from a high mark in fiscal year 2007-08, when Bob Hope Airport served more than 5.8 million passengers. In 2009-10, that figure had fallen to 4.5 million passengers.
While Bob Hope has a solid credit history and low costs for airlines relative to other airports, the report states, “there is a low probability for a meaningful traffic rebound due to the presence of nearby competing airports.”
The airport has about $56 million in bond debt from the 2005 acquisition of land now used for parking and valet services, according to Gill.
The May 31 Fitch report maintained a rating of AA- for the 2005 bonds, but warned that “absent a material change in the [transportation] project’s scope, an affirmation of the AA- rating is unlikely.”
Bonds are graded on a scale between AAA, the top rating indicating the borrower has strong capacity to repay the debt, to CCC for bondholders nearing default. Bonds for the proposed transportation center have not been issued or rated.
Gill said the “negative watch” warning has no impact on current bondholders or the airport’s ability to pay its debt.
“It really means Fitch is going to be reviewing within the next 180 days the status of the authority’s plans for the regional intermodal transportation center,” Gill said.
The airport generated roughly $3 million in rental car fees in fiscal 2009-10, the last year for which complete figures are available. Because of a recent change in the fees charged rental car customers — $6 a day instead of $10 per transaction — the airport projects taking in about $5.4 million annually in coming years.
Airport spokesman Victor Gill said Bob Hope Airport will also see an increase in revenue from the payments rental car companies make to occupy space on airport grounds. While Gill could not estimate what rental car firms currently pay, he said they will occupy about 400,000 square feet in the new building, generating $2.3 million a year.
Airport officials are expected to unveil construction bids for the transportation center next week, and have said they hope to issue the bonds and start construction later this year.