2.11 Letters of Rating Agency Indicating Ratings �
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August 1G. 2O22
Mr. Richard Strickland
Senior Director ofAirports
Monroe County
1100 Simonton Street
Key West, FL33U4O
Dear Mr. Strickland:
Fitch Ratings has assigned one or more ratings and/or otherwise taken rating action(e), as detailed in the
attached Notice of Rating Action.
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Public Finance
LP/ern
Enc: Notice of Rating Action
(Doc ID:250853 Rev 0)
Notice of Rating Action
Rating Outlook/
Bond Description Rating Type Action Rating Watch Bff Date Notes
Monroe County(FL) (Key West
2022'O8-16
International Airport)airport rev bonds aer Long Term Rating New Rating 4, RD�8ta� 13�56�43 O
2022 � � �
Monroe County(FL) (Key West
UnenhmnnndLung 2022-08-16
|nternaUona|��rpu�)airpo�nevbondaaer New Rating 4r RO�Sta
�Term Rating � 13�56�4� O
2022 � �
Key: RC>: Rating Out|ouk, RVV: Rating VVmtoh. Pon: Positive, Nog: Negsdiwa, Sto: Sbab|a, Evo: Evolving
8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-';Outlook Stable
FItchl"talinas
RATING ACTION COMMENTARY
Fitch Rates Monroe County's
(FL) Key West Airport Revs 'AM'40
Outlook Stable
Tue 16 Aug, 2022 -2:50 PM ET
Fitch Ratings- New York- 16 Aug 2022: Fitch Ratings has assigned an 'A-' rating to
approximately$39.7 million of Monroe County, FLs series 2022 airport revenue bonds
issued on behalf of Key West International Airport(EYW).The Rating Outlook is Stable.
RATING RATIONALE
The rating reflects EYW's small,predominantly destination market that benefits from
diverse airlines services supporting an expanding regional service area. EYW has also seen
significant growth in enplanements and is currently well exceeding pre-pandemic traffic
levels,supported by Key West's status as a well-anchored tourist destination on the East
Coast.The airport's forward-looking financial profile,taking into account modest future
capital needs, indicates high coverages of over 2.Ox under Fitch's rating case,coupled with
high fund balances leading to low net leverage.The underlying financial profile does have
volume-related exposure to volatility given the relatively small enplanement base as well as
the leisure nature of the demand profile,thus constraining the rating to the lower end of
the'A category.
KEY RATING DRIVERS
Leisure-Based Traffic- Revenue Risk(Volume): Midrange
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8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-;Outlook Stable
EYW currently serves an enplanement base reaching approximately 700 thousand
passengers,which is well above the 400 thousand level seen prior to the pandemic,with
considerable dependence on discretionary leisure traffic.The airport's scale of operations
is mitigated by a largely origination and destination traffic profile of approximately 96%of
enplanements and lack of material competition,however some carrier concentration risk
exists with American Airlines(B-/Stable)comprising approximately 50%of passenger
traffic in fiscal 2021.
Moderate CPE, Hybrid AUL- Revenue Risk(Price): Midrange
The airport's five-year airline agreement(AUL)expires Sept.30,2026 and features
compensatory rate-making for the terminal coupled with a cost center residual landing fee.
The hybrid agreement provides for sufficient cost recovery of operating expenses and debt
service. Prior to the current AUL,no airline agreement had been in effect even though the
rate methodology had been in similar form.Airline costs are moderate with historical cost
per enplaned passenger(CPE) in the$8-$10 range increasing to$12.59 in fiscal 2020
taking into account the effects of the pandemic.Future CPE levels are expected to rise
modestly to the$15 range in Fitch's conservative rating case as debt service from the
Concourse A project comes online.
Modest Capital Plan- Infrastructure Development&Renewal: Midrange
The assessment reflects the airport's commitment to a new airside passenger concourse
facility for capacity expansion purposes as well as renovations to the existing landside
terminal building.Approximately 28%of the project is expected to be debt funded by the
Series 2022 bonds.The remainder of the project is expected to be financed by a
combination of federal and state grants,coupled with PFC receipts.Not including the
Concourse A Project,the airport's capital improvement plan (CIP) (2023-2027)totals
$57.3 million,and is funded on a PAY-GO basis by grants and airport funds. No additional
debt funding is required for the capital plan.Upon completion of the current Concourse A
project,an ongoing capital program with less reliance on additional borrowing may result in
revision of the assessment score to Stronger.
Conservative Debt Structure- Debt Structure:Stronger
The long-term debt service profile on the proposed series 2022 bonds is entirely fixed-rate
and fully amortizing with a flat amortization profile.Annual debt service when including the
interest payments on the revolver is expected to be approximately$2.8 million per year and
remains at that level through forecasted debt maturity of the Series 2022 bonds in 2052.
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8116/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-';Outlook Stable
The debt structure includes standard covenants and is further supported by fully funded
debt service reserve funds sized at over twelve months of annual debt service.
