The effect of United States commercial airport rate-setting methods on airport bond ratings
PurposeA 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...
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| Veröffentlicht in: | Managerial finance 2024-07, Vol.50 (8), p.1424-1443 |
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| creator | Golkar, Bahareh Lim, Siew Hoon Karanki, Fecri |
| description | PurposeA 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/approachUsing 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.FindingsWe 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/implicationsThe 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 implicationsThe 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/valueThis 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. |
| doi_str_mv | 10.1108/MF-09-2023-0548 |
| format | Article |
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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/approachUsing 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.FindingsWe 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/implicationsThe 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 implicationsThe 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/valueThis 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.</description><identifier>ISSN: 0307-4358</identifier><identifier>EISSN: 1758-7743</identifier><identifier>DOI: 10.1108/MF-09-2023-0548</identifier><language>eng</language><publisher>Patrington: Emerald Publishing Limited</publisher><subject>Agreements ; Airlines ; Airports ; Bond ratings ; Municipal bonds ; Ratings & rankings</subject><ispartof>Managerial finance, 2024-07, Vol.50 (8), p.1424-1443</ispartof><rights>Emerald Publishing Limited</rights><rights>Emerald Publishing Limited.</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><cites>FETCH-LOGICAL-c319t-d98a107ff6cd801fae9f588c6393e73d5b751a2e59cd5cc78b53d28c115358be3</cites><orcidid>0000-0001-8926-5352 ; 0009-0006-5588-7720 ; 0000-0002-0675-8563</orcidid></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktohtml>$$Uhttps://www.emerald.com/insight/content/doi/10.1108/MF-09-2023-0548/full/html$$EHTML$$P50$$Gemerald$$H</linktohtml><link.rule.ids>314,780,784,21695,27924,27925,53244</link.rule.ids></links><search><creatorcontrib>Golkar, Bahareh</creatorcontrib><creatorcontrib>Lim, Siew Hoon</creatorcontrib><creatorcontrib>Karanki, Fecri</creatorcontrib><title>The effect of United States commercial airport rate-setting methods on airport bond ratings</title><title>Managerial finance</title><description>PurposeA major source of external funding for US airports comes from issuing municipal bonds. 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| fulltext | fulltext |
| identifier | ISSN: 0307-4358 |
| ispartof | Managerial finance, 2024-07, Vol.50 (8), p.1424-1443 |
| issn | 0307-4358 1758-7743 |
| language | eng |
| recordid | cdi_emerald_primary_10_1108_MF-09-2023-0548 |
| source | Standard: Emerald eJournal Premier Collection |
| subjects | Agreements Airlines Airports Bond ratings Municipal bonds Ratings & rankings |
| title | The effect of United States commercial airport rate-setting methods on airport bond ratings |
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