PHOENIX - The Airport Commission of the City and County of San Francisco is teeing up a nearly $900 million dollar deal.
The negotiated deal, set to price Sept. 15, includes about $568 million of new money bonds subject to the alternative minimum tax, along with about $165 million of non-AMT new money and some $149 million of refunding bonds.
Goldman, Sachs & Co. and Barclays will head up the underwriting syndicate, with Kutak Rock acting as bond counsel. The revenue bonds carry ratings of A1 from Moody's Investors Service and A-plus from Fitch Ratings, with a rating pending from S&P Global Ratings.
The bonds are secured by revenues from San Francisco International Airport.
The issuance will help support SFO's capital plan, which includes projects to design and construct new facilities to meet anticipated passenger demand. The major projects include a $1.85 billion overhaul of the airport's 1960s vintage Terminal 1, a $757 million reconfiguration of the west side of Terminal 3, as well as gate, parking, and security enhancements.
"We feel well-positioned to take on the goals we've established," SFO managing director for finance Denise Martinez said in an investor presentation. Martinez said that the number of passengers boarding flights at the airport, an important metric in measuring its revenue potential, has grown steadily over the years to an all-time high of 25.6 million in fiscal year 2016.
"SFO has been one of the fastest-growing airports in the country," Martinez said, adding that the airport commission expects steady growth to continue in future years.
In rating the bonds, Fitch cited SFO's strong market and management with a note of caution about its heavy debt burden. SFO has about $4.2 billion of debt outstanding, according to its investor roadshow presentation.
"The rating reflects SFO's strong operational and financial performance within the healthy, yet competitive air trade market in the San Francisco Bay Area," Fitch said. "The airport's fully residual airline agreement and proven management team provide a solid framework for stable and competitive results; however, its elevated leverage profile and additional borrowing needs create some pressures on the rating."
Kevin Kone, another SFO managing director, told potential investors that the airport's management team carefully monitors the debt service coverage ratio, and used extra cash on hand to defease more than $30 million of bonds over the last two fiscal years to reduce debt service. SFO has also been terminating swap agreements since 2008.
"Additional borrowings to support capital spending will cause debt metrics to rise, but they should remain reasonable for an international gateway with stronger assessments for both revenue risks (volume and price)," Fitch said. "Nevertheless, the airport has a good liquidity position (332 days cash on hand for FY2016) and stable coverage levels, demonstrating it can adequately meet its debt service obligations."
The deal is expected to close Sept. 29.