Financial Profile
Heading into this proposed financing,the airport's financial profile was strong,evidenced
by a favorable balance of airline and non-aeronautical revenues coupled with solid
unrestricted cash reserves representing approximately 385 days cash on hand (DCOH) and
CPE averaging in the$10 range. Following the issuance of the Series 2022 bonds,CPE in
Fitch's rating case is expected to increase to the$15 range and coverage is expected to
average 2.2x,mitigating any downside risks to cashflows.A substantial amount of the
projected debt service can be paid from annual receipts of PFCs,enabling less pressure on
other revenue sources to cover these financing costs. Leverage metrics under Fitch's base
and rating cases are moderate for an airport of this operating profile,and are expected to
decline to below 4x by 2025.
PEER GROUP
Comparable peer airports include Myrtle Beach International Airport(MYR;A+/Stable)
and Palm Beach International Airport(PBI;A+/Stable), both of which also serve local
regional populations with modest size,small-hub enplanement levels.All three airports
serve leisure markets,and have hybrid airline agreements and low debt burdens.The higher
ratings at MYR and PBI reflect the limited capital needs and higher liquidity levels fully
offsetting aggregate debt through the forecast period.
RATING SENSITIVITIES
Factors that could,individually or collectively,lead to negative rating
action/downgrade:
--Substantial expansion of airline services and traffic levels;
--Longer-term leverage decreasing to below 2x on a sustained basis.
Factors that could,individually or collectively,lead to positive rating action/upgrade:
--Longer-term leverage increasing to above 4x on a sustained basis;
--Material shifts in the airport's financial position caused by a significant ongoing loss of
traffic or other factors that reduce debt service coverage ratio below 1.8x on a sustained
basis.
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8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-';Outlook Stable
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers
have a best-case rating upgrade scenario(defined as the 99th percentile of rating
transitions, measured in a positive direction) of three notches over a three-year rating
horizon;and a worst-case rating downgrade scenario (defined as the 99th percentile of
rating transitions, measured in a negative direction) of three notches over three years.The
complete span of best-and worst-case scenario credit ratings for all rating categories
ranges from 'AAA toV. Best-and worst-case scenario credit ratings are based on historical
performance. For more information about the methodology used to determine sector-
specific best-and worst-case scenario credit ratings,visit
https://www,fitcliratiriigs.corii/site/re/'[O'Lll.579.
TRANSACTION SUMMARY
Monroe County plans to issue approximately$39.7 million in airport revenue bonds,series
2022.The proceeds will be used to fund the capital plan and to pay costs of issuance.The
series 2022 bonds are fixed rate with final maturity in 2052.
CREDIT UPDATE
Key West International Airport(EYW) is a unique U.S.airport in terms of its geographic
location in the Florida Keys which serves to draw leisure-based travelers as well as those
from northern origination markets.Similar to airports nationwide, EYW experienced a
significant decline in fiscal year 2020 enplanements,as air travel was sharply curtailed by
the effects of the pandemic. However, EYW experienced a robust recovery in fiscal year
2021 enplanements, increasing about 94%compared to FY 2020,and increasing about
39%compared to 2019 levels.
EYW's enplanement base recovered at a faster pace than many peer airports,as airlines
rapidly increased capacity at the airport in 2021,due to increased passenger demand for
leisure destinations such as Key West, FL.Two new airlines,Allegiant and JetBlue,entered
the airport in FY 2021, introducing new service to cities and further broadening EYW's
market area.YTD enplanements,through June 2022,continue to show further
enplanement growth,with enplanements up about 9%compared to the same prior year
period.
FY 2021 airline revenues are up 30%compared to FY 2020 airline revenues, increasing
from $4.3 million to$5.6 million.With existing airlines initiating new service to additional
cities and the entry of new airlines to the airport, landing fees at the airport increased 75%
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8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-';Outlook Stable
in FY 2021.The strong enplanement growth seen in FY 2021 also led to an increase in
rental car concession revenues and food and beverage revenues,increasing about 80%and
95%in FY 2021,respectively.O&M Expenses increased about 9%in FY 2021,due to the
increase in contractual services,including security services and other necessary supplies
and materials,driven by the uptick in airport activity.
In light of the negative impacts experienced due to the coronavirus pandemic,management
took certain steps to mitigate the decline in airport activity.The airport was awarded about
$21.8 million in Coronavirus Aid, Relief,and Economic Security Act funds.The airport used
these funds to stabilize operating income by covering operating expenses,with about$4.8
million of these funds being used to fund expansion of the aircraft overflow parking apron
in FY 2023.The airport also received another$10 million in CRSSA and ARPA funds,with
the majority of it being used to fund part of the 2022 Concourse A project.
The airport has a$113.4 million Concourse A project in addition to a $57.3 million CIP
(2023-2027)which is focused on general maintenance.The Concourse A project is funded
via the Series 2022 bonds,as well as grants and PFC PAY-GO funds.Importantly, EYW has
already secured construction contracts to cover the costs associated with the projects
funded with the series 2022 bonds.The CIP is expected to be funded by grants and airport
operating funds.The overall dependence on borrowings is low in nature as no additional
debt funding is required for the CIP or the Concourse A project.
