CHICAGO -- Standard & Poor's Corp. yesterday raised concerns about amendments recently added by the U.S. Senate to the Airport Improvement Program authorization bill, saying the amendments could limit airports' discretion over charging airline user fees.
In addition, a specific provision that would require disputed airport revenues to remain in escrow until a resolution is reached could lead to technical defaults of airport bonds, the rating agency said.
Lynn Goldschmidt, a bond attorney at Hopkins & Sutter, said that Standard & Poor's is raising "legitimate concerns." She said the limitation the amendments would place on airports' ability to adjust their fees "has the potential to be a negative factor from a financing perspective."
On June 16, the Senate passed its version of the airport bill, which authorizes $5.74 billion of airport construction grants over three years and includes a number of amendments related to airport fees. A House bill, authorizing $6.48 billion in grants over three years, was passed last year. The two bills are headed to a conference committee for resolution.
In a press release, Standard & Poor's said the Senate amendments renew "long-term concerns as to who ultimately determines airport rates and charges."
"The key rating factor for us is the ability of airports to raise rates and charges on a timely basis, and that is being questioned," said Ernie Perez, a director at the rating agency.
The amendments allow airlines to appeal airport fee increases to the U.S. secretary of transportation, who in turn can assign the dispute to an administrative judge for review. Meanwhile, airlines will have to pay the higher rate, but the money would be placed into an escrow account, inaccessible to the airport. If the judge rules that the fee increase is not "reasonable," the money must be returned, with interest, to the airlines.
Rob Wigington, a senior vice president of government and legal affairs for the Airports Council International, an airport trade group, said the Senate bill exempts any fees required to pay debt service on outstanding bonds.
But Perez said current language contained in the Senate bill does not cover everything. "I can poke holes in the grandfathering," he said.
Standard & Poor's said the amendments have the potential to move the rate-setting process at airports to "the political arena and [to be] influenced by considerations not necessarily beneficial to bondholders."
As for placing disputed funds in escrow, Standard & Poor's said that could prevent airports that need the fee increases for completed projects from "meeting debt service obligations on a timely basis."
"Appeals, administrative reviews, and judicial hearings could delay rate increases required for other reasons and lead to technical defaults," the rating agency said.
Perez said the amendments could also have an impact on airports' ability to issue parity debt.
The rating agency said it would view the issuance of future bonds based on projections of increased fees and airports' use of variable-rate debt and derivatives with "heightened skepticism."
Standard & Poor's also pointed out that the amendments do not define "reasonable airport fees," but direct the transportation secretary to issue guidelines on reasonableness within 90 days of the bill's enactment.
Perez said the rating agency is awaiting the final version of the bill to see how it will ultimately affect airports.
Wigington said the airport group is continuing to work with Wendell Ford, D-Ky., chairman of the Senate aviation subcommittee, to ensure that airport bonds are not jeopardized.
The amendments were pushed by airlines after they were unsuccessful earlier this year in their legal challenge to airport user fees at an airport in Kent County, Mich. A U.S. Supreme Court decision in the airport's favor subsequently led to a resolution in a fee dispute between airlines and the Los Angeles International Airport that favored the airport.