For the second time in less than three months, the credit rating agency Moody's has downgraded Burlington's bond rating — this time affecting millions of dollars in bonds held by the Burlington International Airport.
The news came via press release late this morning from the mayor's office, but has been known for several days and was shared last night at the city's board of finance meeting.
Moody’s Investors Service downgraded the Burlington International Airport’s credit rating from Baa1 to Baa3, citing concerns about the airport’s “protective liquidity” due to uncertainties in the city’s pooled cash system, a debt service coverage ratio that is too low, and a potential reduction in enplanements based on the recent departure of AirTrans.
Earlier this year, the city's overall bond rating was downgraded due to the $17 million Burlington Telecom owed to the city's "cash pool," an amount that has yet to be repaid. Moody's put the city on a 90-day credit watch in March.
Chief Administrative Officer Jonathan Leopold told Seven Days the airport downgrade is not directly connected to the city's downgrade earlier this year.
The Burlington International Airport currently has $41.7 million in outstanding rated debt. On Town Meeting Day in March 2009, Burlington voters approved a proposal for $21.5 million in revenue bonds to expand the airport parking garage.
City officials dispute the downgrade and hope that Moody's will reconsider its rating after further review, when the city goes out to bond later this year. Leopold said the city would not go out to bond until airport improves its rating.
“The Moody’s report is unnecessarily pessimistic about the business outlook and future growth at BTV,” said airport director Brian Searles in a statement. “While 2009 was undoubtedly a tough year for Burlington as well as airports across the country, the travel hubs we rely upon have begun growing their business this year, and we anticipate a corresponding return to greater passenger numbers here. In the last two months we are already seeing passenger increases, which have resulted in numbers that are equivalent to those when AirTrans was operating in Burlington.”
Moody’s states that the Baa3 rating is under review for further downgrading or potentially to go back up — with a focus on the airport’s ability to restore protective liquidity and raise its debt service coverage ratio through increasing rates and charges, according to the release from the mayor's office.
The report also lists as strengths the diversity of airport revenues, the presence of JetBlue Airways, the relative strength of Burlington’s economy, and the airport’s low enplanement and parking rates.
“The city can and will address the issues raised in the Moody’s report,” said Mayor Bob Kiss. “The airport continues to be a tremendous strength for Burlington, the region, and the state. While the airline industry has suffered nationally during the economic circumstances of the last two years, BTV is poised to maintain its passenger base and grow stronger in the next year and beyond.”
Because Moody's is concerned about the airport's exposure to the cash pool, however, the city has ended the airport's participation in pooled cash and established a separate account for it, said Leopold.
The city will take the following measures in response to the Moody’s report:
• All airport funds will be held in accounts separate from the city’s pooled cash system;
• The city will establish a dedicated line of credit for the airport to establish liquidity;
• The airport has ordered a new study of rates and charges and is prepared to adjust them, as needed, by the end of the fiscal year; and,
• The airport has proposed an operating budget that cuts $385,707 in spending and sets a revenue target increase in FY11 of $682,316.
A new bond review could come within two to three months, said Leopold.