these facilities, including other factors discussed in
this article. For a multi-tenant special facility
financing that has a higher level of legal and struc-
tural risks, however, Standard & Poor’s may not be
able to elevate the rating above the corporate credit
rating of the lowest rated key tenant.
Most multi-tenant special facility financings have
been based on a lease structure with a special-pur-
pose entity as the lessor and issuer of the rated secu-
rities and the airline operators as lessees. Standard &
Poor’s reviews the ownership, organizational struc-
ture and operating constraints of the lessor in light of
the special-purpose entity criteria applicable to the
entity to assess the risk that the bankruptcy of any
relevant transaction participant may detrimentally
affect the issuer’s full and timely payment of the
rated securities in accordance with their terms.
Typically, in a multi-tenant special facility financ-
ing, the contractual terms governing the use of an
air carrier’s portion of the facility are in a lease
agreement between the air carrier and the lessor.
Although lease provisions vary depending on the
transaction, leases that are more supportive of high-
er ratings typically include provisions to keep uti-
lization of the facility at a level sufficient to support
payments on the rated securities. These provisions
would include, for example, minimum utilization
standards that the tenant must attain or the airport
would have the right to relet the space, thereby
ensuring the continued optimal use of the facility.
The airport, or landlord, would be allowed to relet
space within 90 days of any default and remove a
tenant from occupancy (“use-it-or-lose-it” provi-
sions). Stronger provisions would provide for relet-
ting within a shorter interval after a default. The
airport itself would have the right to use its best
efforts to relet the space of defaulted tenants. If a
third party, such as a developer, is involved in the
lease arrangements, the lease would preserve the
airport’s right to relet the space to the exclusion of
the third party and otherwise to protect against the
potential bankruptcy of this intermediary. The term
of the lease would be at least as long as the term of
the rated securities to prevent financially viable air-
lines from walking away from their obligations
while the securities are outstanding.
Other transaction terms that are more supportive
of higher ratings would include debt maturities of
no more than 20 years, debt service reserves equal
to maximum annual debt service, limiting or pro-
hibiting additional debt issuances at the same level
of priority, staggered lease and debt service pay-
ment dates, and a charge-back to the tenants of all
costs associated with the project or sufficient debt
service coverage levels to cover operating costs.Air Carriers
Diversity of the air carriers involved is a strength in
these financings. Ideally, this type of debt is issued
to provide space for a group of airlines, not for one
or two tenants. In addition, the relative credit
strength of the air carriers involved will be consid-
ered. The credit rating in a special facility transac-
tion will be highly correlated to the underlying
corporate credit ratings of the tenant airlines.
Unrated airlines with significant stakes in the
project must undergo some review by Standard &
Poor’s to assess their creditworthiness. Carriers
with higher Standard & Poor’s ratings will be
viewed most positively, as will those that are using
the facility to support O&D traffic. An important
aspect to the rating is understanding the relative
importance of the project within the air carrier’s
existing system and strategy.Financial Factors
Standard & Poor’s will evaluate projected cash flow
surrounding all facilities. Depending on the project,
Standard & Poor’s may require sensitivity analyses
that assume various vacancy levels. Projects that
can withstand lower use rates or occupancy levels
will receive higher ratings. These projections should
project lease revenues adjusted under conservative
assumptions, although inflationary increases can be
assumed if allowed under the lease documents.
Interest income should be estimated at low levels,
and airline payments should be as independent as
possible from the activity levels experienced solely
at the special facility. Expenses should be estimated
using reasonable inflationary increases. Coverage
on a projected basis should be a minimum of 1.50x
for the strongest of projects, with higher coverage
levels given additional positive weight.■Airport Multi-Tenant Special Facilities Bondshttp://www.standardandpoors.com 141