DALLAS - The New Orleans Aviation Board will refund all $113.3 million of its outstanding variable-rate debt and pay swap termination fees of up to $16.7 million for five related interest rate swaps with the proceeds from the negotiated sale of $138.8 million of fixed-rate airport revenue bonds next week.
The aviation board operates Louis Armstrong New Orleans International Airport, which is owned by the city of New Orleans but located outside the New Orleans city limits in Kenner, La.
The bonds are expected to be made available to the market on Friday for future pricing, with the probability of a retail period on Jan. 6 and institutional sales the following day.
"The underwriters wanted a longer time than the conventional one- or two-day retail and institutional sales periods," said Jarrell Godfrey of the Godfrey Firm PLC, bond counsel for the aviation board. "This is a little unusual, but they felt in this unsettled market that it would be more productive to have the information before investors for a longer period than normal."
The refunding will lower the current annual debt service payments by approximately 15% to 25% through fiscal 2015, and extend the final maturity of the outstanding debt by six years to Jan. 1, 2023.
The airport had been paying debt service of approximately $18.5 million on the bonds insured by MBIA Insurance Corp., but annual payments on the variable-rate debt rose to $21 million earlier this year when MBIA was downgraded from triple-A status.
"We should realize some interest-rate savings with the new fixed-rate bonds and we're extending the debt to get even more," Godfrey said. "Our target is to get the annual debt service payments down to $16.7 million a year, but that will depend on the interest rates we obtain."
The board will also terminate the five synthetic fixed interest rate swaps on the existing bonds. Godfrey said the termination fees will total between $13 million and $16.7 million, depending on the prevailing rate when the bonds are sold.
The revenue bonds are rated A3 by Moody's Investors Service, BBB-plus by Standard & Poor's, and A-minus by Fitch Ratings. The bonds are supported by terminal lease payments from the airlines serving the New Orleans airport.
Underwriters include lead managers Morgan Keegan & Co. and Banc of America Securities LLC, and junior managers Melvin Securities LLC, Jackson Securities, and Doley Securities LLC.
Financial advisers to the airport board are Fullerton & Friar and Yenrab Inc. Swap Financial Group LLC was independent swap adviser to the board.
With the sale, the $138.8 million of new bonds will be the only outstanding revenue debt of the airport. The only other outstanding debt is $82 million of passenger facility charge bonds, with no exposure to interest swaps or variable-rate debt.
Godfrey said no decision has been made on insuring the bonds.
"It depends on whether the bids we receive are cost effective," he said. "We have met with Assured Guaranty and [Financial Security Assurance], and both attended the rating agency presentations with us. Insurance will be determined when we see their quotes."
Activity at the airport is rebounding following the decline after hurricanes Katrina and Rita devastated the area in 2005. Enplanements totaled 4.9 million passengers in 2004, but fell by 20% each year in fiscal years 2005 and 2006. Current activity is at 82% of pre-Katrina levels.