Bonds

Hawaii had the outlook on more than $2 billion in debt for its airport system and rental car facilities revised to positive from stable by Fitch Ratings in separate actions.

The rating agency on Friday boosted the outlook to positive on the bonds issued by the state’s Department of Transportation, Airport Division, for capital projects across the system and for separate debt issued for car rental facilities projects. Fitch’s outlook indicates the direction a rating is likely to move over a one- to two-year period.

Fitch affirmed its A-plus rating on $1.7 billion of outstanding Hawaii DOT airport system revenue bonds and its A rating on $123.2 million of certificates of participation as it revised the outlook on those bonds to positive. DOT’s airport division has $49.3 million outstanding in parity COPs that are not rated by Fitch.

Fitch also affirmed the A rating on Hawaii DOT’s $403.3 million of outstanding customer facility charge revenue bonds issued for its statewide consolidated rental car facility system. The ConRAC bonds are special limited obligations of the state, payable and secured solely by the customer facility charge and payment by the car rental facilities of the minimum annual requirement deficiency.

The positive outlook on its $1.7 billion in airport system revenue bonds “reflects strong financial metrics relative to A category indicative metrics, which Fitch expects should be sustainable in a post-pandemic operating environment.”

Hawaii DOT Director Ed Sniffen didn’t return a request for comment on the outlook revision.

The rating agency also noted the airport system is progressing with its sizable ongoing capital program, which presents some execution risk coupled with upward pressure to airline cost and leverage metrics. The current capital plan — which runs through 2027 — totals $2.6 billion, and is anticipated to be 39% debt funded, including previous and planned bond sales. About $1.2 billion has been spent to date, with $1 billion of remaining project costs to be debt funded.

“As several major projects have been completed and borrowing plans for remaining projects are firmed up, the enterprise’s overall financial position is expected to remain robust, aided by federal grant awards and an existing strong liquidity profile,” Fitch analysts said. The strength of the system’s debt service coverage supports positive rating action, analysts said.

The ratings also reflect the essentiality of air services for the state, which encompasses a high degree of tourism and leisure-focused traffic from long-haul domestic and international passengers.

The airport system had nearly 19 million enplaned passengers prior to the COVID-19 pandemic, Fitch said. Given this demand profile, Fitch analysts said they believe Hawaii still has some downside risks to a longer recovery cycle relative to other U.S. airports.

The outlook revision on the car rental facility reflects very strong financials relative to the A category that should be sustainable in a post-pandemic operating environment, Fitch analysts said.

Rental car facility transactions are supported by strong domestic and international visitor arrival levels across all Hawaiian Islands and rental car activity at six airport system facilities.

The airport system’s ratio of rental car transaction days to origination and destination enplaned passengers of over 100% is high relative to other facilities due to strong local Hawaiian rental demand. The rental market benefits from a balanced and diverse rental car operator presence, with no single provider representing more than 20% of market share.

The major rental car construction projects at the Honolulu and Maui airports have been completed and future capex needs are expected to be modest and cash-funded, Fitch analysts said.

The new facility at Maui was completed in May 2019 and the Honolulu facility opened in December 2021, Fitch analysts said. Half of the overall project costs were funded with car rental collections, with the remainder from bond proceeds, grants and cash.

Additional facilities may be constructed at other Hawaiian airports, including Lihue, Hilo, and Kona, but Fitch said they are likely to be more modest in scope. Fitch expects future funding for capital needs to be sourced primarily from CFC pay-go, limiting further borrowing needs.

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