DALLAS – After a record refunding year, Dallas-Fort Worth International Airport is going to the market for new money with $737 million of revenue bonds for its terminal remodeling project.
By at least one measuring stick, the deals will make DFW the nation’s most indebted airport, a factor in Friday’s downgrade from Moody’s Investors Service.
In a pair of negotiated deals, DFW plans to price $370 million of revenue bonds subject to the alternative minimum tax rules on April 18 and $367 million of non-AMT bonds on May 16. The DFW Airport board is expected to approve the deal at its meeting April 4.
DFW’s top executives took their investor road show to Boston and New York last week, with similar presentations Wednesday in San Francisco and Thursday in Chicago.
“Based on our meetings with investors, we expect both issues to be well received,” said Mike Phemister, vice president for treasury management at DFW. “We look forward to getting back into the market.”
The underwriting team on the first issue will be led by RBC Capital Markets, with M.R. Beal as co-senior manager. Raymond James and Ramirez & Co. are co-managers.
Morgan Stanley is book runner on the second deal, with Cabrera Capital Markets as co-senior manager. Loop Capital Markets and Stifel Nicolaus & Co. are co-managers.
First Southwest Co. and Estrada Hinojosa & Co. are the airport’s financial advisors. Three firms provide bond counsel: Bracewell & Giuliani; McCall, Parkhurst & Horton; and Newby Davis.
Moody’s Investors Service downgraded DFW revenue bonds to A2 from A1 Friday. In connection with the downgrade, the previously negative outlook was changed to stable. Moody’s cited the new debt needed for the $2 billion Terminal Renewal and Improvement Program (TRIP) as the major factor in the downgrade.
“Total debt outstanding, already among the highest in the nation for airports, is expected to become the highest during 2013,” analyst Kurt Krummenacker wrote in the Moody’s report issued Friday.
“The rating also contemplates the additional risk factors of high concentration in a single airline, construction risk from the extensive TRIP projects, and increasing competition from Dallas Love Field as the Wright Amendment restrictions are fully removed in 2014,” Krummenacker added.
Ratings from Standard & Poor’s and Fitch Ratings were pending as of Monday.
After the meetings with investors in Boston and New York last week, Phemister said he expects little to no impact from the downgrade.
“Based on feedback we have received, most investors are doing their own credit analysis and they feel that DFW is a strong credit, comparable to AA airports, and we have typically sold that way in the past,” Phemister said.
With $4.9 billion in debt before next week’s issue, DFW plans to issue $1.98 billion this year and another $400 million in fiscal year 2016.
DFW decided to accelerate debt issuance that had previously been planned for 2014 and 2015 to take advantage of historically low interest rates, according to Phemister.
Debt per passenger will increase to $219 and is expected to remain above $200 through 2017, according to Moody’s.
Two other airports, Chicago O’Hare and Miami International, carry similar levels of debt and A2 ratings, Moody’s noted. O’Hare’s per-passenger debt is $198, while Miami’s is $301, as per 2011 financial reports.
To prepare for this year’s issuance, DFW last year refunded a record $1.35 billion of its revenue bonds. DFW was the largest issuer in the Southwest in 2012 with $2.5 billion of new money and refunding issues.
By one measure, debt per origin and destination passenger, DFW will become the most indebted in the nation, according to Moody’s. Origin and destination passengers are those departing from DFW or arriving in the Dallas-Fort Worth area as their final destination. DFW as an American Airlines hub also has a considerable traffic in connecting passengers changing planes at DFW.
The airport recently reached what its officials tout as a major milestone by reaching 200 nonstop destinations. DFW now serves 52 international and 148 U.S. domestic destinations.
“We are optimistic that DFW can continue to attract more air service in the coming months and years, particularly new international service, as we build on our mission to connect the Dallas/Fort Worth area to the world,” said DFW chief executive Jeff Fegan.
In October, DFW reopened its Terminal E Satellite building with departures from Spirit Airlines, marking the first passenger service at the facility since 2005. The Terminal E Satellite was remodeled as part of the TRIP. The terminal, opened in 1988, will serve domestic airlines as renovation work continues on the main sections of Terminal E.
The four original terminals that opened with the airport in 1974 are undergoing remodeling under the TRIP program.
Terminal A, one of three serving American Airlines, is also under renovation and is gaining a new parking garage in the process.
American claims about 83% of the passenger market at DFW, and has its headquarters just to the southwest of the airport entrance. The airline is in the midst of a major transition as it tries to emerge from Chapter 11 bankruptcy through a merger with US Airways.
On Wednesday, the parent of American Airlines, AMR Inc, will ask U.S. Bankruptcy Court Judge Sean Lane in New York to approve the planned $11 billion merger to create the world’s largest airline. AMR will also ask for an extension on its exclusive period, during which it can file its disclosure statement, through July 29, according to attorneys.
DFW officials have said they have seen no indications that the merger will create a negative impact on the airport.
Moody’s calls the success of the merger “critical to the current operational levels at the airport.”
Another challenge will come from nearby Love Field in Dallas, which primarily serves Southwest Airlines. Beginning in 2014, Southwest will be able to fly to any city in the country from Love Field, ending current restrictions under the so-called Wright Amendment.
The Wright Amendment, named for former Fort Worth Congressman and House Speaker Jim Wright, became federal law in 1979 and was designed to protect then new DFW from competition from Love Field, which had been the major airport serving Dallas before DFW opened in 1974.
The amendment originally limited most non-stop flights to destinations within Texas and neighboring states. Under a deal reached between Southwest and American, the amendment was repealed in 2006 but left some restrictions intact until 2014.
Love Field is also undergoing remodeling financed with municipal bonds backed by Southwest. The Love Field remodeling is expected to be completed by 2014.
