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FOR IMMEDIATE RELEASE
Moody's
assigns Aa2 rating to Salina Authority's $11.9 M Taxable GO Bonds
Series 2011-A, $2.5 Million GO Bonds Series 2011-B
Aa2
long-term rating applies to $12.9 M of tax backed GO Bond Debt
New York, (July 18, 2011)-
Moody's Investors Service has assigned an Aa2 rating to the Salina
Airport Authority's $11.9 million Taxable General Obligation Bonds
Series 2011-A and $2.5 million General Obligation Bonds Series 2011-B.
The Aa2 rating applies to the Authority's outstanding general
obligation unlimited tax-backed debt of $12.9 million.
"Moody's
reaffirming and assigning the Aa2 credit rating for the Salina Airport
Authority is something we are proud to report," said Jeff
Thompson, Board president. "The Moody's rating is confirmation to
Salina citizens and municipal investors that the Salina Airport
Authority is financially strong."
Issue
Rating
General Obligation Bonds
Series
2011-B Aa2
Sale
Amount $2,470,000
Expected
Sale Date 07/20/11
Rating
Description: General Obligation
Taxable General
Obligation Bonds Series
2011-A
Aa2
Sale
Amount $11,895,000
Expected
Sale Date 07/20/11
Rating
Description: General Obligation
Summary ratings
rationale
Proceeds of the
Series 2011-B will provide long term financing for certain capital
improvements at the Salina Airport and the Airport Industrial Center,
including pavement rehabilitation; costs of a new aircraft rescue and
firefighting station; and relocating a waterline. A portion of the bond
proceeds will retire the outstanding Series 2010 Temporary Notes, which
provided temporary financing for the aforementioned capital
improvements. The Aa2 rating reflects the Authority's role as a
regional economic center; satisfactory financial operations despite
recent revenue pressures and narrow cash reserves; and moderate but
manageable debt levels.
Strengths
- Moderately sized tax base
- Revenue raising flexibility
afforded by the property tax mill levy
Challenges
Detailed credit
discussion
Moderately sized tax
base serves as regional economic center
Located in Saline
County 95 miles north of Wichita (rated Aa1/ stable outlook), the
Salina Airport Authority's taxing boundaries are coterminous with those
of the City of Salina (rated Aa2). The city serves as a regional
retail, commercial, industrial, and medical hub for the largely
agricultural communities of north central Kansas. The City of Salina's
medium-sized tax base reached $2.9 billion in 2010; the pace of tax
base growth has stagnated, tax base declined by 0.2 percent in 2010
compared to a 7.5 percent increase in 2006. The decline in 2010 is
partially due to overall decline in valuations as well as the state's
recent exemption of machinery and new equipment. Resident income levels
approximate state and national medians with per capita and median family
incomes at 90.7 percent and 91.6 percent, respectively. Despite recent
layoffs, the city's unemployment rate of 6.2 percent continues to trend
below those of the state (6.3 percent) and nation (8.7 percent) for
April 2011.
The Salina Airport
Authority is located on the former site of the Schilling Air Force
Base, which was closed by the U.S. Department of Defense in 1965. In
1965, the Airport Authority was created on 2,900 acres of the closed
base. By statute, the Salina City Commission appoints a five-member
Authority board of directors, but the Authority approves its own budget
(subject to city consent for any operating tax levy) and is responsible
for repaying its own debt. The Authority has two primary functions, one
of which is to manage airport operations. With a 12,300-foot runway and
with its central geographic location, the airport sees a variety of
aviation use. Daily commercial service to Kansas City is provided and
the airport is available for corporate, military, air freight, and
flight training activity. Popular as a mid-continent fuel stop, the
Authority benefits from a fuel surcharge collected on each gallon of
fuel purchased from two providers, Flower Aviation and America Jet.
The Authority's
second role is to act as a landlord and a facilitator of economic
growth at the Salina Airport Industrial Center, Salina Municipal
Airport and Airport Industrial Center is home for more than 70
businesses and organizations (45 of the businesses/ organizations were
tenants of the Authority) at the close of 2010. The Authority's top
tenant, the Kansas Military Board, accounts for nearly 14 percent of
total revenues (based on 2010 figures). Favorably in January 2010, the
Kansas Military Board expanded their facility for additional unit
trainings in the Salina area. The Authority's second largest tenant,
Hawker Beechcraft, accounted for more than 6.25 percent of total
revenues in 2010. Hawker Beechcraft announced plans to close their
Salina Airport Authority facility no later than February 2012, leaving
more than 484,000 of square feet of space that generated lease revenue
of approximately $424,000. Officials report that significant future
improvements will occur to attract companies to the space that Hawker
Beechcraft occupies. Future economic growth is expected to be driven by
aircraft maintenance and related technology services. We believe the
Authority's role as a regional economic center will offset some job
losses resulting from the Hawker closing and provide a level of
stability to the greater region. We will closely monitor prospects of
new tenants at the facility.
