CHICAGO — The Minneapolis-St. Paul Metropolitan Airports Commission heads into the market Wednesday with a $275 million refunding deal.
Citi and RBC Capital Markets are co-senior managers on the subordinate revenue bond deal, with Citi running the books. Barclays, JPMorgan, and Wells Fargo Securities are co-managers. Kutak Rock LLP is bond counsel and Jefferies LLC is advising the commission.
The deal offers two series, one for $226 million that matures between 2016 and 2035 with interest that is not subject to the alternative minimum tax, and a $48 million series that matures between 206 and 2026 and is subject to the AMT.
Proceeds will refund 2005 bonds for savings. The sizes and maturities are tentative and subject to market-driven changes.
The bonds are secured by various Minneapolis-St. Paul International Airport revenues after payment of maintenance costs and senior lien bond obligations. The refunding is expected to generate about $37 million in savings, or 11% of net present value based on current market rates, said Bob Schauer, director of finance at the commission.
The commission last issued debt in 2012 when it sold new money and refunding bonds, Schauer said. No new money issuance is on the near term horizon.
Ahead of the sale, Fitch Ratings and Standard & Poor's affirmed the subordinate bonds' A rating and stable outlook. The airport's $1.4 billion debt portfolio includes a near equal mix of senior lien and subordinate bonds.
"The ratings are based on our view of the solid air trade area economy, as well as the airport's reasonable cost structure, stable financial performance, and limited debt plans; these factors are partially offset by the airport's market share concentration in Delta Air Lines," said Standard & Poor's analyst Mary Ellen Wriedt.
The commission's finance team is promoting to investors what it calls the airport's solid underlying credit fundamentals, ranging from a strong local economy and diverse operating revenues to historically strong financial results and an experienced management team.
Passenger levels have been steadily rebounding in recent years growing annually by about 2.2% over the last four years with 16.4 million passengers last year. Growth this year has risen to 5% compared to the same period last year.
The growth has returned passenger numbers to the 2008, pre-recession level but remain below about 9% below a 2005 peak. During the recession, the commission turned its attention from expansion plans to trimming expenses and managing through the economic downtown and has fared better than comparably sized airports.
The airport also benefits from good demand in its service area and Delta Air Lines hubbing activities there.
"We feel we are strategically located and have a lack of geographically competing facilities with Chicago O'Hare being the nearest competitor," Steve Busch, vice president of administration and finance for the commission, said in an investor presentation.
The airport operates four runways, 23,000 parking spaces, and two terminals - Lindbergh and Humphrey -- connected by a light-rail system that runs between the Mall of America and downtown Minneapolis.
About 27% of the airport's operating revenues come from parking fees, landing fees account for nearly 20%, and terminal rents 14%. Fitch called the revenue stream "diverse" with aeronautical revenues accounting for 39% of operating revenues.
A total of 29 carriers, including 23 that carry passengers, operate at the airport with Delta holding a 75% market share. The airline inherited the Northwest Airlines hub when it acquired the carrier in 2008. Northwest had been based in Eagan, Minn.
Sun Country and Southwest Airlines follow with a combined 10% share which has grown 60% over last five years.
Delta is committed to maintaining its hub presence and certain flight levels under its airport use agreement that runs through 2020.
The commission's capital improvement program totals $131 million through next year with an additional $575 million planned through 2020. The current funding scheme for the CIP includes a mix of pay-as-you-financing, state and federal grants, internal commission funds, and some proceeds from a previous new money issue.
"This CIP does not include any anticipated long term debt," Busch said.
The commission is in the process of updating the CIP and could include some debt-financed projects, Busch said. Officials are looking at making security check point changes due to reduce wait times.
Fitch and Standard & Poor's also affirmed the AA-minus ratings they assign to the airport's senior lien bonds.
"The ratings reflect the airport's stable and improving enplanement profile serving a large metropolitan area of the Midwest, with stronger growth coming from the majority origination and destination traffic base," Fitch wrote. About 55% of the airport's traffic originates at the airport while 45% is connecting flights.
Fitch said a concern is carrier concentration risk due to Delta's dominance but it's partially mitigated by the airline's heavy investment at the airport, its hubbing covenants, and its use agreement through 2020. The airport is Delta's second-largest hub behind Atlanta.
Other supporting credit factors include a low cost per passenger level of under $7.60 with a total debt service coverage ratio of not less than 1.53 times, which Fitch said are "appropriate for its rating categories."
The lack of new debt and airport's completion of its previous $3.2 billion capital program also factor in favorably in the ratings assessment.
"The airport's future capital plans are modest, focused on airfield and routine terminal work as well as noise mitigation," Fitch wrote.
For its size, Fitch described the airport's leverage as moderate. Its conservative fixed-rate debt structure is a positive factor. The commission has pledged passenger facility charges to debt repayment in the coming years. Fitch said coverage calculating the use of PFCs is forecast to remain at or above the 2.7 times level on the senior lien bonds and 1.5 times on all the bonds through 2019.
Operating expenses rose 7.5% in fiscal 2013 due to personnel and maintenance costs following heavy snowfall last winter and higher utilities expense from the cold winter. The increase was offset by operating revenues that saw a similar increase due to increased airline rates and charges as some costs were passed on and concession revenue grew from parking and new food operations opening.
A big change in Delta's hubbing activities that results in 50% or greater loss of connecting traffic could strain the rating as could additional debt issuance for non-revenue generating projects, Fitch said.
