Philadelphia plans a $235 million sale of revenue refunding bonds for Philadelphia International Airport on Thursday.
“We think there will be strong demand,” said Treasurer Nancy Winkler.
RBC Capital Markets LLC is lead manager. Other underwriters are Loop Capital Markets, JPMorgan, Morgan Stanley, and Wells Fargo Securities.
Bond proceeds will refund all or a portion of the airport’s Series 1998A, 2001A, and 2001B bonds. They consist of $180.3 million of Series 2011A and $23.9 million of Series 2011B bonds. The city is monitoring the potential value of using taxable bonds against alternative minimum tax bonds on certain maturities.
The Series 2011A and Series 2011C bonds are secured by net project revenues of Philadelphia International and a pledge of passenger facility charges. The Series 2011B and Series 2011D bonds are secured by net project revenues. Additionally, $478.4 million of the outstanding bonds are also secured by the passenger facility charge pledge, according to Moody’s Investors Service.
The city also operates the small, general aviation Northeast Philadelphia Airport.
There is no separate retail period. No swaps are involved.
“It’s a fairly simple refunding,” said deputy treasurer James Lanham. The city will continue to monitor the value of insurance, he added.
Moody’s rates the bonds A2, while Fitch Ratings assigns an A and Standard & Poor’s an A-plus.
Moody’s cited, among other factors, “satisfactory financial performance with some improvement on bond ordinance debt service coverage, given the recent inclusion of other revenue sources available for use towards debt service coverage calculations.”
Philadelphia International is preparing to begin what it calls a capacity enhancement program that includes construction of a runway as well as other airfield, terminal and landside projects. The program's estimated cost is $6.4 billion. According to a preliminary official statement, the airport ranked 18th in the United States in total passengers in 2010 and served 30.8 million.
Janney Capital Markets of Philadelphia, in a fixed-income outlook for 2012 that it released Tuesday, said most U.S. airports were on solid financial footing before the economic crisis and had withstood the economic downturn.
“Some downside risks remain a cause for concern, however. Airports remain exposed to high-fixed costs, which are difficult to deal with when management is trying to control spending. Jet fuel prices, which peaked in summer 2008 and bottomed in 2009, have remained volatile,” Janney wrote.
According to Winkler, fallout from the bankruptcy filing of American Airlines’ parent, AMR Corp., should be minimal, as American accounts for less than 4% of Philadelphia International’s traffic. The airport is a major connecting hub for US Airways, mentioned as a possible American suitor.
“We think that downsides are limited, but there are some possibilities for positives. It's too soon to tell," Winkler said of the American situation.
“The ratings reflect our assessment of the airport’s relatively large and stable origin and destination market, strong competitive position within the region, generally good historical enplanement trends, and manageable overall debt burden,” Standard & Poor’s Joseph Pezzimenti said in a report on Philadelphia International.
He added, however, that dependence on US Airways for about 69% of enplaned passengers and nearly all connecting traffic, 44%, is an offsetting factor.
Philadelphia’s airport debt is $1.4 billion. The city, according to Winkler, anticipates rolling out a commercial paper program in the first quarter of next year for the airport.
“We won't be issuing any new long-term airport debt in the near term. We intend to use CP in the short run to fund the airport’s capital program," Winkler said.
Saul Ewing LLP and Gonzalez Saggio & Harlan LLP are bond counsel, while city solicitor Shelley Smith is also advising the city. Kutak Rock LLP and Stephanie Saint-Cyr are advising the underwriters.
