CHICAGO — Cleveland Hopkins International Airport will enter the market Wednesday with $241 million of airport system refunding bonds.
The finance team needs to achieve at least a 3% net present-value savings, or $11.4 million over the life of the bonds, to do the deal.
As of Monday, the market could allow a savings of around 4%, according to Elizabeth Hruby, debt manager for the city of Cleveland.
Cleveland, which owns the airport, is issuing the bonds.
The airport is a relatively rare issuer. A $74 million borrowing last November was its only new-money sale in the last 10 years.
This week’s offering, likely the airport’s only deal this year, is being brought to market solely to achieve savings.
“We’ve been watching this one for a long time,” Hruby said. “We would have done it last fall when we did the new money, but [the savings] weren’t there. But the market has rallied so much since then, we decided to get it going as quickly as we can.”
The $241 million transaction will refund all of Hopkins’ debt that is currently callable.
The negative arbitrage prevented any advance refundings, according to Hruby.
There will be no restructuring.
The airport terminated four interest-rate swaps during its trip to the market last fall.
The move rid it of all swaps associated with its variable-rate debt, which makes up 14% of its $890 million debt portfolio.
Morgan Stanley is the senior manager and JPMorgan is co-senior. There are six co-managers on the team.
Squire Sanders LLP is bond counsel. Government Capital Management and Phoenix Capital Partners LLP are financial advisors.
The bonds are not subject to the alternative minimum tax.
All three rating agencies affirmed their ratings ahead of this week’s sale. Moody’s Investors Service rates the deal Baa1 and Fitch Ratings and Standard & Poor’s rate it A-minus.
Cleveland International Airport is located about 10 miles outside the city and is the chief airport for northeast Ohio. The system includes the Cleveland airport and Burke Lakefront Airport.
Analysts warn that one of the credit’s main challenges is long-term uncertainty tied to the 2010 merger of United Airlines and Continental Airlines. United Continental Holdings accounts for the vast majority of the airport’s enplanements, making up 72% of its total enplanements in 2010.
In the fall of 2010, the new airline signed an agreement with the Ohio attorney general that requires a certain level of enplanements and should provide stability for the airport, according to analysts at Moody’s.
The airport has also seen three straight years of enplanement declines. But its capital needs are manageable and it enjoys a strong origin-and-destination passenger base, analysts said.