Satisfactory
financial operations despite recent revenue pressures and narrow cash
reserves
With strong
management, we expect the Salina Airport Authority's financial
operations to remain satisfactory, despite narrow unrestricted cash
reserves. As the Authority has used cash on hand to finance capital
improvements, unrestricted cash levels have decreased in recent years,
from $3.4 million in fiscal 2002 to $386,000 in fiscal 2007. Management
intends to increase the unrestricted cash balance to between $1.3
million and $1.5 million by fiscal 2013. To that end, airport officials
report that the unrestricted cash balance increased from $460,000 in
2008 to $553,000 in 2009, and was budgeted to further increase to
$620,000 in fiscal 2010. However, fiscal 2010 unaudited numbers
indicate that the unrestricted cash balance decreased to $400,000
primarily due to the ongoing cost associated with the environmental
remediation of the former Schilling Air Force Base property. The
Authority is currently in court proceedings seeking reimbursement for
remediation related costs. The Authority's two largest revenue sources
are property taxes representing 43 percent of total revenues and
building and land rent comprising 37 percent of fiscal 2010 total
revenues. The Authority's lease rental revenue is highly concentrated,
with the top ten tenants accounting for 48 percent of total revenues in
fiscal 2010 (based on 2010 unaudited financial statements). Hawker
Beechcraft accounted for approximately 6.25 percent of 2010 total
revenues. A somewhat mitigating factor in the departure of Hawker
Beechcraft is that the company had very low rental rates grandfathered
in, which the Authority believes it can raise more than three times and
still be competitive.
The Authority's
largest revenue stream is property taxes. The Authority currently
levies 4.055 mills for debt service, a decrease from the 2009 mill levy
of 4.315, generating approximately $1.6 million in revenue. The
Authority can levy up to 3 mills for operations and an additional one
mill to match grants; these levies are not used at this time. These
limits do not apply to the authority's ability to levy unlimited taxes
for the repayment of its general obligation debt.
The Salina Public
Entities (Salina Airport Authority, City of Salina, Saline County
Unified School District No. 305, and Kansas State University at Salina)
filed suit against the United States on May 27, 2010. The suit pertains
to the terms, condition and funding associated with the environmental
cleanup of contamination on airport grounds. Cost estimates for the
project have not yet been finalized, but the four local government
entities may collectively be responsible for $2 million to $3 million
per year for the next 30 years. Despite this potential expense and
concentration in the Authority's revenue stream, we believe that the
Authority will be able to increase cash reserves to adequate levels
over the long term. However, continued decreases or the inability to
meet targeted increases in cash reserves may factor into future credit
reviews.
Moderate debt levels
remain manageable
The Authority's debt
levels are expected to remain at moderate manageable levels.
Historically, Kansas statutes limited the Authority's aggregate general
obligation debt issuance to 3 percent of the City of Salina's total
assessed valuation. In 2007, the Authority gained approval to increase
the limit to 10 percent of assessed valuation. The limit was increased
to allow the Authority to issue debt for various projects that
officials hope will further stimulate economic activity at the Airport
Industrial Center. Officials plan to borrow $4.5 million this year for
the rehabilitation of Hangar 959 and an additional $2.5 million for the
rehabilitation of Hangar 626. At 0.95 percent, the Authority's current
direct debt position is affordable. The Authority's overall debt burden
of 4.82 percent is above average and is largely due to the overlapping
districts (City of Salina and Saline County Unified School District
305). Principal amortization of the Authority's general obligation debt
is somewhat slower than average, with 41.9 percent of debt retired in
ten years.
What could change the
rating - Up
- Substantial growth in the
authority's tax base
- Substantial improvement in
unrestricted cash reserves
What could
change the rating - Down
- Significant erosion of the authority's
tax base
- Significant deterioration in
cash reserves to a level inconsistent with similarly rated
credits
Key statistics:
- 2010 Estimated population:
47,707
- 2011 Full value: $2.9
billion
- 1999 Per Capita Income:
$18,593 (86 percent of US)
- 1999 Median family income:
$45,433 (91 percent of US)
- City of Salina unemployment
rate (April 2011): 6.2 percent
- Fiscal 2009 net assets:
$28.1 million
- Fiscal 2010 net assets
(unaudited): $27.8 million
- Fiscal 2009 unrestricted
cash: $553,000 (26 percent of operating revenues)
- Fiscal 2010 unrestricted
cash (unaudited): $400,000 (17 percent of operating revenues)
- Direct debt position: 0.95
percent
- Overall debt burden: 4.82
percent
- Principal amortization (10
years): 41.9 percent
- Post-sale general obligation
debt outstanding: $27.3 million
Principal methodology
The principal
methodology used in this rating was General Obligation Bonds Issued by
U.S. Local Governments published in August 1999. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
Regulatory
disclosures
For ratings issued on
a program, series or category/class of debt, this announcement provides
relevant regulatory disclosures in relation to each rating of a
subsequently issued bond or note of the same series or category/class
of debt 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 relevant regulatory disclosures in relation to the rating
action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings, this
announcement provides relevant 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.
Information sources
used to prepare the rating are the following: parties involved in the
ratings, [and] public information, [and] confidential and proprietary
Moody's Investors Service information, [and] confidential and
proprietary Moody's Analytics information.
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quality of information available on the rated entity, obligation or
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