and not available to other carriers if requested
by management;
■Not including the depreciation or capital costs of
PFC-financed project in the airline rate base; and
■Maintaining records and submitting reports in
accordance with federal regulations.
In addition, Standard & Poor’s looks to specific
covenants, including the provision of all reports to
ensure compliance, investment restrictions, a 1.05x
sufficiency covenant requirement to prevent airport
from over committing PFCs, and immediate notifica-
tion of any delays in the collection of PFCs, or upon
contact by the FAA regarding possible violations.Open Lien Versus Closed Lien
How PFC revenues collected in excess of annual debt
service requirements are applied can affect the rating.
The strongest structure is one in which the lien is
closed, and surplus PFCs are used to redeem debt.
This reduces the average maturity, thus minimizing
the uncertainties associated with long-term events.
The closed-lien model is not the only option
available to airports with strong fundamental credit
characteristics. The uncertain nature of PFC rev-
enue collection and the restrictions under which the
authority to levy PFCs are granted by the FAA can
present a structural problem; clearly, the airport
sponsor would not want to be in a position where-
by, because PFC revenues came in faster than
expected and excesses were spent on eligible proj-
ects, the authorized amount was reached before
meeting all the PFC debt service requirements.
However, it is possible to keep the lien open and
use excess PFCs for other eligible projects, provided
that certain legal covenants are incorporated into
the indenture. Essentially, the airport should
covenant to review quarterly—or, at a minimum,
annually—the amount of PFC revenues available
under the authorization and not spend PFCs out-
side the bond indenture if it would cause the
remaining amount authorized to be collected to fall
below the remaining cumulative PFC debt service
or amounts needed to redeem bonds. To guard
against this the indenture will typically include a
1.05x sufficiency covenant for the airport to adhere
to. Funds restricted and held could be used to call
debt or establish an escrow to pay debt service as
per the originally scheduled amortization after the
revenue limit has been reached.
If an airport demonstrates strong fundamental
credit characteristics, structural provisions—such as
early redemption—could permit scheduled debt
service to extend beyond the date at which PFCs
are authorized.
If the lien is left open, the additional bonds test
typically mirrors the coverage outlined above and
historical coverage of future debt service require-ments of 1.35x-1.75x for O&D airports and 1.50x-
2x for connecting hubs is characteristic.
Finally, Standard & Poor’s will accept a very lim-
ited element of projected PFC revenues eligible to
meet the additional bond test. Essentially, projected
PFC revenues can be adjusted to reflect changes in
the PFC amount or reasonable projections of PFC
revenues based on a consultant’s report. However,
the additional bonds test multiple is typically met in
every year of the forecast, beginning with the subse-
quent year, therefore limiting the projected element
to one year.FAA Record of Decision
Critical to the rating is the FAA’s record of decision
or final agency decision, signed by airport manage-
ment, which is the official approval document and
sets forth projects that can be funded with PFCs, as
well as the total dollar amount that can be collected.
For PFC stand-alone transactions, upon request, the
FAA includes language in the record that outlines
the “informal resolution process” to be followed,
before commencement of formal FAA revocation
procedures, for the purposes of resolving potential
compliance federal regulations problems and/or sus-
pected misuse of PFC revenues. Under the record,
the airport and the FAA must agree to recognize the
FAA as a third-party beneficiary under the Indenture
of Trust, which permits the FAA to take actions
redirecting the flow of PFC revenues in the event of
suspected violations. The informal resolution
process could extend up to 360 days before com-
mencement of the formal revocation process, which
could last an additional 270 to 360 days. Any viola-
tion that has occurred since the inception of the PFC
Program has been resolved through the informal res-
olution process. In most cases the violation was a
project not being implemented in a timely fashion.
Corrective action taken by public agencies in these
instances was either revising the project schedule
and adhering to it or deleting the project. Given
these protracted notification periods and strong
management, termination is unlikely.Airline Bankruptcy
One weakness associated with the collection of PFC
revenues is the fact that PFCs are collected and held
by airlines and remitted to airports on a monthly
basis. Accordingly, there are risks associated with
interruption in the process due to an airline bank-
ruptcy or investment loss by the airline before
remittance to the airport. To date this has not
proved to be a credit concern. In general, exposure
to this risk should be limited by proper collection
and administration procedures, reducing the
amount potentially owed by the remitting carrier to
30 to 60 days of PFC receivables, depending uponTransportation138 Standard & Poor’s Public Finance Criteria 2007