Massachusetts Port Authority officials say upgrades from two rating agencies boosted their $171.5 million revenue bond sale, which funded the agency's 2015-to-2019 capital program.
"We had a very good feeling," treasury director Anna Tenaglia said of the July 8 transaction, which included the sale of $104.5 million in non-taxable Series A bonds and $67 million in taxable Series B bonds.
Upgrades from Moody's Investors Service and Standard & Poor's before the sale resulted in an overall interest-rate reduction of about 10 basis points, according to Tenaglia. This helped lower the authority's overall cost by $2.8 million.
Moody's elevated Massport's revenue bonds to Aa2 from Aa3 and Standard & Poor's uplifted them to AA from AA-minus. Fitch Ratings affirmed its AA rating.
Proceeds will finance a 1,700-space, 10-story addition to the central parking garage at Boston's Logan International Airport , upgrades to the heating, ventilating and air conditioning, or HVAC, system at Logan, and other improvements including a connector between terminals C and E, the latter serving international traffic.
Quasi-public Massport owns and operates Logan, Hanscom Field airport in Bedford, Mass., and Worcester Regional Airport, as well as the Port of Boston and waterfront development properties with $623 million in operating revenues and $5.2 billion in capital assets.
The HVAC undertaking will include modernization of boilers, heat exchangers and other equipment. Lower energy use and improved plant efficiency is a priority at Massport.
Timing also helped. On July 8, a movement from stocks toward munis as the debt crisis in Greece escalated brought Treasury prices down about 20 points.
"We started on this deal in March," said Tenaglia. "We set a track to come to market in mid-July. As we prepared, the deal came sooner than later and we had that flight to quality the week just after July 4. That certainly helped."
Citi was lead manager. Foley & Lardner LLP was bond counsel. Locke Lord LLP, the successor firm to Edwards Wildman Palmer by merger, was disclosure counsel.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC represented the underwriters. Public Financial Management Inc. was the financial adviser.
The total all-in interest cost was 4.02% -- 3.94% for Series A and 4.14% for Series B -- according to Massport media relations director Matthew Brelis. The pricing was seven times oversubscribed with just over $1 billion in orders. Investor demand brought the pricing scale down about 4 to 7 basis points, generating about $810,550 in net present value savings.
The bonds will also help fund acquisition of a property now leased as part of the Massachusetts Bay Transportation Authority's Silver Line bus rapid transit system that connects Logan with South Station - home to Amtrak and MBTA's subway and commuter rail lines - and the expanding South Boston waterfront.
The authority has $1.2 billion of debt outstanding, according to Moody's. All three credit agencies cited Logan's strength as an origin-and-destination, or O&D market, and its increase in passenger volume.
Moody's based its upgrade on Massport's credit fundamentals, calling them "among the very strongest" of airports it rates.
"We structure our deals conservatively," said Tenaglia, a seven-year Massport veteran who became finance director after Betsy Taylor retired in the spring following her 37 years with the agency. "Our principal and interest is structured to leave capacity. We forecast conservatively and we meet our expectations."
Standard & Poor's and Moody's cited Massport's debt service coverage, which the agency has provided at more than 2 times over the last 10 years. Moody's expects financial liquidity to remain above 300 days cash on hand through the next steps of its capital plan.
"The high rating is tempered by expectations that financial liquidity will decline below average for the sector and the potential diversity of Massport's revenues to noncore transportation projects," said Moody's.
S&P referenced the underlying strengths of the Boston region, which include above-average incomes, travel-intensive economic base, destination-market attractiveness and limited competition from smaller airports.
"Furthermore, the airport has good carrier diversity," wrote S&P analyst Todd Spence. Its largest carrier, JetBlue, has 27% of enplanements, followed by the merging US Airways and American at a combined 22% and Delta at 14%.
Logan sits on a 1,700-acre land peninsula just north of downtown Boston adjacent to the city's East Boston neighborhood. The airport has spent $4.5 billion on a modernization program over the past decade that includes new terminals, public transportation access, parking facilities, roadways and airport concessions.
The Silver Line expansion and the connection of Interstate 90 from the end of the Massachusetts Turnpike to Logan through the Ted Williams Tunnel - Boston's long-sought third harbor tunnel and built as part of the Central Artery/Tunnel Project, known commonly as the "Big Dig" - have opened up ground transportation options to the airport.
The airport, which handled nearly 32 billion passengers in 2014, expanded its international offerings in the past two months by adding Aeroméxico flights to Mexico City and El Al nonstop flights to Tel Aviv.
Massport's board last month approved its $667 million budget for fiscal 2016, up 4% from the previous year. About $220 million will go to the capital program and pay bondholders.
The budget also includes an increase to snow-removal and firefighting operations at Hanscom Field. In contrast to the MBTA's problems during a 110-inch snowfall winter, Logan, Hanscom and Worcester Regional all won awards for snow and ice removal from the northeast chapter of the American Association of Airport Executives.
Massport's budget also earmarks $40 million on high-occupancy vehicle access programs, which include free Silver Line service between Logan and South Station, and $5 million for "mid-life rehabilitation" of eight buses that serve the route.
The spending plan also provides $26 million in community goodwill funding and $20 million in payments in lieu of taxes to Boston, Winthrop and Chelsea - the latter inner-ring suburbs near Logan.
The Port of Boston, meanwhile, is working with the U.S. Army Corps of Engineers on the $400 million dredging of Boston Harbor, with work expected to begin next summer. Under a federal water bill that passed last summer, the U.S. government will provide $310 million. Massport officials say the dredging project will enable Boston to better compete with East Coast ports.
