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Moody's assigns MIG1
short-term rating to SAA
NEW YORK, Aug 13, 2010 --
Moody's Investors Service has assigned a MIG1 rating to the Salina
Airport Authority's $11.7 million Taxable General Obligation Bonds
Series 2010. Concurrently, Moody's has affirmed the Aa2 rating on
the Authority's outstanding general obligation unlimited tax-backed
debt of $13.9 million.
"We are pleased with Moody's assignment of a MIG1 rating to our
short-term temporary notes," said Manager of Administration and
Finance Shelli Swanson. "This rating allows us to receive
very favorable interest rates on our borrowing for infrastructure
development, which in turn, allows us to offer competitive lease rates
on facilities at the SLN Aviation Service Center."
Proceeds of the current issue will provide
funding for capital improvements at the Salina Airport and the Airport
Industrial Center, including the construction of a new building;
improvement and design work for six other buildings; and runway
improvements. A portion of the bond proceeds will redeem the $7.1
million of outstanding Series 2007- Temporary Notes, which provided
temporary financing for capital improvements. Affirmation of 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. The MIG
1 rating is based on expected market access for the take out
refinancing, a history of successful marketing of notes and bonds, and
the implied long-term credit quality reflected in the Authority's Aa2
issuer rating.
"The favorable Mood's ratings reaffirm the Salina Airport
Authority's financial strength and ability to fund major airfield and
building construction projects," said Executive Director Tim
Rogers, A.A.E.
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). Despite some
challenges, we believe that due to its position as a regional retail
hub, Salina should continue to enjoy relative economic stability. The
City of Salina's medium-sized tax base reached $2.9 billion in 2009,
the pace of tax base growth has slowed significantly, declining by 0.7%
in 2009 compared to a 7.5% increase in 2006. The decline in 2009 is
partially due to overall decline in valuations as well as the state's
recent exemption of machinery and new equipment. Located at the
intersection of I-70 and I-135, the city serves as the regional retail,
commercial, industrial and medical hub for the largely agricultural
communities of north central Kansas.
Resident income levels approximate state and national medians with per
capita and median family incomes at 90.7% and 91.6%, respectively.
Despite recent layoffs, the city's unemployment rate of 5.7% continues
to trend below those of the state (6.3%) and nation (9.7%) for May
2010. 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 statue, 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 over 80
businesses and organizations (45 of the businesses/ organizations are
tenants of the Authority) at close of 2009. The Authority's top tenant,
the Kansas Military Board, accounts for nearly 12% of total revenues
(based on 2009 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 7.0% of total revenues in 2009. Hawker
Beechcraft announced plans to close their Salina Airport Authority
facility no later than February 2012, leaving over 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 it is budgeted to further
increase to $620,000 in fiscal 2010. The Authority's two largest
revenue sources are building and land rent representing 40% of total
revenues and property taxes comprising 38% of fiscal 2009 total
revenues. The Authority's lease rental revenue exhibits a notable
degree of concentration, with the top ten tenants accounting for 45% of
total revenues in fiscal 2009 (based on 2009 audited financial
statements). 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 over three times and
still be competitive.
The Authority's second largest revenue stream is property taxes. The
Authority can levy up to 3 mills for operations, subject to approval by
the city. The Authority currently levies 4.315 mills, an increase from
2008 mill levy of 2.877, generating approximately $1.3 million in
revenue. The City of Salina recently approved a resolution to lower the
mill levy to 4.055. The Authority can also levy an additional one mill
to match grants; this levy is 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 then
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% of the City
of Salina's total assessed valuation. In 2007, the Authority gained
approval to increase the limit to 10% 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 issue all or part of the
additional permitted debt within the next several years. At 0.9%, the
Authority's current direct debt position is affordable. The Authority's
overall debt burden of 4.4% 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 50.3% of debt
retired in ten years.
KEY STATISTICS:
2009 Estimated population: 46,180
2009 Full value: $2.9 billion
1999 Per Capita Income: $18,593 (86% of US)
1999 Median family income: $45,433 (91% of US)
City of Salina unemployment rate (May 2010): 5.7%
Fiscal 2009 net assets: $28.1 million
Fiscal 2009 unrestricted cash: $553,000 (26% of operating revenues)
Direct debt position: 0.9%
Overall debt burden: 4.4%
Principal amortization (10 years): 50.3%
Post-sale general obligation debt outstanding: $25.9 million
PRINCIPAL METHODOLOGY
The principal methodology used in rating Salina Airport Authority (KS)
was Moody's Bond Anticipation Notes and Other Short Term Financings
published in May 2007 and available on http://www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab.
Other methodologies and factors that may have been considered in the
process of rating this issuer can also be found in the Rating
Methodologies sub-directory on Moody's website.
The last rating action with respect to the Salina Airport Authority was
on May 19, 2009, when a rating of Aa3 was assigned to the outstanding
General Obligation debt. That rating was subsequently recalibrated to
Aa2 on April 30, 2010.
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