projections must be justified and consistent with
historical trends.
Faster-than-expected growth can result in the air-
port reaching its maximum PFC authorization level
before its bonds mature. This requires management
to create a debt structure that allows for early
redemptions or escrow of excess annual collections.
Simultaneously, Standard & Poor’s expects that air-
port management would apply for further approval
to extend its authority to collect PFCs.
Another factor in forecasting PFC revenues is the
level of PFC-eligible passengers assumed by airport
management. Under federal statute, certain classes
of passengers cannot be assessed a PFC, including
travelers flying on tickets acquired with frequent
flyer coupons, nonrevenue passengers, or those who
have already paid more PFCs than permitted. In
addition, airport sponsors may exclude a class of
passengers if they represent less than 1% of
enplaned passengers. Also, according to statute, the
air carriers can keep $0.11 per PFC to compensate
for the administrative costs of collecting and remit-
ting PFC revenues to the airport sponsor.
Airport management should be able to demon-
strate this mix, and forecast revenues should reflect
only eligible PFC passengers and net out airlines’
collection fees.
Debt Service Coverage
Debt service coverage is an important determinant
of credit quality since it reveals how much revenue
can decline before an airport cannot pay its debt
service. Standard & Poor’s considers PFC revenue
more vulnerable to airline shifts or financial diffi-
culties at airports with one airline dominating the
market and connecting enplanements. To mitigate
this concern coverage of PFC debt service by PFC
revenues should be higher than the standard cover-
age requirement at O&D airports. For hubs con-
centrated in one or two airlines, stronger credits
demonstrate annual coverage of PFC debt service
by PFC revenues is between 1.50x-2.00x, while
O&D airports generally have between 1.35x-1.75x
at a minimum. In practice, most airports prudently
maintain stronger coverage levels from leveraging
only a portion of the PFC stream they receive.
Because of the fixed-rate nature of PFCs annual
debt service is typically level over the life of the
bonds. Standard & Poor’s analyzes lower coverage
for structures that include a subordinate lien on net
airport revenues.
Airport Management
Key to the stand-alone PFC bond is airport man-
agement’s ability to manage the PFC project and
collection process, and to quickly resolve any ques-
tions regarding the proper use of PFCs. Standard &
Poor’s reviews the airport sponsor’s PFC program
to evaluate collection, monitoring, and administra-
tive systems, as well as the willingness and ability
to comply with the FAA’s record of decision, which
specifies approved projects. Additionally, manage-
ment should demonstrate air carrier compliance
with the PFC reporting and remittance procedures
outlined in federal regulations. Airlines are required
to remit all revenues to the airport monthly and
within 30 days of the previous reporting period.
Carriers are required to maintain financial manage-
ment of PFC revenues and submit quarterly reports.
One of the proposed amendments to the PFC pro-
gram in 2006 is requiring protected airlines reor-
ganizing under Chapter 11 to submit a monthly
PFC account statement and a quarterly report to
the FAA.
The type of project to be financed and manage-
ment’s experience with capital projects are impor-
tant credit factors. To the extent that projects are
associated with capacity enhancements, are clearly
distinct from other projects, and are manageable
and achievable, the potential for misuse of PFC
revenues and possible termination is limited.
Although in most instances, successful completion
of a PFC project bears no relation to the revenues
required to service the debt, Standard & Poor’s
will evaluate how well airport management has
managed PFC-eligible projects in the past, or how
frequently the airport has had to cure violations
through the informal resolution process. Project
delays that result in scope changes or cost overruns
that require additional PFC, lowering coverage,
could be a rating concern.Legal Provisions
The legal provisions are important credit factors—
specifically, indenture covenants to comply with
current and future provisions of the Aviation Safety
& Capacity Expansion Act of 1990; all implement-
ing federal regulations governing use and adminis-
tration of PFC revenues; and all assurances required
to prevent termination by the U.S. Department of
Transportation. Provisions outlined include those
governing use and administration of PFC revenues.
Specific provisions of these covenants include:
■Obtaining FAA approval for all projects;
■Compliance with the National Environmental
Policy Act of 1988 and the Airport Noise and
Capacity Act of 1990;
■Not signing long-term leases with any air carrier
for PFC-funded facilities;
■Excluding PFCs from general airport revenues for
purposes of setting airline fees and charges;
■Terminating leases of facilities financed with
PFC revenues if the facility is not fully utilizedStand-Alone Passenger Facility Charge Debthttp://www.standardandpoors.com 137