KBRA assigns a long-term rating of AA- to the City of Houston, Texas, Airport System Subordinate Lien Revenue Bonds, Series 2025A (AMT) and Airport System Subordinate Lien Revenue Bonds, Series 2025B (Non-AMT). KBRA additionally affirms the long-term rating of AA- for the City's outstanding Airport System Subordinate Lien Revenue Bonds.

The Outlook revision to Positive from Stable reflects recent strong growth in origination and destination passengers, particularly at George Bush Intercontinental Airport, highlighting the System's increasing reliance on its vibrant local market rather than the operating decisions of its hubbing carriers to drive passenger volumes and related revenues. In addition, the System’s comparatively modest capital needs and descending debt service requirements, in KBRA’s view, should enhance its flexibility to address future demand driven facility enhancements.

Key Credit Considerations

The rating actions reflect the following key credit considerations:

Credit Positives

• Large and growing catchment area generates strong origin and destination demand, while the System’s geographically strategic location promotes connecting activity.
• Financial operations are characterized by abundant liquidity and ample debt service coverage margins.
• Market yields are well above United Airlines' and Southwest Airlines' respective system averages.

Credit Challenge

• High market‐share concentration and financial reliance on United Airlines (the primary carrier at George Bush Intercontinental Airport) and Southwest Airlines (the primary carrier at William P. Hobby Airport), mitigated by their respective long-term agreements and investments in Houston facilities.
• Significant, though well managed, capital program and resultant exposure to construction risk and inflationary pressures.

Rating Sensitivities

For Upgrade:

• Meaningful increase in passenger activity leading to strengthened debt service coverage and liquidity levels.
• Material reduction in debt leading to improved debt metrics and enhanced financial flexibility.

For Downgrade:

• A significant increase in scope or cost of the capital program resulting in a meaningful increase in leverage.
• While unlikely, a sustained, material decline in enplanements and associated revenue due to the reduction or elimination of hub operations by either United Airlines or Southwest Airlines, and/or economic contraction of the service area.

To access ratings and relevant documents, click here.

Methodologies

• Public Finance: U.S. General Airport Revenue Bond Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1010395

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