FINANCIAL ANALYSIS
Fitch's Base Case assumes fiscal 2022 enplanements are 12%over 2021 levels and 56%
over 2019 levels, reflecting year to date performance at the airport. In 2023, Fitch assumes
a slight decline of 5%in enplanements in Fiscal 2023 reflecting management assumptions.
Thereafter,enplanements grow at 2%per year.Fitch's Base Case assumes management's
budgeted expectations for airline revenues and expenses in fiscal 2022.Airline revenues
thereafter are matched to reflect the cost center residual AUL and non-airline revenues
grow with enplanements. Expenses grow at a CAGR of 8.4%,reflecting managements
expense assumptions.Overall,debt service coverage averages 2.4x and leverage declines to
3.4x by fiscal 2027 once the Series 2022 bonds begin to amortize.CPE averages$12.06
from 2023-2027.
Fitch's Rating Case assumes the same enplanement growth in fiscal 2022 reflecting year to
date performance at the airport. In 2023, Fitch assumes a recessionary decline of 15%in
enplanements in Fiscal 2023.Thereafter,enplanements grow at 2%per year. Fitch's Rating
Case assumes management's budgeted expectations for airline revenues and expenses in
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8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-';Outlook Stable
fiscal 2022,As in the Base Case,airline revenues thereafter are matched to reflect the cost
center residual AUL and non-airline revenues grow with enplanements. Fitch stresses
expenses an additional 0.5%over the base case.Overall,debt service coverage averages
2.2x and leverage declines to 3.9x by fiscal 2027 once the Series 2022 bonds begin to
amortize.CPE averages$13.49 from 2023-2027.
Given the geographic position of the Key West market and its exposure to severe weather
events, Fitch conducted a separate stress case which assumes Base Case revenues and
expenses in 2023 and 2024 followed by a one-year shock to enplanements in Fiscal 2025 of
30%to consider a lengthy event-driven traffic disruption.This scenario assesses a near
breakeven analysis,with coverages of 1.2x and leverage spiking to over 6x in this one year.
However,the PC fund balance of approximately two years of debt service and pledged
PFCs of$2.6 million in each year help offset any risks of enplanement shocks. In addition,
the county has targeted a minimum of 365 DCOH, providing additional protection against
downside risk.
SECURITY
Monroe County pledges all net revenues of the airport system and all funds established by
the bond resolution to the airport revenue bonds.
DATE OF RELEVANT COMMITTEE
16 August 2022
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are described in the Applicable
Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section,the highest level of ESG credit relevance is a
score of'3'.This means ESG issues are credit-neutral or have only a minimal credit impact
on the entity,either due to their nature or the way in which they are being managed by the
entity. For more information on Fitch's ESG Relevance Scores,visit
www.fi tcliratings.com/c-sg.
RATING ACTIONS
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8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-;Outlook Stable
ENTITY/DEBT IV' RATING 't
Monroe County(FL)[Airport]
Monroe County(FL) LT A-Rating Outlook Stable New Rating
/Airport Revenues/1 LT
VIEW ADD11110NAL RMING DETAILS
FITCH RATINGS ANALYSTS
Victoria Babcock
Associate Director
Primary Rating Analyst
+1646 582 4608
victoria.babcock@fitchratings.com
Fitch Ratings, Inc.
Hearst Tower 300 W 57th Street New York, NY 10019
Jeffrey Lack
Director
Secondary Rating Analyst
+1312 368 3171
jeffrey.lack@fitchratings.com
Seth Lehman
Senior Director
Committee Chairperson
+1212 908 0755
seth.lehman@fitchratings.com
MEDIACONTACTS
Sand ro Scenga
New York
+1212 908 0278
sandro.scenga@thefitchgroup.com
Additional information is available on www.-fitchratings.corn
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8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-';Outlook Stable
PARTICIPATION STATUS
The rated entity(and/or its agents)or,in the case of structured finance,one or more of the
transaction parties participated in the rating process except that the following issuer(s),if
any,did not participate in the rating process,or provide additional information,beyond the
issuer's available public disclosure.
APPLICABLE CRITERIA
Transportation Wirwftmlctuire Rating Criteria (pub. 1.6 May 2022) (includi)ng rating
assn.vTir.:)tion sensitivity)
infrastructure& Project lFirnance (Rating Criteria (pub.20.Jul 2022) (including rating
aSSLIfflpflUl sensitivity)
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria
providing description of model(s).
GIG AST Model,v1.3.1 (1)
ADDITIONAL DISCLOSURES
Dodd-Frank Rating information DisciOSLAre Form
Solicitatiorn Status
Endorsement Policy
ENDORSEMENT STATUS
Monroe County(FL)
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and the FCA are required to publish historical default rates in a central repository in
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8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A-';Outlook Stable
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8/16/22,2:51 PM Fitch Rates Monroe County's(FL)Key West Airport Revs'A Outlook Stable
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��
� � ��������� S
INVESTORS SERVICE
Rating Action: Moody's assigns initial Baa2 rating to Key West international
Airport's (FL) Airport Reveme Bonds, Series 2022, outlook stable
15 Aug 2022
New York,August 15. 2O22—yNoody'o Investors Service has assigned an initia| Baa2 rating to the Key West
International Airport's "the airport")$3Q.7 million Airport Revenue Bonds(Key West International
Airport). Series 2O22(4MT).The rating outlook imstable.
