Fitch Dwngr DFW's Rental Car Rev Bds To `BBB+' Rtg Watch Neg

    NEW YORK--Oct. 4, 2001--Fitch has downgraded to 'BBB+' from 'A-' and placed on Rating Watch Negative approximately $159 million of Dallas-Fort Worth International Airport Facility Improvement Corp., rental car facility charge revenue bonds, taxable series 1997 and series 1999. The downgrade and short-term Rating Watch Negative reflect lower than projected transaction days, which has resulted in weak annual debt service coverage and minimal liquidity. Security for the bonds is derived from a collection of a daily customer facility charge (CFC) remitted by all on-airport rental car companies at DFW. Certain funds and accounts established per the indenture provide additional bondholder security.
    Even prior to the tragic events of September 11, the number of transaction days (the CFC multiplied by the number of customers utilizing the facility, multiplied by the length of each customer's rental car contract) was considerably lower than projected-approximately 13%. As the CFC, the daily $3 usage fee, is the only source of cash flow supporting the bonds, actual debt service coverage is expected to equal about 1.08 times (x) in fiscal year 2001 (excluding interest income or rolling coverage funds), which is lower than the forecasted coverage. Moreover, additional security was to be provided from surplus reserve accounts equal to 60% of maximum annual debt service. Yet, these accounts were to be funded with excess CFC moneys generated from operations. To date, these accounts are only approximately 40% funded. Also, due to the waning economy and reduced level of business and leisure travel as a result of the September 11 events, rental car operations are expected to remain significantly lower than projected. Fitch is closely monitoring the effects of these events and will take additional rating action, as warranted.
    Airport management is addressing this revenue shortfall. First, management is requesting that the Airport Facility Improvement Corp. board implement a CFC rate increase, from $3 to $4 per day. In addition, management intends to hire a consultant to reevaluate future rental car demand in the area and substantially alter the forecast. Finally, the rental car operators, management and the bond insurer are working in concert to tackle the revenue shortfall issue, to generate excess liquidity to fund the surplus accounts and provide for stronger debt service coverage. Fitch's Rating Watch Negative reflects the uncertainty still remaining in this transaction, since no well formulated rental car forecasts are available at this time. If the above actions are not taken in the near future (60-90 days), Fitch will again review the credit and take additional rating action.
    The rental car facility charge revenue bonds were issued to fund construction of a common rental car customer service building with an attached parking structure, purchase a common bus fleet for transport of the customers, a bus maintenance facility, visitor center and associated infrastructure improvements. The facility accommodates all 10 on-airport rental car operators. Despite the transaction's weaknesses mentioned above, the strengths of this deal remain the essentiality of the airport market segment to the rental car industry (approximately 70% of the total U.S. rental car industry's revenues), the importance of DFW airport (rated 'A+' by Fitch), the size and depth of DFW's rental car market (11th in the U.S. in 1999) and the limited competition that exists with respect to alternative modes of transportation and other airports. Currently, Fitch expects rental cars to remain the preferred choice for business travelers and the airport has a high percentage of business travelers. However, to what extent the economic downturn and reduced business travel resulting from the September 11 events will have a negative effect on rental car demand both nationwide and at DFW is uncertain.
    Fitch has underlying ratings on approximately $42 billion of debt for 64 U.S. airports, including 28 of the 30 largest airports in the U.S. Fitch is individually evaluating the impact of the September 11 events on each of the 64 Fitch-rated airports. Rating commentaries are being published on specific airport-related credits as warranted. In this lower passenger environment, debt instruments supported by a narrower revenue stream, such as PFC stand-alone debt and special facility transactions which have financed consolidated rental car facilities, fuel facilities, and terminals, are likely to be the most negatively impacted.
    For additional commentary on the impact of the September 11 events on U.S. airports, please see Fitch press release, 'U.S. Airports, Impact of Terrorist Attacks', dated September 20 and 'Fitch Update: U.S. Airports in Face of Air Traffic Decline' dated September 27, available on Fitch's Web site at 'www.fitchratings.com'.