Fitch Revises DFW Rental Car Bonds Outlook to Positive; Rtgs Aff'd at 'BBB+'

Business Wire, March 14, 2006

CHICAGO -- Fitch Ratings revises the Rating Outlook to Positive from Stable for approximately $144.5 million Dallas Fort Worth International Airport Facilities Improvement Corporation (FIC) issued to finance construction of a consolidated rental car facility at Dallas-Fort Worth International Airport (DFW or the airport). The bonds are secured by revenues generated by a daily transaction fee levied on each rental contract for vehicles rented at the airport.

The revised Outlook reflects the improved financial operations of the car rental facility since the governing board increased the daily transaction fee to $4.00 per day from $3.00 in 2001. Also, the number of rental car transaction days rose in conjunction with the airport's recovery in passenger traffic over the past two years. Continued growth in transaction days and resultant improvement in cash flow and liquidity levels will be key considerations over the next 18-24 months regarding a possible upgrade of this credit to 'A-'.

The 'BBB ' rating is based on the strong demand for rental cars generated by the underlying market area served by DFW and the presence of several reserve funds that provide enhanced liquidity for the project, offset by the narrow revenue stream represented by the transaction fee, its sensitivity to fluctuations in travel demand, and the time required by the process for the governing board to raise the transaction fee if needed in the future. The primary credit concern at present is the potential repeal of the 'Wright Amendment' that limits service offered at Dallas Love Field National Airport (Love), a potential source of competition to DFW for locally originating traffic in the Dallas-Fort Worth market.

The bonds financed construction of a consolidated car rental facility located on the southern end of DFW, with space for up to 12 car rental agencies on a 200-acre site, 150 acres of which were developed for the existing facility with 50 acres available for future expansion. The facility includes a common customer service center, attached parking structure with ready-return spaces for each of the rental agencies, and a common bus fleet to provide access to the terminals and related maintenance facilities. The center, which opened in 2000, currently houses 10 rental agencies -- Advantage, Alamo, Avis, Budget, Dollar, Enterprise, E-Z Rent-A-Car, Hertz, National, and Thrifty.

The number of transaction days generated at the center fell short of projections immediately after opening as the national economy fell into recession and a series of unprecedented events further exacerbated a decline in air travel. With origination and destination (O&D) passenger levels at the airport declining by 6.5% in fiscal 2001, revenue generated by the originally capped $3.00 per day transaction fee fell below projections, with debt service coverage from operating cash flow of 1.03 times (x) in fiscal 2001. Furthermore, the diminished revenues prevented the center from developing reserves to provide additional liquidity in a timely manner.

The governing board of the FIC acted to amend the cap on the transaction fee, raising the charge to $4.00 per day in October 2001. As a result, transaction fee revenues increased by 12.7% in fiscal 2002 and remained stable in fiscal 2003 even though the number of transaction days declined by 10.4% and 4.6% in fiscal 2002 and 2003, respectively. Coverage of annual debt service requirements from cash flow improved to 1.14x in fiscal 2002 and 1.13x in fiscal 2003, but remained below original expectations. Furthermore, the surplus revenues slowly began to fill the planned reserve accounts.

O&D traffic at the airport surged by 10.5% in fiscal 2005, with a further gain of 5.5% in fiscal 2005, with rental transaction days and transaction fee revenue rising 3.3% in fiscal 2004 and 8.2% in fiscal 2005. As a result, coverage on a cash flow basis improved to 1.16x in fiscal 2005 and to 1.28x in 2005. On an indenture basis, which includes a debt coverage account (rolling 0.25x coverage), total resources available provided 1.53x coverage in fiscal 2005. In addition, all reserves are now fully funded with the debt coverage fund at $3.7 million, the surplus reserve at $1.5 million, and the supplemental reserve at $7.3 million as allowed for in the indenture. Furthermore, the residual account held $6.7 million at fiscal year-end 2005, and has grown an additional $1.5 million to $8.2 million as of Feb. 28, 2006, providing a source of liquidity for minor capital improvements if needed. These extra reserves represent 1.5 years of annual debt service above the traditional debt service reserve fund. Although reserves are now at their planned levels, management plans to retain the $4.00 fee in anticipation of future capital improvements.

A significant credit concern for this transaction regards the recent action by Southwest Airlines and others to promote the repeal of the Wright Amendment, which creates a level of uncertainty regarding future O&D enplanement levels at DFW. While Fitch believes American Airlines, the largest carrier at DFW, will act to capitalize on the strength of its hubbing operations at the airport to counter any competition created at Love should the amendment be repealed, sustaining the financial underpinnings of the airport overall, O&D traffic and related rental car activity may be negatively influenced by increased competition within the local market. After Missouri was added to the list of states eligible for service from Love, both Southwest and American announced plans to serve Kansas City and St. Louis from Love, which lies five miles northwest of downtown Dallas. As a result of this activity, as well as American's decision to initiate service to San Antonio and Austin from Love and implement additional adjustments to its DFW schedule, airport management projects a 5.2% decline in O&D traffic for fiscal 2006.