RATINGS RATIONALE
The assignment ofoBoa2 rating b the Key West's Airport Revenue Bonds, Series 2O22 reflects the airport's
strong traffic recovery, supported b pent-up demand for domestic tourist destinations and the incorporation of
the airlines Allegiant Travel Company(Ba3 stable)and JetBlue Airways Corp. (Ba2 stable)to the airport's
operations. In fiscal year 2021, enplanements were 94%and 39% higher than in 2020 and 2019, respectively.
Between January and June 2022,traffic was approximately 50%above the levels registered in the same
period in 2019. The use agreement between EYW and all the airlines operating at the airport entails a
minimum annual commitment that enhances the predictability of cash flows. Moreover, Moody's incorporates
into its assessment the demonstrated support from the Florida Department of Transportation (FOOT.Aa2
stable)in the form of grants for capital investment projects. FDOT is providing a grant for approximately 35%
of the design and construction ofa new concourse.
The rating is constrained by the airport's small size and low enplanement levels relative to peers at the same
rating category. Key West Airport's credit profile is susceptible to high volatility in enplanements given its small
service area and concentration in tourism. While the airport exhibits a strong and rapid demand rebound after
times of contraction, its traffic profile is highly volatile. Moody's cautions that the traffic growth experienced in
2021 will likely not be sustainable because of labor shortages that may affect seat capacity and a
normalization nfdemand. Going forward, Moody's expects enplanement levels more in line with those
registered historically.
After the bond issuance/Noody'e expects enavenagnNetRevmnueDebtSemiceCovorageRatin(DSCR)nf
around 2.25x and Adjusted Debt per D&DEnp|anementof approximately$83ovorLhm2O25-2O%7pehod.The
Airport Revenue Bonds, Series 2022 will be used to partially finance the design and construction of a new
concourse that ia expected iobe completed by2O25. K4 d expects the new concourse bo enhance revenue
due to the new concession space and passenger boarding bridge charges.The debt service for the proposed
issuance does not start until 2025,which provides an adequate cushion for cash flow generation while the new
facilities are under construction. Balancing this credit strength,the signatory agreement expires in 2026, only
one year after debt service is set to commence. Moody's anticipates that, apart from the new concourse,the
airport's capital investment plan will include only minor works that will be financed on a pay as you go basis
with grants and airport funds, limiting the potential for increased leverage.
RATING OUTLOOK
The stable outlook reflects Moody's view that EYW will manage its liquidity and capital plan in a prudent
manner to reflect changes in economic or operational conditions and not exceeding the expected leverage
levels.
FACTORS THAT COULD LEAD TOAN UPGRADE OFTHE RATING
Better than expected enplanement levels and cash accumulation that on a sustained basis result in:
- Oeymoamhonhondobove 500days;
-Tota| netnmvenue DSCR above2.5x�
'
- Leverage with adjusted debt perO&D passenger declining below$75.
FACTORS THAT COULD LEAD TDA DOWNGRADE OF THE RATING
Decrease inmmplonementsor cost overruns related k»the capital plan, or both,that une sustained basis result
in higher leverage and deteriorated liquidity such that:
- Days cash on hand im below 3O0days;
-Total net revenue DSCR is below 1.5x;
-Adjusted debt per C)&O passenger ie above$iOO.
LEGAL SECURITY
The bonds are secured bya first lien on net airport revenues.The rate covenant requires that airline rates and
charges be set to achieve at least 125%coverage of annual debt service.The provisions include an additional
bonds test equal ho1.25x maximum annual debt service. Bonds are additionally protected bya debt service
reserve sized to the lesser ofe standard 3-pnongtest.
USE UFPROCEEDS
The proceeds of the Series 2022 Bonds,together with other legally available funds,will be used to: (1)finance
capital investments(2) refinance all amounts outstanding under an existing line of credit, (3)fund the Reserve
Account, (4)pay capitalized interest and (5)issuance costs.
PROFILE
Key West International Airport is a FAA small-hub owned by Monroe County(FL)and operated as a separate
enterprise fund of the County.The airport is located within the city limits of Key West, Monroe County, Florida
and covers approximately 2G8acres.
METHODOLOGY
The principal methodology d in this rating was Publicly Managed Airports and Related Issuers published in
March 2019 and available at https://ratirigs.rnoodys.com/api/rme-docurnents/60106,Alternatively, please see
the Rating Methodologies page on httpa:Xoatimgm.rnamdya�com for o copy oJ 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 on https�//ratirigs.moodys.com/rating-definitions.
