SAN FRANCISCO - San Francisco International Airport Commission plans to come to market with $579 million of fixed-rate revenue bonds today or tomorrow, as it begins to restructure its outstanding auction-rate securities.
The issue - 2008 series C, D, E and F - includes bonds that were delayed in January as the airport assessed the auction market turmoil and the status of the bond insurance industry. The airport considered delaying again because of the weekend fire sale of Bear, Stearns & Co. and the international stock market sell off that followed, but after watching the market yesterday, it decided to go ahead with the deal.
Citi is the lead underwriter.
"With the issues in the market, we thought it would be a good time to take at least a portion of the variable-rate debt off the table," said Vincent McCarley of Backstrom, McCarley, Berry & Co., LLC, one of the airport's financial advisers. "If it's unhedged, our primary strategy is to go to a fixed rate," adding that current market conditions "allow the airport to put in a fixed rate in a relatively attractive market."
The refunding debt will be sold as fixed-rate revenue bonds backed by general airport revenues. Series E and F will refund $230 million of ARS issued in 2004 with insurance from XL Capital Assurance Inc. They will also refinance about $100 million in unhedged variable rate demand obligations that were issued in 2006 with insurance from XL. Series E is subject to the alternative minimum tax; F is not.
Series C and D will refinance $266 million of various other outstanding obligations to achieve an estimated net present value savings of $42 million. This part of the deal was initially planned for January. Series C is subject to the AMT; D is not.
The bonds will be insured by either Financial Security Assurance Inc. or Assured Guaranty. The underlying credit is rated A1 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings. Fitch added a positive outlook on the credit last week.
Backstrom, McCarley, Berry & Co., Public Financial Management, Robert Kuo Consulting and Castleton Partners are co-financial advisors. Orrick, Herrington & Sutcliffe LLP and Ronald E. Lee are co-bond counsel.
Kevin Kone, the airport's assistant deputy director for capital finance, said the airport faced $2 million of unexpected interest costs in February because of its auction-rate securities and plans to refinance all of them.
The move to fixed rate debt with this refunding doesn't mean the airport is eschewing variable-rate debt, but it will allow it to issue new variable-rate bonds later in the spring and summer as it issues new money bonds for as much as $648 million of capital projects, McCarley said.
It will also use variable-rate bonds when it refunds another $175 million of ARS - to be sold as 2008 Series A and B - late this month or early next. Those bonds will be structured as variable rate demand obligations with a stand-by repurchase agreement from Landesbank Baden-Wurttemberg and insurance from FSA. They refinance auction-rate debt that is hedged.
