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May 21, 2010

Moody's Downgrades Burlington Airport Credit Rating

BTV_logo 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.

This is exactly the contagion that I was worried about with VSAC. Vermont needs to be very careful in their aggressive use of moral obligations to revenue based organizations with debt. It blurs the lines and the lawyers will circle if there is ever a problem

Mr. Leopold Sir.
The airport downgrade may not be directly related to the city's downgrade earlier this year but I am sure the fact that 17 million in pooled cash was improperly used did not help the situation concerning the airport downgrade. Especially as the actions of the administration by removing airport funds from the cash pool system, seems to contradict your comment of the airport downgrade not being directly related to the city's downgrade.
Mr Kiss Sir.
Does this Moody downgrade mean any or all future construction at the airport is done until further notice?
Plattsburgh thrives while Burlington dives, as far as airports go.
Time for a change at city hall I request the resignations of mayor Kiss and CAO leopold. Immediately.
Nothing more harmful but a bunch of ticked of Moodies.

"Especially as the actions of the administration by removing airport funds from the cash pool system, seems to contradict your comment of the airport downgrade not being directly related to the city's downgrade."

You nailed it

Jimmy. Thank you for your comments. I urge the rest of Burlington to jump on this bandwagon. Contradiction seems to live lively within this administration.

The main problem appears to be general inaction. Anyone who did not see this coming from miles away after the improper use of pooled funds came to light was just not paying attention. Most of the articles a few months back with the city's rating was downgraded just mentioned the fire truck purchase. What about BED? Upgrading and maintaining an electric co is expensive and they probably rely heavily on loans too. You'd think with the interconnected web of finances for the city's various arms that the council would have done more than create panels to generate reports on making BT profitable. You would have thought they'd put into place some plan to limit the potential damage as well. But then you'd apparently have thought wrong. What happens in August when there's no escrow to pay the BT loan payments? Someone correct me if I'm wrong, but even if Fairpoint or VTEL or someone else steps in and offers to become a stakeholder in BT before then, the PSB/DPS will probably need to sign off on it in a docket which would probably be a several month affair. I wonder how many options are even feasibly on the table at this point.

"I wonder how many options are even feasibly on the table at this point."

Don't worry, Neil. Bob Kiss is on top of it, by jeezum. He'll get right on this as soon as he wakes up from his nap.

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