For ratings issued ona 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
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provider and in relation to each particular credit rating action for securities that derive their credit ratings from
the support providers credit rating. For provisional natinge,this announcement provides certain regulatory
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable,the related
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At least one ESG consideration was material to the credit rating action(s)announced and described above.
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CREDIT OPMOM Key West Airport Enterprise, FL
17 August 2022
New issuer
Summary
Key West International AirF2_(!1,..EL(EYW, Baal stable)exhibits a strong traffic recovery,
supported by pent-up demand for domestic tourist destinations and the incorporation of
new seat capacity. EYW's credit profile benefits from an airline use agreement that entails a
Analyst Canlacts minimum annual commitment and from demonstrated support from the Florida Dep_LiM�l I
cif_1rarjsp gn (FDOT,Aa2 Stable) in the form of grants for capital investment projects.
._
hr- 1-11,11"I"WC11"Vt ---
s�,i I a t I?12 11�;G 3 (','1
V, t
EYW's credit profile is limited by the airport's small size and low enplanement levels relative
to peers.The airport is susceptible to competition and high volatility in enplanements given
,Kzflch��n, trnaon I ttl 'S 5 3 4(t I)a its small service area and concentration in tourism.We consider that the traffic growth
experienced in 2021 will likely not be sustainable because of labor shortages that may affect
seat capacity and a normalization of demand.Going forward,we expect enplanement levels
more in line with those registered historically,
jl
We expect increased leverage after the issuance of the Series 2022 bonds to partially finance
CLIENT SERVICES the design and construction of a new concourse that it is expected to be completed by
ArnwHca,, x",12 S, 'I-rr,r,r
2025. Debt service for the bonds will start in 2025, providing an adequate cushion during the
construction period. Nevertheless,the use agreement expires only one year after debt service
S1 0 T/ is set to commence.
Al
i,4 0"3
4 20 1M S41;,4 Exhibit 1
The airport registered record enplanement levels in 2021
X"
300 CICO o
2- 2 1021
—
Data as of fiscal year end.Fiscal year ends in September.
Source:Key West International Airport
Credit strengths
>> Rapid traffic recovery,supported by pent up demand and the incorporation of new airlines
and routes
>> Use agreement with airlines that establishes a minimum annual commitment
... . . ...... . .
» Rebdvety diversified airline profile underpinned by gradual increase ofCPE
x Limited potential forincreasedleverageaftertheissuanceofthebonds
Credit chaUenges
v Small hub,with a modest service area and tow level ofenpianements
v Voiabie traffic history and high dependence ontourism
» Substantial competition from other airports and near tourist destinations
v Leverage expected to increase
Rating outlook
The stable outlook reflects our view that EYW will manage its liquidity and capital plan in a prudent manner to reflect changes in
economic or operational conditions and not exceeding the expected leverage levels.
Factors that could tead to ain upgrade
Better than expected enplanement levels and cash accumulation that on a sustained basis result in:
v Days cash on hand above 5OOdays;
o Total net revenue DSCRobove Z.Sx,
» Leverage with adjusted debt per O&D passenger declining below$7S.
Factor's that could lead to a downgrade
Decrease in enplanements or cost overruns related to the capital plan,or both,that on a sustained basis result in higher leverage and
deteriorated liquidity such that:
x Days cash on hand is below 380days;
o Total net revenue D5[Ris below l.Sx;
» Adjusted debt per O0^D passenger is above$lO0
Key indicators
Exhibit
Key West Airport Enterprise,FL
uou` 2022p 2023p 2024r uo,:r 2026r 2027r
Adjusted debt per O&D Enplaned Passenger($) 23 87 91 88 85 83 81
Total Coverage by Net Revenues(x) N/A N/A N/A 2.10
Note;The airport started reporting separate audited financial statements from the County mznz1 therefore indicators before that date are not strictly�mparabl.e.
The forecasted metrics reflect the pmm,ma after the bond issuance,
Source:w»od,'s Investors Service,Key West International Airport
Profile
Key West International Airport, FLisa FAA small-hub owned by Monroe County(FL)and operated asa separate enterprise fund of the
County,The airport is located within the city limits of Key West, Monroe County, Florida and covers approximately 268 acres.
m^n"mv°«u,.uos"o,°m=."cea..cun,o vvm�,x*m�,mr,enceo/"�m,�"m'caxvnv�ea�e»w.��.e/`su`�^emnnnen; comm,u,e
Detailed credit considerations
Revenue generating base
Strong traffic recovery but small size,traffic volatility,and exposure to tourism limit credit profile
EYVV's revenue generating capacity is supported by its strong traffic recovery.As the airport serves a tourist destination,traffic was
severely impacted at the onset of the pandemic but started to quickly recover in the last quarter of 2020 and grew exponentially in
2O2l,surpassing ZO19 levels asshown in exhibit 3.The sharp increase in passenger volumes inZO2l was due tu
G�upk�.(82stabie\,l����U��n±�(Baa3 stable)and U�1������(Ba1 negative) rapid�reintrodudngcapacityto take advanta8e
ofpentuppassen8erdemandfor|eisuredomesdcdestinations. |naddihon'£tl gi rq,(8a3 stable)and]����(8a2 stable)started
operations at the airport that year.
