CHICAGO -- Moody's Investors Service and two municipal organizations yesterday joined a growing chorus of concern over proposed amendments to an Airport Improvement Program authorization bill in Congress.
Moody's released a credit report that warned there could be adverse credit implications for airports if the amendments are adopted. Meanwhile, the Government Finance Officers Association and the National League of Cities wrote letters to House Majority Leader Richard Gephardt, D-Me., expressing opposition to the amendments, which they said could impede access to airport financing and lead to debt downgrades.
The amendments, which were tacked onto the bill in June by the U.S. Senate, 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.
Adam Whiteman, a vice president and manager at Moody's, said the escrow provision is "fairly troublesome because it takes an airport's ability to control revenues out of the airports' hands and places it with a third party.
"If for some reason an airport needed to raise rates and charges for debt service, it would be up to the secretary of transportation to make that determination," Whiteman said.
In its report, Moody's said the escrow provision could lead to technical defaults on bonds by forcing airports to tap reserves in the interim and to increased scrutiny of derivative transactions entered into by airports. The rating agency also said the legislation lacks a mechanism to prohibit airlines from filing arbitrary challenges to airport fees.
Moody's is the third rating agency to release warnings about the amendments.
Last week, Standard & Poor's Corp. said the proposed changes could hamper 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 the escrow provision could lead to technical defaults of air. port bonds. Duff & Phelps Credit Rating Co. warned last week that the amendments could harm the credit quality of airports and may trigger delays in airport bond sales.
Fitch Investors Service, meanwhile, is taking a wait-and-see attitude until compromise legislation is passed, according to Andrea Bozzo, a senior vice president at the rating agency. She said that while Fitch is concerned about the amendments' impact on airports, the involvement of federal authorities in the revenueraising activities of airports may not have an altogether negative outcome.
"There are ways of looking at industries that are regulated and feeling comfortable with the regulator," Bozzo said. "It may be that the way the [Federal Aviation Administration] handles this role may not be unreasonable."
The House passed the airport authorization bill last year, while the Senate version containing the amendments was passed June 16. The differing legislation is currently headed to conference for resolution.
The finance officers group's letter to Gephardt urged the deletion of the escrow provision and another that would allow the amendments to apply to future bond issuance.
"We are concerned that these provisions will severely impede access by the nation's airports to bond financing for needed expansion or renovation and would lead to a downgrading of the creditworthiness of over $30 billion of airport bonds," wrote Catherine Spain, the director of the Government Finance 0fficers Association's Federal Liaison Center.
Sharpe James, the National League of Cities' Indent and Newark's mayor, warned in his letter that cities that use their general oblation pledge to help back airport bonds could also suffer downgrades of their ratings.
The amendments were pushed by airlines after they were unsuccessful earlier this year in their legal challenges to airport user fees at airports in Kent County, Mich., and in Los Angeles.
Chris Chiames, a spokesman for the Air Trimsport Association, the airlines trade group, said yesterday that the bond community should be more concerned about rising airport costs than about airport financing. "Their sky is fally cries are turning people [in Congress] off rather than mining them on," Chiames said.
Rob Wigington, a senior vice Indent at the Airports Council International said the airport group is carefully monitoring the reaction of the rating agencies and bond community "to see what type of fixes will be necessary.
Congressional aides working on the bill have said an agreement on the bill should be in hand by midAugust.