strong preference will exist for facilities supporting
origin and destination (O&D) traffic, rather than
connecting hubs. Only large hubs, as defined by the
FAA, will generally be considered. Projects at large
hubs should represent key additions to the air trav-
el system, which would enhance the likelihood of
continued demand for these facilities.
Airport management must be experienced and
have a clear understanding of its rights and privi-
leges under these arrangements.
An increasing enplanement and aircraft operation
trend will be considered a strong positive factor.
Cargo growth will be examined closely for the pro-
viding carrier, as well as the rate of growth, if a
cargo facility is being evaluated. Increased activity
will place a premium on the value of all airport-
related projects, and Standard & Poor’s views these
as possessing increased protection.Project Essentiality
Elements that reflect essentiality include project
type, inherent demand, strong support of airport
management, and importance to the operation of
the airport facility.
Although many different types of projects have
been financed through special facility bonds, proj-
ects that fit most easily, from a credit perspective
fall into the following categories:
■Terminal space;
■Fueling facilities; and
■Cargo facilities and aircraft hangers.
Projects at airports that are designed to satisfy
demand that significantly exceeds currently avail-
able facilities, and where there is limited ability to
provide adequate locations to meet this demand are
typically more creditworthy. Unmet demand over
and above the completed project will ensure that a
new tenant for the facility can be found, if needed.
Standard & Poor’s considers projects that cannot
be located off the airport more essential than those
that can. The most creditworthy projects are for
terminal and fuel hydrant facilities. Inherent
demand for the project is the most important rating
factor. Typical questions asked include: How many
air carriers want projects of this type? Are all exist-
ing facilities fully utilized? In addition, a multi-ten-
ant facility with a diverse mix of tenants is superior
to a project serving fewer tenants.
Airport involvement is critical to this approach.
Airport management must be involved in the design
of the facility, and the project should fit in the over-
all master plan. In addition, Standard & Poor’s
evaluates the specific nature of the facility. The
more tailored it is for one airline’s needs, the more
difficult it may be to relet.
Standard & Poor’s also considers the percentage
represented by the new project of the total availablespace for this purpose. For example, a new cargo
facility that is only 10% of all existing space will be
deemed weaker than one that represents 50%. This
fact must be viewed in the context of the amount of
other space available for additional facilities of this
type and the potential for additional facilities and
future competition for the project.
Finally, the security backing these transactions is
project specific and, therefore, adequate insurance
protection must be provided. This would include,
but not necessarily be limited to, property insurance
at full replacement value; title insurance to elimi-
nate concerns over ownership; and business inter-
ruption insurance to mitigate concerns about
meeting debt service obligations due to temporary
interruptions in operations.Legal Factors
Although legal arrangements will vary from project
to project, in a typical financing Standard & Poor’s
reviews transaction documents and opinions to
assess the bankruptcy-remoteness of the issuer/les-
sor, contractual terms governing the use of the facil-
ity by the air carrier and legal protections available
to the airport in the event of an air carrier’s default.
Among other factors, this review assesses the risks
that an air carrier in a reorganization bankruptcy
proceeding may be able to remain in possession of
its portion of the facility while not paying rent or
otherwise performing on its related tenant obliga-
tions, that the air carrier may be able to recover or
stay the application of funds in the transaction, and
that the airport may be prevented from dispossess-
ing the defaulting air carrier and reletting its space
on a timely basis.
Recent air carrier bankruptcies have shown that
air carrier challenges to the characterization of leas-
ing structures, attempts to avoid pre-petition pay-
ments, and attempts to recover unapplied funds or
reserves, may disrupt expected cash flows and delay
or frustrate the exercise of remedies. Standard &
Poor’s believes that the likelihood of an air carrier
in bankruptcy taking these or similar actions and
the adverse affect of the actions on a project would
be greatest where the project’s credit risk is concen-
trated in a predominant or single tenant.
In a multi-tenant special facility financing, credit
risk diversification may somewhat reduce the likeli-
hood of air carrier challenges that adversely affect
the financing. Even in the bankruptcy of the lowest
rated key tenant, however, the air carrier is likely to
take some of the previously discussed actions that
challenge the weakest aspects of the structure. As a
result, Standard & Poor’s assessment of the legal
and structural risks will be an important element of
the rating analysis. Standard & Poor’s considers a
number of other factors in its rating analysis ofTransportation140 Standard & Poor’s Public Finance Criteria 2007