Exhibit 3
Substantial enplanement increase inZ021
=="c"pm"���°"o°,"on^) ---s",m"°^�"^°�",,o°°m�wxx^,
�mm `m%
600.000 mm
500°w ww
400,000 4 0 �
G �*w mw �
a �
z00^oo vw
/00w" -20%
-40%
mu 2013 mw mm mm 2017 2018 2019 mm 2021
Data as of fiso/year enmnoat year ends mSeptember
Source:Key West International Airport
Traffic growth has started to normalize in the second quarter of 2022, but monthly enplanement levels remain above 2019 levels
/exhibit4\VYeexpec1tmfficgmwuhratestosubsideduetoanormaUzationnfpent-upUemand,neductioninseatcapadtyand
a deterioration of economic conditions, particularly considering that the airport serves a destination that is affected byeconomic
g/c|icaUty.Still,since there are new routes and new airlines serving the airport,we expect traffic tobeat least nn par with Z0l9levels,
Exhibit
Enplanements'growth b decelerating in the last 3 months when compared xo2021
—m`" 2020 2021 —nm
=000
o^vw
/vom
6^mw
� ,v,o^o
~ 40,*w
2,
0 '30,mm
�
20,000
m,"oo
January February w=^ April May June July August September October November December
Source:Key West International Airport
The current growth rate of seat offerings will likely not be sustainable going forward,While the airport has benefitted from a significant
growth in seat capacity,even at a higher rate than other airports in Florida,we note that current labor shortages limit airlines'ability
to increase capacity. In times of availability constraints,airlines have typically prioritized seat offerings for large hubs in detriment of
smaller tourist destinations such as Key West.
The airport has historically experienced high traffic volatility.As depicted in exhibit 5, EYW registeredmeaninQfuitraffic decrease in
times of economic contraction Key West is an area that is reasonably developed but highly concentrated around tourism.According to
Monroe County,tourism and hospitality is the main industry in the airport's trade area accounting for 54%of alljobs and 60%of at[
spending asof January ZUZ2.
Exhibit
The airport experiences high traffic volatility
Monthly e^p[anements registered in the month vr June uf each year
80,000
'o,wm
60,000
� 40,000
' w,00o
20,*w
,^wm
19951996199719981999200020012002200320042005200620072008e0092010201120122013201420152016201720* 2019e02020212022
Source:Key West International Airport,FAA
EYW benefits from a high share of origin and destination (O&D)passengers,which accounted for 98.2%of all passengers as of fiscal
yearZO21 but its service area is very small with an estimated population for Monroe County of only 82,170 as of Ju[y 2021 according
to the U.S. Census Bureau. Partially offsetting this,the airport serves not only Key West residents but an influx of passengers coming
from different domestic and international locations.As of fiscal year 2021,about 85%of the airport's passengers were visitors and the
remaining were Key West residents.
Use agreement enhances predictability nf cash flows
The use agreement with all the airlines that operate at the airport partially offsets the traffic volatility and enhances cash flow stability.
The agreement,signed in October 2021 and valid until September 2026,sets the procedures for calculating airline rentals,fees and
charges for the use and occupancy of airport's facilities under the compensatory method.The agreement allows rrid-year adjustments,
if necessary,and an annual settlement based upon actual costs and activity.An important feature that enhances the predictability of
cash flows is that each signatory airline is obligated to pay airline rents,fees and charges totaling a minimum annual commitment of
$450,000 during the term of the agreement. Balancing this credit strength,the signatory agreement expires in 2026,only one year
after debt service is set to commence.We anticipate that it is likely that EYW will be able to renew the agreement when it expires.
Nearby airports and other tourist destinations pose substantial competition
Key West faces material competition from visitors flying into airports such as Miami (MIA,Al stable)and Forr.Lauderdale (FLL,All
stable) and then driving into the Key,an alternative that draws tourists because of the scenic views despite the relatively tong drive
of approximately three and a half hours. In addition,near tourist destinations in the South of Florida, Mexico,and the Caribbean area
compete with Key West for some of the same type of leisure travelers,Our view of the competitive profile also incorporates that EYW
isa major gateway to Key West and that the competition from ferries and public transportation is very limited.
Relatively diverse carrier base supported by gradual increase mfairline costs
While the airport presents low enplanement levels relative to peers in the same rating category(659,321 as of fiscal year 2021), EYW
registers adequate diversification of airlines for an airport of this size.As shown in exhibit 6 currently there are six airlines operating at
the airport,American Airlines being the main one,followed by Delta and United.
Exhibit
EYW registers adequatecarrierdiwprsificadmm
M*""ric=*m"es a Delta Air Lines in Sher m~"= I,ma*° 0 Allego",m, =United Airlines
`00m
90%
onu
u%
wm
,0%
40%
30%
20%
'0%
—
2017 mm 2019 2020 nm xm(Jan-Jun)
Data asmfiscal year end.Fiscal year ends mSeptember.
