when the collection occurred. A fully funded debt
service reserve also provides security if delays or
timing issues with regard to debt service payment
are significant. Possessing a relatively diverse airline
carrier mix also mitigates airline bankruptcy risk.
Additionally, credit risk exposure to the airlines
have been limited by changes to law to make clear
that collected PFCs are indeed held by airlines and
due to the appropriate airport operators. Statutory
requirements under current aviation authorization
legislation (Public Law 108—176—Dec. 12, 2003;
Vision 100—Century Of Aviation Reauthorization
Act) provide for airlines in bankruptcy to segregate
PFC revenue into a separate corporate account
(“PFC Account”), preventing the airline in bank-
ruptcy from commingling future PFCs with corpo-
rate revenues during bankruptcy proceedings; and
not pledging PFCs as collateral to any third party.
FAA Withdrawal
Even if properly structured, there is always the risk
that the FAA will withdraw PFC revenues, based on
improper use of the funds. If PFC revenues were
withdrawn, an analysis would be conducted to deter-
mine the effect on the public agency’s general airport
revenue bond rating in cases where it is a double-
barrel structure (see below). If a large amount of
debt is supported by the PFC, a withdrawal of the
right to levy the fee would lead to credit concerns.
Any such action also would call into question the
public entity’s management capabilities.
Double Barrel
For many airport issuers, double-barrel bonds that
have a first lien on PFCs and an additional subordi-
nate lien on net airport revenues will remain an
attractive option when exploring the issuance of
long-term debt. The advantage of this structure is
that it eliminates the two major risks attributable to
stand-alone PFC bonds; that is, lack of rate-setting
ability to cover revenue declines and termination
risk. While there may or may not be a rating dis-
tinction between double-barrel and stand-alone
PFC bonds, based on legal provisions and protec-
tions, each approach is a viable option, and the
final structure that management chooses will
depend on their individual circumstances.
Standard & Poor’s would expect an airport to
manage its double-barrel PFC program similarly
to a stand-alone program and ensure continued
receipt of PFCs. This structure would allow
lower coverage requirements and management
flexibility with respect to PFC authorization and
collection. The double-barrel pledge may be an
option for issuers who otherwise exhibit solid
credit fundamentals, but may show some expo-
sure because of airline concentration or higher
levels of connecting passengers.
The limitation of double-barrel bonds is that they
often require majority-in-interest support of the air-
lines, because, ultimately, airline rates and charges
would have to be increased to cover PFC debt serv-
ice if authorization were revoked.
Airport operators may, pursuant to Vision 100,
use PFCs for making payments for debt service on
indebtedness incurred to finance a project at the
airport that is not an eligible airport-related project
if the Secretary determines that such use is neces-
sary due to the financial need of the airport.
Regardless of structure, Standard & Poor’s will
evaluate airport coverage of all debt from all avail-
able revenues, including PFCs. Those facilities that
provide higher margins will generally, other things
being equal, have higher ratings.■Airport Multi-Tenant Special Facilities Bonds ..................................................................
http://www.standardandpoors.com 139I
ncreased involvement of airports in financing spe-
cial facilities has led Standard & Poor’s Ratings
Services to develop criteria for rating multi-tenant
special-facility debt. The criteria apply to unique
projects and facilities and permit the analysis to
scrutinize and give weight to the market demand,
rather than defer entirely to the tenants’ credit pro-
file. An emphasis on project essentiality and struc-
tural features that enhance bondholder protections
could result in the transaction receiving a higher
rating than that of the participating airlines, on a
case-by-case basis. However, there are inherent lim-
its to the degree of credit elevation above that of
the airlines’ rating. Given the credit characteristics
of the airlines, it is likely that many of these project
ratings will be below investment-grade. In addition,
single-tenant airport special facility bonds will not
be rated higher than the tenant’s corporate rating.Airport Characteristics
Airports considered for these ratings must be
among the strongest and largest in the country. A