SAN FRANCISCO — In the latest step of a years-long debt-restructuring program, San Francisco International Airport this week plans to issue about $469 million of refunding bonds in two issues, a $169 million variable-rate portion and a $300 million fixed-rate piece.
Earlier this decade, shortly after it opened a palatial new international terminal, SFO took a financial hit from traffic declines following the 2001 terrorist attacks and the SARS epidemic in Asia.
The sagging traffic and debt service costs for the new terminal helped create a catch-22, as it put pressure on the fees charged to airlines.
As a result, the airport has spent recent years refunding and restructuring its outstanding debt with one goal in mind: “To reduce debt service, to again make the airport more competitive,” said Kevin Kone, assistant deputy director for capital finance at the San Francisco Airport Commission.
The airport has been able to reduce its landing fees, Kone said, and the response has been what the airport was seeking — in 2007, low-cost carriers JetBlue Airways, Southwest Airlines, and Virgin America all launched service at SFO.
Fitch Ratings cited the new service, and an overall improved financial picture, when it revised the outlook to positive from stable on its A rating for the airport’s revenue bonds ahead of the new issue. Its action affects $3.8 billion of outstanding debt.
Moody’s Investors Service affirmed its A1 rating for the debt, and Standard & Poor’s affirmed its A rating.
This week’s transactions include $169 million of variable-rate demand obligations that will be synthetically swapped to a fixed rate through an interest rate hedge, said Vincent McCarley of Backstrom McCarley Berry & Co., one of the airport’s financial advisers.
The other FAs are Public Financial Management, Castleton Partners LLC and Robert Kuo Consulting LLC.
The airport’s original plan called for using auction-rate securities on the variable-rate deal, but because of recent market turmoil that has raised auction rates, the airport’s finance team received approval in December from the Airport Commission to change to VRDOs and get liquidity support, which will be provided by Landesbank Baden-Wurttemberg.
CIFG Assurance NA will provide bond insurance. Citi is lead manager for both the variable-rate deal and the fixed-rate issue expected this week. The fixed-rate piece is tentatively projected at about $300 million, McCarley said last week.
“The size is going to fluctuate on the market,” he said. “All of this is a refunding and we’ve seen some good movement in long-term fixed rates, so the size can go up.”
Assured Guaranty Corp. will insure the fixed-rate issue.
Another, unhedged variable-rate bond series is expected a few weeks later, but its size will ultimately depend on the amount of the fixed-rate refunding, McCarley said.
And later this year, the airport may do something it has not done for a long time.
“The airport has been reviewing its capital plan and likely this summer will do its first new-money financing in about seven years,” Kone said.
