CHICAGO -- Amendments tacked onto an Airport Improvement Program authorization bill by the U.S. Senate could harm the credit quality of airports and may trigger delays in airport bond sales, Duff & Phelps Credit Rating Co. said this week.
The amendments, which would allow airlines to appeal airport fee increases to the U.S. secretary of transportation and would place disputed revenues in an escrow account until the dispute is resolved, could reduce airports' management ability, the rating agency said on Wednesday.
"At Duff & Phelps, our concern is that any change in that ability is a risk factor," said Michael Ross, a group vice president at the rating agency.
Duff & Phelps is the second rating agency to issue a warning this week about the potential impact of the amendments on airports.
On Tuesday, Standard & Poor's Corp. said the proposed changes could impair the ability of airports to raise fees on a timely basis -- an ability the rating agency called a key rating factor for airports. Standard & Poor's also said that the escrow provision could lead to technical defaults of airport bonds.
Ross of Duff& Phelps said the appeal process, which could involve a review by an administrative judge, could delay a bond sale for months and could cost the issuing airport more money, given recent upward trends in interest rates.
According to a Duff& Phelps press release, "a delay of several months could result in interest rates being at least 100 basis points higher."
Duff & Phelps said that airports have been able to maintain higher ratings than the airlines because of the airports' authority to levy fees on airlines. If the amendments are upproved, airport rating could deteriorate and "airport bonds could posses ratings consistent with the airlines," the rating agency said.
On June 16, the Senate passed its version of the authorization bill, which would provide for $5.74 billion of airport construction grants over three years and includes a number of amendments related to airport fees. A House bill, which authorized $6.48 billion in grants over three years, was passed last year. The differing legislation is headed to conference for resolution.
Congressional aides working on the bill said an agreement should be in hand by mid-August. In the meantime, both House and Senate staff are keeping the door open to concerns by the municipal bond community, the aides said.
In response to the concerns Voiced by Duff & Phelps and Standard & Poor's, the Air Transport Association, the airlines trade group, issued a statement Wednesday that the language in the Senate bill "does not give airlines veto power over anything."
"It merely protects airlines from the threat of airport revenue diversion and provides a process for airlines to protest airport fee increases that may not be justified," said Jim Landry, the association's president.
The amendments were pushed by airlines after they were unsuccessful this year in their legal challenge to airport user fees at an airport in Kent County, Mich. The U.S. Supreme Court ruled in the airport's favor, which led to a favorable resolution for the Los Angeles International Airport in a fee dispute with airlines.
Duff & Phelps, a Chicago-based rating agency, said in January that it was entering the municipal market. Ross said the rating agency has begun to move into the airport sector, but has not yet rated any airport debt.
