RATING OUTLOOK
The negative outlook reflects the challenges that the airport has ahead to reallocate 17 out of 53 slots following JetBlue's decision to cease operations at the airport in a scenario of uncertainty of demand by the airlines.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Sustained diversification of airlines
- Long term enplanement growth, enabled by additional slots and service expansion and reduced volatility
- Strengthened and more stable financial metrics, including DSCR sustained above 1.75x
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Lack of demand from other airlines for JetBlue's slots or excessive slot concentration by a single air carrier
- Further loss of service that results in DSCR below 1.25x on a sustained basis
- Decline in liquidity materially below one year of cash on hand
- Expectation of a slower than average recovery of air traffic activity
LEGAL SECURITY
The bonds are secured by a senior lien on net revenues of the airport (including PFC revenues with respect to the PFC eligible portion of the Series 2010). The rate covenant for the airport is 125% of debt service, but does include transfers from the Coverage Deposit Account and other unencumbered amounts in the Enterprise Fund, though transfer cannot be more than 25% of debt service. Additionally, the bonds benefit from a debt service reserve fund sized at the lesser of i) maximum annual debt service (MADS); ii) 10% of the stated principal; or iii) 125% of average annual debt service. The reserve fund is cash funded.
The additional bonds test requires either: Net revenues to have equaled at least 125% of all outstanding and proposed debt for 12 of the last 18 consecutive months; or net revenues to have equaled at least 125% of all outstanding debt for 12 of the last 18 consecutive months and estimated net revenues will equal 125% of debt service on all outstanding and proposed debt through the later of the five years after issuance or 3 years after the last year when interest was capitalized.
PROFILE
The City of Long Beach Airport Enterprise is a division of the City of Long Beach and owns/operates the airports in the city. The major airport servicing the city is Long Beach Airport. The airport is conveniently located between both Orange and Los Angeles counties, two major economic and destination hubs in the region.
METHODOLOGY
The principal methodology used in these ratings was Publicly Managed Airports and Related Issuers published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1140469. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
REFERENCES/CITATIONS
[1] Source: JetBlue's press release JetBlue's West Coast Focus City Strategy Lands at LAX - Jul, 09 2020 - http://blueir.investproductions.com/investor-relations/press-releases/2020/07-09-2020-180823514
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Cintia Nazima Lead Analyst Project Finance Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Kurt Krummenacker Additional Contact Project Finance JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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