7a supp 1
ITEM NO: 7a_Supp_1 ____ DATE OF MEETING October 23, 2012 2013 Budget Follow-up Airport Fund Balance October 23, 2012 Fund Balance Based on Business Management Amount of minimum balance is driven by prudent business and financial management - Balance achieving business goals with maintaining flexibility Port has always maintained minimum fund balances to provide liquidity for business operations Pay on-going operating and maintenance expenses Pay debt service Pay cash funded capital projects (excludes debt funded) 2011 target balance equaled 5 months of cash uses 2 Cash is a Risk Management Tool Occasional extraordinary uses of cash February 2001 earthquake Port self-insured for earthquakes Timing gap for recoveries Financial crisis 2008-2009 Cash funded rental car facility project with a $20 million "loan" from the ADF Port's commercial paper program unavailable as normal source of liquidity Provided cash to meet a debt service reserve requirement when the surety provider went bankrupt 3 History of 10 month target Prior to 2003, Port targeted $20 million balance Port charged the airlines 1.35x debt service Full airport residual model meant airlines, not airport, absorbed enplanement risk even for non-aeronautical businesses 2005 negotiated new airline agreement Reduced airline costs & Reduced Airport's financial margins 1.0x debt service charge Use PFCs & CFCs to pay Revenue Bond debt service Allows for more cash funded, less debt funded capital Shifted non-aeronautical risk and opportunity to airport 4 History of 10 month target Developed Intermediate Lien to support these changes Rating Agencies and Investors have placed greater emphasis on liquidity following 9/11 and the 2008 financial crisis Ratings based on increasing cash-on-hand in exchange for lower debt service coverage Overall target of 9 months O&M 10 months for the Airport larger allocation to Airport based on Airport driver for shift from cash flow to cash-on-hand/liquidity 6 months for the Seaport & Real Estate 2012 Bond Issue Moody's noted factors that could cause a downgrade First noted was a reduction in liquidity position 5 Moody's Airport Median Comparison Airport's actual days cash and target days cash are below similarly rated airports - target is similar to lowest ratings Historically, compared to all investment grade airports (Baa3-Aa2) the Airport's target cash is low 6
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