CHICAGO — The Indianapolis Airport Authority on Tuesday will price a yet-to-be determined amount of refunding bonds to take advantage of the federal alternative-minimum tax holiday.
The airport has up to $750 million of outstanding fixed-rate bonds that could be refunded with new debt that would be exempt from the AMT under the federal “holiday” that is part of the American Recovery and Reinvestment Act. The authority could issue that amount but is expected to issue roughly $150 million.
The agency will also consider buying an insurance policy for the debt. Officials said they plan to wait until pricing to determine whether it’s cost effective to insure the bonds.
The airport next week will privately place another $350 million of variable-rate debt, refinancing all of its outstanding VR debt.
The authority is also considering calling $36 million of 2003 bonds over the next 90 days and paying them off with cash.
The transactions are part of the two-year-old airport’s strategy to stabilize and lower debt-service payments in future budgets, said treasurer Jeremiah Wise.
Ahead of the sale, Standard & Poor’s revised its outlook to stable from negative, saying the airport’s fiscal position has stabilized. Analysts gave an A rating to the airport’s debt.
Moody’s Investors Service revised its outlook to negative from stable, saying the airport could face pressure on its enplanement growth amid a large debt load. Moody’s rates the debt A1.
Fitch Ratings rates the airport A with a stable outlook.
The authority has $1.1 billion of outstanding debt, nearly all of which has been issued to finance the new airport, which opened in late 2008.
The Indianapolis Local Public Improvement Bond Bank will serve as the conduit issuer on the deal, as it has for nearly all the debt issued for the Indianapolis International Airport.
City Securities Corp. and Goldman, Sachs & Co. are leading Tuesday’s public sale. Ice Miller LLP and Gonzales Saggio Harlan LLP are co-bond counsel.
The private placement will allow the airport to shed an insurance policy from Financial Security Assurance Inc. and a standby bond purchase agreement from Dexia.
The airport plans to privately place the bonds with a syndicate of banks led by Wells Fargo, according to Wise. The syndicate will hold the debt, structured as index-floater bonds, for three years. Six interest-rate swaps attached to the bonds will remain in place.
“We were looking to shed basis risk and remarketing risk,” Wise said. “The index-floater product helps us to reduce some of the risks we were having with the synthetically fixed-rate debt. It will help us to budget a lot better and forecast debt-service levels better than otherwise.”
The airport has $1.25 billion of outstanding debt. All but $350 million of that is in a fixed-rate mode and all was issued to finance the new facility, which opened in 2008. Future capital needs are minimal, and Wise said new-money borrowing is unlikely over the next five years.
The Indianapolis airport, serving about 3.7 million passengers a year, is considered a strongly managed facility with a diverse set of airlines that serves a stable market area. It enjoys a large cargo operation as it houses the second-largest FedEx sorting facility in the world.
