SAN FRANCISCO -Sacramento County, Calif., plans to bring $641 million of airport revenue bonds to market tomorrow to refinance auction-rate securities, to restructure its master trust indenture, and to fund new construction.
The county will sell about $374 million of new-money bonds to finance the first phase of its $1.27 billion terminal modernization program at Sacramento International Airport, the 38th busiest in the nation in 2006. The county will sell $267 million to refund all of its outstanding airport revenue bonds, including $76 million of ARS issued in 2006.
The deal will complete - for now - the county's exit from the auction-rate securities market. Sacramento County refunded $350 million of taxable pension ARS last month. After this deal, California's eighth-most populous county will still have about $150 million of securities that convert to auction mode in July 2009 and July 2014, but it will not have any bonds that are currently in auction mode.
"We decided to take all uncertainty out of our airport revenue debt," said Chris Marx, the county's debt manager. She said the new bonds will be issued as fixed-rate debt. The county will pay about $5 million to $6 million to terminate a swap agreement related to the ARS.
The new bonds will be issued in five series and include $13.1 million of taxable bonds, $392.7 million subject to the alternative minimum tax, and $235.2 that is not subject to the AMT. Morgan Stanley is the lead underwriter in a syndicate of six firms.
Financial Security Assurance Inc., rated triple-A by all three credit agencies, will insure the bonds. The underlying ratings for the senior bonds are A1 from Moody's Investors Service and A-plus from Standard & Poor's. The subordinate bonds are rated a notch lower.
The issue includes both senior and subordinate debt. The county is refunding its outstanding airport revenue bonds so that it can rewrite its master trust indenture ahead of its terminal modernization plan.
While the refunding offers a net present value savings of $683,000, the airport is refunding the outstanding debt to gain flexibility as it embarks on its capital improvement plan, Lisa J. Stanton, chief administrator for the airport system, said at a meeting of the county Board of Supervisors earlier this month.
The old indenture was written in 1989, before the advent of passenger facility charges. The new indenture will allow the county to leverage Federal Aviation Administration passenger facility charges and federal grants at a lower coverage level than its general airport revenue bonds, Stanton said. Senior debt, secured by general airport revenues, will require 125% coverage, while the junior and subordinate combined will require 110% coverage. The new indenture also allows the creation of a commercial paper program at a third-lien level, with a combined 100% coverage ratio for all three levels.
The county decided that market conditions do not currently make commercial paper a cost-effective option, Marx said. Instead, it will issue long-term debt.
The bonds are slated to be issued as serials maturing between 2008 and 2028 with term bonds in 2012, 2032, 2033, 2039, and 2041, according to a preliminary official statement published last week. Marx said the exact maturity schedule will be decided at the time of pricing.
Orrick, Herrington & Sutcliffe LLP is bond counsel. First Southwest Co. is the financial adviser.
As part of the terminal modernization plan, the county plans to come back to market with another $356 million of airport bonds in December, $362 million in July 2009, and $53 million in July 2011. By fiscal 2011-12, the airport expects to have $1.4 billion of debt outstanding.
Sacramento is reconstructing a terminal, building a new parking garage, and adding an airport hotel as part of the construction. The airport's biggest carrier is Southwest Airlines, which accounts for about half of passenger traffic.
