BRADENTON, Fla. — The Birmingham Airport Authority, which operates the largest airport in Alabama, expects to be in the municipal market next week to offer new-money bonds for the first time in several years.
The authority plans to sell around $157 million of airport revenue bonds and is bringing the deal to market in time to take advantage of the federal alternative-minimum tax holiday, which expires Dec. 31.
The ability to sell non-AMT bonds is expected to save the authority between 65 basis points and 80 basis points, or more than $20 million over the life of the deal, said D.J. Mehigan with Morgan Keegan & Co., senior underwriter on the deal.
The authority’s bond proceeds will go toward the first terminal modernization project in about 20 years at Birmingham-Shuttlesworth International Airport, pay capitalized interest through December 2013, fund the debt-service reserve, and pay costs of issuance. Waters and Co. is the financial adviser.
The tax exempt, fixed-rate deal is expected to price Wednesday and will be structured with serial and term maturities to 30 years.
Another factor that should help spur investor interest, Mehigan said, is the large volume of taxable Build America Bonds coming to market before the stimulus program ends Dec. 31.
“That takes supply out of the tax exempt market,” he said. “That, overall, helps investor interest. I expect it to be a good sale.”
Mehigan said the Airport Authority has been working on the modernization program and its financing for several years, which included improving the agency’s cash position.
The deal is rated A-minus by Fitch Ratings and A3 by Moody’s Investors Service. Both agencies assigned a stable outlook.
Moody’s rating represents a downgrade to A3 from A2. The new rating applies to $66 million of outstanding parity airport revenue debt.
The downgrade is “based on the significant increase in debt burden that the airport is taking on in its current capital plan and the leverage that results from the current bond issue,” said a report by Moody’s analyst Kristina Alagar Cordero.
“Additionally factored into the A3 rating is the projected decline in debt-service coverage to levels well below historical performance levels on a net revenue basis which also include aggressive enplanement growth assumptions,” she said.
Cordero said the lower rating is bolstered by the strength of the underlying airport service area in its central Alabama location, a diversifying economy that is improving despite lagging the national economy, and improved cash position.
Fitch said its rating is based on the expectation that airport traffic operations will continue to stabilize over the next one to two years and that management will achieve the cost controls or revenue growth necessary to meet additional debt-service requirements associated with the capital program, which calls for $369 million in improvements through 2014.
Enplanements at the origination and destination airport have been steady over the past decade, averaging 1.5 million annually over the period, according to Fitch analyst Emma Griffith.
Fiscal 2010 saw an enplanement decrease of 1.7% compared to fiscal 2009, which saw a decline of 9.5% over the previous year, she said.
“These decreases were largely due to airline responses to the economic downturn, including schedule reductions and down-gauging of aircraft by mainline carriers serving the airport,” Griffith said. “This level of traffic loss is comparable to enplanement declines seen at comparable O & D airports.”
For the first four months of fiscal 2011, enplanements were up 3.5%. Seven out of the past 12 months have shown improvement in enplanements on a year-over-year basis.
“Going forward, airport management anticipates an annual enplanement increase of 1.9% for fiscal 2011, followed by annual growth of 2% to 3% per year,” Griffith said.
Southwest Airlines made up about 45% of Birmingham’s market in fiscal 2010, up from 35% in 2005.
Due to the recently announced merger between Southwest and AirTran Airways, Birmingham may face increased competition from Atlanta’s Hartsfield-Jackson International Airport, Griffith said. Atlanta, the world’s busiest airport, is about 150 miles away.
The Birmingham airport offers more than 130 daily flights to more than 56 cities in the U.S., according to its website. It served 2.9 million passengers in 2009.
The Airport Authority is using a guaranteed maximum price contract for the terminal modernization. The project currently is estimated to cost around $201 million, according to spokeswoman Toni Herrera-Bast.
In addition to bond proceeds, the cost of the project and other capital improvements will be supplemented by passenger facility charges, Federal Aviation Administration grants, and a $14.3 million grant from the Transportation Security Administration. PFCs may be used to pay some debt service, according to Fitch.
The terminal will be reconstructed and expanded from its current size of 244,000 square feet to 424,000 square feet. No new gates will be added.
Work is expected to begin next year.
Other features of the capital improvement program include adding a new concourse near the airport’s existing cargo terminal, a new apron, U.S. Immigration and Customs Enforcement offices, an expanded and centralized security checkpoint, relocating most concessions to the secure side of the security checkpoint, and runway resurfacing.
Other firms in the syndicate are Grigsby & Associates Inc., Raymond James & Associates Inc., and Securities Capital Corp. Balch & Bingham LLP and Thomas, Means, Gillis & Seay PC are co-bond counsel. Bradley Arant Boult Cummings LLP and Yvonne Green Davis PC are co-underwriters’ counsel.