Source:Key West International Airport
The cost per enplaned passenger(CPE) is expected to increase,but over a fairly tong period,which reduces the risk of airlines reducing
service due to eroded profitability.The cost per enplaned passenger/[PE\ is higher than peers at5995in2O19 versus aI�d��foL
for the same yeacCosts are expected to increase to accommodate the construcLionofanew
concourse, reaching approximately$12.83 in 2025 (exhibit 7). EYW anticipates covering most of the future debt service with passenger
facility charges (PFCs),which limits the extent of the airline rates and charges increase, Nevertheless,as the airline use agreement
invo[ves a compensatory cost recovery methodology if PFCs were insufficient to pay the bonds debt service in full,airline rates and
charges may beadjusted.
Exhibit
CPEb expected tn increase gradually
�=�*n'"=-=��w�mw ~—~�ops px*
wev�u� ��m *,�� �u^v pmo *w
s10,000000 $10.75 $n
$�w�ww �m
$6,000,000
'4^00 ww
$4
$2,000,000 $2
$_ �
ov, uno m'y 2020 mm 2022 2023r e024F 2025, mm, 202*
Data",orn*olvm,end.n^m/na,eno,mSeptember.
Source:Key West International Airport
Fimamcialmpwrmt�mnaand position
Leverage and cash flow coverage expected to deteriorate to finance capital investmentplanbutuomemaingableafterthe issuance ufthe
bonds
Proceeds from the $]97 million bond issuance wilt be used 1opartially fund the design and construction ofa new airsidepassenger
concourse facility and renovations to the existing iandside terminal building to support growing passenger needs.The project wilt
include a second-level concourse of approximately 49,000 square feet that will contain seven gates, each equipped with passenger
boarding brid8es, hoidnooms,passenger circulation amas,concession areas,restmoms,and building support areas. Upon completion of
the project in 2025,the terminal complex wit[comprise an estimated 103,320 square feet compared to the existing 67,900 square feet.
EYW benefits from the support of the Florida Department of Transportation in the form of grants for capital investment projects. EYW
has received a commitment letter from FDOT for approximately$]&.9 million of grant funds over the next four years,that wi<icover
approximately 35%of the design and construction of the new concourse,The remaining financing will come from other federal grants
(exhibit 8).
Exhibit
pmOTboffering meaningful support m the new concourse project through its grants
New concourse expected funding sources
Other
nw
Bond
proceeds
Federal grants
DOT grant
Source:Key West mterrationa/Airport
Before the most recent bond issuance,the airport's only debt consisted of a revolving tine of credit that will be fully repaid with
issuance proceeds.After the bond issuance we expect an average Net Revenue Debt Service Coverage Ratio(DSCR) of around 2.25x
and Debt+ANPL per 0&D Enplaned Passenger ofapproximately$8O over the 2O2S-2OZ7 period.These adjusted metrics include
Moody's adjusted net pension liability,the new$39.7 million issuance and the planned $10 million revolving liquidity facility. Debt
service for the proposed issuance does not start until 2025,which provides an adequate cushion for cash flow generation while the new
facilities are under construction. In addition,we expect the new concourse to enhance revenue due to the new concession space and
passenger boarding bridge charges, Nevertheless,the signatory agreement expires in September 2026,only one year after debt service
is set to commence.
We anticipate that,apart from the new concourse,the airport's capital investment plan includes only minor works that wit[be financed
on a pay as you go basis with grants and airport funds,timiting the potential for increased leverage.
Liquidity
Liquidity was approximately 515 days cash on hand in FY 2021 (excluding capital outlays) but will decline to about 460 and 440
days cash on hand in FY 2022 and FY 2023 respectively.The forecasted decline reflects the use of cash on hand for pay-go capital
expenditures.
Going forward,we expect management will maintain its liquidity targets of(1)at least 36S days cash on hand;and (2) PFC balance of
aL least s2.6mi8ionof annual debt service on the bonds.
IDebt and mtherDabiKftkem
Post sale the airport will.have$39.7 million of senior lien,fixed rate revenue bonds that amortize through a final maturity in 2052,
In addition to the bonds,we anticipate that Key West Airport wit[enter into a $10 million revolving liquidity facility supported by a
first iien pledge of government grants and a subordinate pledge on revenues, including PFCs.The airport will enter into this facility
simultaneously with the bonds'issuance and its term will be6years,
Before the bond issuance,the airport had low debt levels as the only debt outstanding was the $0.7 million revolving line of credit,
representing$1.16 per O&D enplaned passenger in FY 2021.The adjusted debt per O&D enp[aned passenger in 2021, including
Moody's adjusted net pension liability k\NPL\was$2275,
Exhibit
EYWproformadebt service schedule($.000)
=w"ds principal a Bonds interest "ora°"wn line interest
$3,000
$2,500
*,,*m
$0
2022 2023 2024 2025 2026 202720282029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052
Source:Key West International Airport
Legaisecvrity
The bonds are secured by a first lien on net airport revenues,The rate covenant requires that airline rates and charges be set to achieve
at least 125%coverage of annual debt service.The provisions inc(ude an additional bonds test equal to 1.25x maximum annual debt
service. Bonds are additionally protected by a debt service reserve sized to the lesser of a standard 3-prong test.
