Monday, February 22, 2010

Why is Fitch's downgrading Massport's bonds for BosFuel Project?

Don't know much about the bond market. But shouldn't Massport's ratings be better given the revenues it generates?
The rating downgrade reflects the absence of a highly rated reserve surety policy or liquid cash reserves within the project's debt service reserve fund (DSRF). The only asset held in the debt service reserve, with a required funding level of maximum annual debt service, consists of the original reserve surety policy with Financial Guaranty Insurance Company (FGIC, unrated). Fitch believes a fully funded DSRF is essential to the rating level of airport fuel facilities revenue bonds given the narrow revenue stream securing the bondholders, the availability of only sum-sufficient coverage with no additional dedicated bond reserves, and the potential risk for cashflow disruptions caused by delinquencies or bankruptcy from either Bosfuel or member carriers. Bosfuel has recently indicated that it does not believe it is legally obligated to replace the existing reserve surety with a highly rated provider or to cash fund the $6.9 million required level from member carrier payments. At this time, no actions towards a reserve replenishment has taken place. Other available liquidity to the project is derived from member carrier security deposits equal to two months of Bosfuel's total facilities cost. The balance is expected to be slightly under $4 million for fiscal 2010. The security deposits are also used for working capital but do provide just a moderate level of protection for carrier payment deficiencies.
As history demonstrates to many East Boston residents, it's always wise to know how Massport's doing.