The Pennsylvania Economic Development Financing Authority next month will sell $30 million of unrated tax-exempt revenue bonds to help finance a new equipment facility and terminal upgrades for US Airways at the Philadelphia International Airport.
The special facilities revenue bonds would normally be subject to the alternative minimum tax, but the sale will benefit from the AMT holiday included in the American Recovery and Reinvestment Act, according to Brian Deamer, program manager at Pennsylvania’s Department of Community and Economic Development. The authority is part of the department. The AMT suspension will expire at the end of 2010.
The special obligation bonds are secured solely from rental fees that US Airways pays for the use of a hangar facility at the airport, according to the preliminary official statement. The state, the PEDFA, and Philadelphia, which owns the airport, are not obligated to repay the debt.
The bonds will not carry ratings and will not be insured, Deamer said. US Airways Group has a corporate family rating of Caa1 from Moody’s Investors Service, a CCC issuer default rating from Fitch Ratings, and a local issuer rating of B-minus from Standard & Poor’s.
“Purchase of the bonds involves significant risks and the bonds are not suitable investments for all types of investors,” the POS reads.
Citi is the senior manager for the transaction. Blank Rome LLP is bond counsel. There is no outside financial adviser. Deamer said the authority plans to issue the bonds sometime in August.
The transaction consists of $5.6 million of Series 2010A bonds and $24.4 million of Series 2010B bonds. While the POS does not indicate the potential length of the debt, the hangar lease agreement extends through May 1, 2029. US Airways could then renew the contract for two additional five-year terms.
Under the lease agreement, the airline pays the city a base rent of $390,603 annually. That amount can change every three years based on increases in the consumer price index, according to the POS. Officials can also adjust at certain times the rent payment based on rental fees for equivalent property at the airport.
Along with a debt-service reserve fund, the bonds will have a lease reserve fund, with an initial funding amount of $400,000, according to the POS.
US Airways built the hangar facility in 2000 for $35 million. It sits on city-owned land.
Bond proceeds will help finance the construction of a new 55,000-square-foot ground service equipment and maintenance and repair facility, upgrades to an existing cargo facility, additions and improvements to domestic baggage handling systems, updating terminal automation systems, and equipment purchases.
US Airways is the airport’s principal carrier. It currently leases 71 of the 126 gates, with more than 400 daily departures. The airline and its regional affiliate, US Airways Express, accounted for 62% of passenger enplanements at the airport in fiscal 2009. The airline employs about 6,000 workers at the airport.
“A recent economic impact study conducted by Econsult Corp. concluded that US Airways Inc.’s presence at the airport contributed to the airport’s more than $14 billion of economic impact in the region,” the POS states.
Philadelphia is US Airways’ second-largest hub, after Charlotte, N.C.
