OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' underlying rating to Metropolitan Washington Airports Authority's (MWAA) approximately \\$201 million series 2011A airport system revenue and refunding variable-rate bonds (subseries 2011A-1, 2011A-2, and 2011A-3). MWAA intends to remarket the 2011A bonds and these variable rate bonds will have liquidity support from a direct-pay letter of credit issued by the Royal Bank of Canada (RBC). The Rating Outlook is Stable.

The rating reflects the authority's very strong credit attributes, including the inherent resilience of its complementary dual-large hub airport system serving the strong and growing DC air service area, well-balanced system-wide carrier mix, largely complete 2001-2016 capital program with a new, smaller program that can serve current and projected demands, and stable financial profile. Some concerns remain given the large debt burden and rising airline cost profile, particularly at Dulles International airport, but this has been partially mitigated by the terms of MWAA's new airline use agreement with enhanced revenue sharing provisions between airports.

KEY RATING DRIVERS
Strong Market Position: Revenue Risk-Volume: Stronger
The authority's large overall traffic base is anchored by a strong underlying economic region and complementary service offerings at Dulles (IAD) and National (DCA) airports, which together provide a diverse offering of domestic and international services. Following the 2008-2009 system-wide recessionary losses, enplanement declines at IAD have been offset by solid growth at DCA and the system has recorded slight growth in each year since.

Favorable Rate Setting Approach: Revenue Risk-Price: Stronger
MWAA's new airline use and lease agreement (AUL) continues a hybrid compensatory model and also provides for an overall favorable cost recovery approach on an airport system basis, bridging some of the significant cost imbalances at MWAA's two airports. DCA's agreement runs for 10-years while IAD is set for a shorter three-year period. Revised terms will allow for a tiered level of surplus revenue sharing from DCA to subsidize IAD's costs derived from substantial debt-financed capital investments. Extraordinary coverage protection remains, yet bond holders now benefit from increased hard coverage as a result of the new agreements. Current forecasts indicate a stable CPE of around \\$13-\\$14 for DCA while IAD will see a modest reduction from the previously forecasted CPE of over \\$30.

Major Capital Needs Addressed: Infrastructure Development/ Renewal: Stronger
The authority's 2001-2016 \\$5 billion Capital Construction Program (CCP) is nearing completion and requires practically no additional borrowings. Major upgrades and renovations have been completed at both airports, resulting in modern facilities and an overall good condition of infrastructure. IAD is already benefitting by way of increased revenue generation, despite a reduction in enplanements, and the new \\$1.4 billion CCP through 2024 predominantly for DCA should similarly enhance its revenue generating ability. The new CCP will be approximately 90% bond funded including both series 2015B and future issuances, however DCA should have the capacity to take on this additional debt to support these further capital improvements.

Largely Conservative Capital Structure: Debt Structure: Stronger
Approximately 81% of the authority's debt is in conventional fixed rate mode, with another 12% of its variable rate obligations synthetically fixed through swap agreements. As a result, only 6% of the authority's debt profile is unhedged variable rate debt and this variable rate exposure is partially mitigated by the authority's unrestricted cash position in excess of two times its outstanding variable rate debt obligations.

Stable Finances, Elevated Leverage: The authority's borrowing program results in an elevated leverage position as indicated by the debt to enplanement of \\$230 (\\$316 on an O&D basis) and 9.6x net debt/cash flow available for debt service (CFADS) metrics. Following the recession, the debt service coverage ratio (DSCR) dropped and has been largely stable in the 1.4x-1.5x range, with the expectation to remain at around this level over the medium term. However, liquidity remains strong at 692 days cash on hand.

Peers: Closest rated peers include Los Angeles International Airport (LAX)('AA'/Outlook Stable) and San Francisco International Airport (SFO)('A+'/Outlook Stable). LAX benefits from a greater, more resilient enplanement base with lower carrier concentration, lower leverage, and higher coverage accounting for its higher rating. SFO has a similar operational and financial profile, but these metrics are tied to a single airport whereas MWAA benefits from a dual-airport system.

RATING SENSITIVITIES
Negative: Significant or unanticipated changes in the airport's current traffic base or shifts in commitments from leading carriers;
Negative: Additional leveraging for the new capital program that materially affects financial flexibility;
Negative: Inability of the authority to manage the airport system cost profile, putting pressure on debt coverage metrics.
Positive: Upward rating migration is not likely at this time given the authority's current leverage and cost profile coupled with its additional borrowing needs.

TRANSACTION SUMMARY
The MWAA board approved an LOC proposal by RBC that will remarket the \\$200.5 million of series 2011A bonds. The bonds are currently held by Wells Fargo as indexed floaters, paying 72% of LIBOR plus 82 bps, with a tender date in 2016. The series 2011A bonds will be converted to a SIFMA-based, weekly interest rate mode, supported by a three-year LOC expiring in 2018. Projected savings are estimated to be approximately \\$0.94 million per year.