Debt-related derivatives
None
Pensions and VPE8
Moody's adjusts the reported pension liabilities of entities that report under governmental accounting standards,to enhance
comparability across rated issuers, Under governmental pension accounting,liabilities are discounted using an assumed rate of
investment return on the plan assets. Under our adjustment,we value liabilities using the FTSE Pension Liability Index(FTSE PLI),a high
investment-grade long-term taxable bond index,as a discount rate to compute the present value of accrued benefits and a proxy for
the risk of pension benefits.
Moody's adjusted net pension liability inFYZOZl was approximately$l9.9 million and assumes a discount rate ofZ840.compared 10
the reported net pension liability of about$1.6 million which is based on a discount rate of&8%.
ESG considerations
EnvIrammentaL
The primary risk is reduction in passengers if more stringent air emission and carbon regulations on airlines significantly increase
airfares.This would have the greatest impact on airports that have increased leverage to expand capacity.Airports may face more
regulation regarding air quality, including noise pollution, in and around airports. Disasters (SARS, Icelandic volcanoes,hurricanes)can
temporarily reduce volumes.Airports encounter a manageable level of soil pollution exposure,through fuel leaks,de-icing fluids,and
by-products from fire-fighting activities, New airports in expanding markets may also face environmental issues depending on the
environmental sensitivity of the proposed sites,The sector is generally able to pass along added costs stemming from these exposures.
Growth in demand for air travel, particularly long-haul routes,which are most exposed to costs of carbon legislation,will likely remain
steady, leading to increasing carbon costs with growing passenger volumes.Airports have typica[y maintained stable credit profiles
even during periods of financial stress atairlines.
According to Moody's ESG Solutions, Monroe County faces high risk levels of hurricanes and typhoons,wildfires and sea level rise
while it presents medium risk from floods,water stress,and heat stress.In the past the airport has shown sufficient preparation for
this environmental risk exposure.We expect that the design of the new concourse will include features that mitigate the exposure to
climate change and weather events. For instance,the primary floor of the new concourse will be raised 14 feet 6 inches above grade to
avoid potential overland flooding as well as sea level rise and storm surges.
Soc�aK
Airports can beat risk of social factors such as labor agreements and noise issues with communities. In addition, pandemics,such as the
COVID-19 outbreak,can disrupt global airport passenger traffic volume reducing passenger numbers and causing flight cancellations
that hinder commercial revenue and airport charges. In the case of EYW traffic recovery from the COVID-19 pandemic has been very
strong,surpassing 7O19levels in ?021,
We note the positive demographics and population trends in the state of Florida, but the airport's area has a very small resident
population. EYW's service area economy is heavily concentrated towards tourism.
Governance
The airport sector faces governance risk through their ties to local governments and compliance with federal airport regulations. Failure
to comply with reporting could result in the loss of availability of grant funding,which would result in increased leverage and airline
costs,which could negatively affect demand for the airport.
The Airport is owned by the County and is operated as a separate enterprise fund of the County by the Board.The Board exercises
management of the Airport through the Senior Director of Airports who reports to the County Administrator and oversees the
administration,operation,development,security,environmental requirements of the Airport in addition to the Florida Keys Marathon
International Airport,a separate enterprise fund of the County.The Senior Director of Airports is recommended by the County
Administrator and ratified by the Monroe County Board of County Commissioners.The Senior Director of Airports oversees a staff of
34 full-time employees.
Rating methodology and scorecard factors
The principal methodology used in this rating wa pubbshedMa�h209. P�as seethe
Ratin8 Methodologies page onwww.muodya.com for a copy of this methodology,The assigned rating ofBaa2is one notch above the
scorecard indicated outcome of Baa3,reflecting the expected baseline demand from leisure travelers and relative positioning versus
peers at the same rating levels,particularly in terms of forecasted financial metrics.
cxhm/oo
Scorecard Indicated Outcome for EYWconsidering average metrics for the pnofnnmaZ0Z5-ZOZ7period
Regional Position: Regional
Rate Making Framework: Compensatory
Factor Subfactor Score Metric
b)Economic Strength and Diversity of Service Area Ba
c) Competition for Travel Baa
2.Service Offering a)Total Eniplanements(millions) Ba 0.66
b)Stability of Traffic Performance Baa
c)Stability of Costs Baa
d)Carrier base(Primary Carrier as%of Total Enplanements) Baa 49.9%
3.Leverage and Coverage a)Debt Service Coverage by Net Revenues Aa 2.2 5x
wmox
4.Liquidity Days Cash on Hand 0.0
6.Potential for Increased Leverage 0.0
7.Debt Service Reserves 0.0
Scorecard Indicated Outcome: Baa3
Source:w""dy's Investors Service
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CUENT SERACES
Arrwkws 42PAG11653
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INVESTORS SERYCE
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