SAN FRANCISCO - San Jose, Calif.'s Norman Y. Mineta International Airport added a tax-exempt private-activity series to its commercial paper program last week as it began to take advantage of the alternative minimum tax holiday.
The American Recovery and Reinvestment Act, passed in February, allows private-activity issuers to sell new-money tax-exempt debt in 2009 and 2010. Interest on airport, housing, and other private-activity bonds is generally subject to the alternative minimum tax.
The San Jose airport expects to save $1.4 million to $5.1 million on a present-value basis by taking advantage of the tax holiday by issuing $35 million of new-money, private-activity commercial paper. It issued the first $5.5 million of the non-AMT commercial paper last week.
The airport plans to sell long-term tax-exempt debt to take out the commercial paper when it completes phase one of its $1.8 billion airport renovation in 2010, said Tim Tung, a financial analyst with San Jose, which owns the airport.
The city is also working on plans to take advantage of the tax holiday to refinance $154 million of existing AMT commercial paper, he said.
Airports, ports, and other private-activity bond issuers across the country have been working to take advantage of the AMT holiday because spreads on AMT paper versus non-AMT debt jumped sharply last year to more than 100 basis points this year from about 30 basis points before the financial crisis.
The maturities on the airport's commercial paper currently run from one week to about two months. The dealers are Citi, Barclays Capital, and Morgan Stanley.
The airport amended its issuing and paying agent agreements to include the new tax-exempt private-activity CP as part of its Series A debt, which is backed by a joint letter of credit from JPMorgan Chase Bank, Dexia Credit Local, and Bank of America. The new paper is Series A-2, and the existing paper becomes Series A-1.
By getting the banks to agree to the changes, the airport was able add the new debt to a liquidity agreement that costs just 15 basis points. The agreement was entered into before the financial crisis pushed LOC rates to as much as 10 times that level last year.
The airport has authorized a total of $600 million of commercial paper in six series. The program serves as interim financing for the big airport capital plan, as well as the refinancing vehicle for the airport's auction-rate securities.
