BRADENTON, Fla. — As Atlanta plans to open its new $1.4 billion international terminal next month, the city is moving forward with other projects at Hartsfield-Jackson Atlanta International Airport.
Atlanta will sell $492 million of new revenue bonds next week for the world's busiest airport.
About $161 million of the bond proceeds will be used to fund terminal, concourse and other improvements as part of a $6.5 billion capital improvement plan that is nearing completion. The remaining proceeds will go toward refinancing commercial paper, funding reserves and paying issuance costs.
The book-runner is Bank of America Merrill Lynch, which will lead syndicate pricing on Monday for retail investors and Tuesday for institutional sales. M. R. Beal & Co. is co-senior manager.
The fixed-rate bonds are expected to be sold as $65.3 million of Series A, $191.2 million of Series B and $235.3 million of Series C. The Series C bonds will be subject to the alternative minimum tax. Maturities will range between 2013 and 2042.
Each series is expected to have call provisions on or after Jan. 1, 2022, and be structured to create level debt service after a period of capitalized interest. The bonds will have a common debt-service reserve account funded largely with cash.
If the taxable market cooperates, Atlanta may eliminate the Series C tranche and sell a like amount as taxable bonds. In that case the bonds would be designated as Series D.
However, that strategy is not likely to be employed, according to Jim Beard, the city's chief financial officer.
"The city wanted to maintain the flexibility to issue taxable bonds in place of AMT bonds in the event that the prevailing market conditions at the time of pricing make one or more taxable maturities more cost-effective than AMT debt," Beard said. "Given the current market tone, it is unlikely that taxable debt will be utilized."
He said the city is considering insuring some or all maturities, though a decision will not be made until pricing.
The bonds are rated A1 by Moody's Investors Service and A-plus by Fitch Ratings and Standard & Poor's.
Pre-marketing for the offering began this week, and Beard said there are some features investors should consider.
"Hartsfield-Jackson Atlanta International Airport is a strong credit, with a large and diverse service area, critically important global gateway, low-cost structure, healthy financials and modest future capital needs," he said.
"The airport has a number of positive recent developments, including a new international terminal that is on budget and on schedule to open May 16, the potential for positive impact resulting from the continued progression of the Southwest-AirTran combination, and new food and beverage concession agreements that are expected to increase revenue," Beard said.
He also noted that Moody's revised its outlook on the airport's bonds to positive from stable.
The positive outlook is based on expectations that traffic will continue to make steady gains due to Delta Airline's base at the airport and commitment to Atlanta, potential growth due to Southwest Airlines' acquisition of AirTran Airways, and forecasted low costs even in stressed scenarios, according to Moody's analyst Maria Matesanz.
Analysts generally said that the airport has seen resiliency in traffic levels, and has strong financial metrics. The merger of Southwest and AirTran in May 2011 is seen as a positive factor.
"Going forward, Fitch believes that there are effective catalysts for additional growth opportunities with the combination of service by Southwest under its own brand coupled with the upcoming completion of the new international terminal," said Fitch analyst Seth Lehman.
The two airlines are integrating and eventually the AirTran logo will be eliminated. Southwest began operating at Hartsfield-Jackson in February.
Lehman noted there is carrier concentration, with Delta representing 78% of passenger traffic.
"However, Atlanta is the primary hub and corporate headquarters location for second-largest, U.S.-based air carrier, Delta Air Lines," he said. "Passenger traffic trends demonstrate solid resiliency relative to most other large-hub airports and limited competition exists from other regional airports."
Hartsfield-Jackson is owned by Atlanta and operated as an enterprise fund of the city.
The city issues all debt for the airport, though it is operated by the Department of Aviation.
The airport had $448.9 million in cash and reserves as of Dec. 31, the equivalent of 646 days' cash on hand, according to city documents.
The metro-Atlanta area surrounding Hartsfield-Jackson has a population of 5.5 million people and there is limited competition from other airports in the region.
The current capital improvement plan includes $1.6 billion of largely replacement and renewal projects.
There are limited new-money bond plans after next week's sale. However, new projects requiring funding could be added when an update to the CIP is completed next year.
Airline agreements have been extended through Sept. 20, 2017, though non-airline revenues account for two-thirds of total operating revenue.
City officials will cut the ribbon to open the 1.2 million-square-foot Maynard H. Jackson Jr. International Terminal on May 16. It is expected to be completed on time and within budget as part of the multi-year capital program. All debt for the new terminal was sold in previous offerings.
Planning, design and construction of the international terminal project created about 3,000 jobs. It will take about 1,500 people to manage, operate and maintain the new complex.
Construction of the terminal and its 12-gate concourse began in summer 2008. The facility will eliminate the need for Atlanta-bound passengers to recheck their baggage.
Hartsfield-Jackson had $1.85 billion of general airport revenue bonds outstanding as of March 1. The amount includes $314.3 million of commercial paper being redeemed with 2012 bond proceeds and other airport funds.
Another $955.3 million of "hybrid" bonds are outstanding and secured by passenger facility charges and a subordinate lien on general revenues.
The airport has no airline special facility bonds.
Other underwriters selling the bonds next week are Grigsby & Associates Inc., Jeffries & Co., Loop Capital Markets LLC, Ramirez & Co., Siebert Brandford Shank & Co. and Wells Fargo Securities. First Southwest Co. and Grant & Associates are co-financial advisors to the city. Frasca & Associates is financial advisor to the Department of Aviation.
Hunton & Williams LLP and Haley & McKee LLC are co-bond counsel. Greenberg Traurig LLP and Riddle & Schwartz LLC are co-disclosure counsel. KnoxSeaton and Ballard Spahr LLP are co-underwriters' counsel.