BRADENTON, Fla. — Broward County, Fla., is working on a plan to refund up to $110 million of auction-rate securities and replace the debt with variable-rate demand obligations with a new, triple-A rated bond insurance policy.
The transaction will refund Series 2004M of ARS and replace the former insurer, Ambac Assurance Corp., which lost its triple-A ratings and now is rated in the double-A category by all three major rating agencies.
The ARS were original sold to finance various projects at Fort Lauderdale-Hollywood International Airport.
Broward County Commissioners tomorrow are expected to approve the final resolution authorizing the sale so pricing of the variable-rate airport system revenue refunding bonds, designated Series 2008N, can take place July 2. The VRDOs will be insured by triple-A rated Assured Guaranty Corp.
The new bond deal is structured to have the same final maturity as the refunded securities Oct. 1, 2029 and the bonds will bear interest initially in the weekly mode. They will be additionally secured by a standby bond purchase agreement from JPMorgan Chase Bank NA. The lead underwriter and remarketing agent is JPMorgan.
The 2008N VRDOs will be the airport's only variable-rate debt, comprising 13% of total outstanding debt after this issuance.
Unlike many issuers with auction-rate securities, Broward did not experience any auction failures on its ARS, according to airport finance director Mark Spennacchio.
"We just started seeing rates spike and when other ARS began to fail in February and March, we thought it was best to go forward with refunding ours," he said.
One of the airport's auctions saw interest rates hit 12% at the peak, then resets inched downward to 7%, and now rates are resetting in the 3.5% range, Spennacchio said.
Before subprime fears filtered into the auction market, the airport's ARS reset at rates between 2% and 4%.
The 2008N bonds have underlying ratings of A-plus from Fitch Ratings and Standard & Poor's and Aa3 from Moody's Investors Service.
"The rating reflects the airport's low cost structure, diversified carrier mix and revenue base, and strong service area economics offset by weak cash flow debt service coverage," said Standard & Poor's analyst Laura Macdonald.
All three rating agencies maintain a stable outlook on the airport's debt.
Plans for a five-year, $1.3 billion capital improvement program still require approval from county commissioners.
The CIP includes a nearly $1 billion plan to reconstruct and lengthen an existing 5,600-foot-long runway to 8,000 feet to reduce flight delays and accommodate larger aircraft that currently cannot land at Fort Lauderdale.
The Federal Aviation Administration late last week approved a final environmental impact statement for the runway project, which has been planned and delayed for some 20 years. There are still noise concerns and provisions to be made to sound-proof nearby homes. A record of decision is expected in several months, which could finally propel the project forward.
The CIP is expected to be supported by approximately $625 million of debt, but the schedule for issuance is unknown.
"Certainly our plan will be to use as much grant funding as possible initially and only go to market when market conditions are favorable and when we have the actual need to do it," Spennacchio said. First issuances could come in 2010 if the runway reconstruction is approved and design plans are in place, he added.
More than 90% of the passenger traffic at Fort Lauderdale-Hollywood International is origination and destination. Despite current problems with skyrocketing fuel prices and fares, the airport saw a 6% growth in passengers in fiscal 2008 over the prior year. Much of that traffic increase is due to international travelers who are capitalizing on the weak dollar.
For the upcoming sale, the airport's financial adviser is Depfa First Albany Securities LLC. Squire, Sanders & Dempsey LLP and Perry E. Thurston Jr. PA are co-bond counsel. Nabors, Giblin & Nickerson PA and Gerald J. Lindor PA are co-disclosure counsel. GrayRobinson PA is underwriters' counsel.
