{"title":"The effect of United States commercial airport rate-setting methods on airport bond ratings","authors":"Bahareh Golkar, Siew Hoon Lim, Fecri Karanki","doi":"10.1108/mf-09-2023-0548","DOIUrl":null,"url":null,"abstract":"<h3>Purpose</h3>\n<p>A major source of external funding for US airports comes from issuing municipal bonds. Credit rating agencies evaluate the bonds using multiple factors, but the judgments behind the ratings are not well understood. This paper examines if airport rate-setting methods affect the bond ratings of US airports.</p><!--/ Abstract__block -->\n<h3>Design/methodology/approach</h3>\n<p>Using a set of unbalanced panel data for 58 hub airports from 2010 to 2019, we examine the effect of the rate-setting methods and other airport characteristics on Fitch’s airport bond rating.</p><!--/ Abstract__block -->\n<h3>Findings</h3>\n<p>We find that compensatory airports consistently receive a very high bond rating from Fitch. The probability of getting a very high Fitch rating increases by ∼28 percentage points for a compensatory airport. Additionally, the probability of getting a very high rating is about 33 percentage points higher for a legacy hub.</p><!--/ Abstract__block -->\n<h3>Research limitations/implications</h3>\n<p>The study uses Fitch bond ratings. Future studies could examine if S&P’s and Moody’s ratings are also influenced by airport rate-setting methods and legacy hub status.</p><!--/ Abstract__block -->\n<h3>Practical implications</h3>\n<p>The results uncover the linkage between bond ratings and their determinants for US airports. This information is important for investors when assessing airport creditworthiness and for airport operators as they manage capital project financing.</p><!--/ Abstract__block -->\n<h3>Originality/value</h3>\n<p>This is the first study to evaluate the effects of rate-setting methods on airport bond rating and also the first to document a statistically significant relationship between airports’ legacy hub status and bond ratings.</p><!--/ Abstract__block -->","PeriodicalId":18140,"journal":{"name":"Managerial Finance","volume":"19 1","pages":""},"PeriodicalIF":1.9000,"publicationDate":"2024-04-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Managerial Finance","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1108/mf-09-2023-0548","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
Purpose
A major source of external funding for US airports comes from issuing municipal bonds. Credit rating agencies evaluate the bonds using multiple factors, but the judgments behind the ratings are not well understood. This paper examines if airport rate-setting methods affect the bond ratings of US airports.
Design/methodology/approach
Using a set of unbalanced panel data for 58 hub airports from 2010 to 2019, we examine the effect of the rate-setting methods and other airport characteristics on Fitch’s airport bond rating.
Findings
We find that compensatory airports consistently receive a very high bond rating from Fitch. The probability of getting a very high Fitch rating increases by ∼28 percentage points for a compensatory airport. Additionally, the probability of getting a very high rating is about 33 percentage points higher for a legacy hub.
Research limitations/implications
The study uses Fitch bond ratings. Future studies could examine if S&P’s and Moody’s ratings are also influenced by airport rate-setting methods and legacy hub status.
Practical implications
The results uncover the linkage between bond ratings and their determinants for US airports. This information is important for investors when assessing airport creditworthiness and for airport operators as they manage capital project financing.
Originality/value
This is the first study to evaluate the effects of rate-setting methods on airport bond rating and also the first to document a statistically significant relationship between airports’ legacy hub status and bond ratings.
期刊介绍：
Managerial Finance provides an international forum for the publication of high quality and topical research in the area of finance, such as corporate finance, financial management, financial markets and institutions, international finance, banking, insurance and risk management, real estate and financial education. Theoretical and empirical research is welcome as well as cross-disciplinary work, such as papers investigating the relationship of finance with other sectors.
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