Transportation Volume Took Off With Airport Refundings

WASHINGTON — A refunding surge triggered by low interest rates and soaring airport issuance contributed to big growth in transportation bond volume in 2012, market analysts said.

Volume shot up 67% in the transportation sector over 2011, according to data from Thomson Reuters, hitting $54.9 billion from the previous year’s $32.9 billion. The number of issues rose to 555 from 436. New-money volume totaled $21.5 billion and refundings reached $25.3 billion. Combined issues were $8.1 billion.

Toll road, highway and street bonds grew 86% over 2011 volume to lead the way in the 2012 surge, a fact industry observers attributed to the increasing willingness of state and local governments to turn to public-private partnerships to offset constrained gas tax revenues. The year saw a spirited debate on the subject, with some pushback from federal legislators like former Sen. Jeff Bingaman, D-N.M., and citizens opposed to paying the tolls or issuing the debt associated with lease agreements.

Ultimately, the ability to borrow at historically low interest rates frequently won out. Revenue-backed debt increased more than 76% from 2011, while general obligation bonds experienced just under 28% volume growth.

“We’ve seen issuers taking advantage of these historically low rates,” said Randy Gerardes, a municipal securities research analyst at Wells Fargo.

Maria Matesanz, a senior vice president at Moody’s Investors Service, agreed that refundings were up and that they were “largely rate-driven.” She said that as the extremely good borrowing conditions continued to persist, issuers were eager not to miss the boat.

“As rates have continued to trend low, there was this pent-up demand,” she said. 

But while low interest rates were a driver “generally, across the market,” Gerardes said, airport issuance, especially refundings, played a big role in the 2012 volume upswing. Total airport volume grew almost 44% over 2011, going from $8.6 billion to $12.3 billion.

Airports have major long-term capital costs that are often bond-financed, and an opportunity to save money on previously-issued debt can be very helpful before the next major renovation or expansion has to be paid for. “They’re managing their debt portfolios,” Gerardes said.

Annie Russo, director of government affairs at Airports Council International-North America, said airports are doing a good job of making smart business decisions, and would look for any opportunity to favorably retire old debt “whenever financing costs are low.”

“We’re smart to take advantage of that,” she said.

Airports took an especially hard hit during the recession, and many have not yet managed to get passenger enplanements back up to pre-recession levels,” said Fitch Ratings analyst Michael McDermott. Passenger tickets produce a major source of revenue that airports use to back bonds through the levy of a passenger facility charge. Enplanements are tied strongly to airport credit.

McDermott said airports have been especially active with refundings because of the ongoing uncertainty surrounding the current fiscal crisis. While some airports such as Chicago O’Hare International Airport and Dallas-Fort Worth International Airport are continuing to go to market for new money to fund major capital projects, many others are choosing to play their hands more conservatively.

“The expansionary stuff is being looked at with a little bit more caution,” he said.

Market-wide, transportation bond statistics bear out the popularity of refunding in 2012. While new money beat refundings in 2011 with $17.8 billion versus $11.5 billion, 2012 saw refundings overtake new money by a score of $25.3 billion to $21.5 billion.

Mass transit bonds also experienced huge volume growth over 2011, soaring almost 87% to $18.5 billion from $9.9 billion. The year’s two biggest transportation deals were mass transit bond sales by New York’s Metropolitan Transportation Authority, which twice sold more than $1.2 billion for transit during the year.

But although low rates and the political and fiscal climate drove transportation volume in some ways, experts also agreed that 2012 seemed like a boom year in part because of low volume in 2011.

“There was definitely a dip in 2011,” McDermott said.

Gerardes agreed, saying 2011 was “a low-issuance year.” Russo said the market is cyclical and it depends on any given year how volume might fluctuate.

“Bonds run on cycles,” she said.

Gerardes said he expected volume to stabilize in 2013, with airport capital spending to continue. He also pointed out that ports would need to be making investments in anticipation of the new generation of larger container ships enabled by the Panama Canal expansion that is underway.

Port bond volume was among the few areas to take a dip in 2012.

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