CHICAGO — Branson Airport LLC in Missouri has proposed borrowing up to $17 million of unrated tax-exempt revenue bonds to cover final construction costs and bolster reserve funds tapped to help cover interest payments on $113 million of debt issued in 2007 to finance the privately built and operated airport.
A preliminary term sheet on the possible sale by the private owner and operator of the struggling airport, which is located in the Ozark Mountains, reports that $6.9 million would go into a supplemental reserve associated with the 2007 transaction and $2.3 million would go to an operating reserve fund. Bondholder notices with preliminary details of the prospective financing are available at emma.msrb.org.
About $4.2 million of the proceeds would provide working capital funding for airfield and road work, terminal projects, equipment purchases, and other eligible expenses. Another $1.8 million would go to establish a debt-service reserve on the new bonds and $1.5 million would fund a supplemental reserve. The remaining proceeds would cover cost of issuance.
No sales date has been set but the airport would enter the market through the Branson Regional Airport Transportation Development District that was established to issue the 2007 bonds. Branson Airport LLC anticipates paying a yield of 9% on the 30-year bonds with principal repayment beginning in 2017, according to preliminary structural details outlined in bondholder notices. The unrated tax-exempt 2007 bonds paid an interest rate of 6%. The borrower hopes to sell the new bonds also as tax-exempt.
Under the 2007 bond indenture, Branson is permitted to issue completion bonds of up to $17 million — or 15% of the original debt — on parity with the 2007 issue without meeting additional bond-test requirements tied to debt service coverage ratios or other factors.
An airport official declined to comment on the timing of the sale and cautioned that a final decision on whether to issue the bonds is still pending, saying only: “We are permitted under the original indenture to issue completion bonds.”
One bondholder notice anticipates an additional $127,500 for monthly bond interest cost beginning in November. That would boost to $696,000 the amount needed to cover debt service. The airport currently contributes $569,000 monthly to cover interest on the 2007 bonds. The airport would continue to operate in the red according to its latest financial analysis — based on current service levels — until May 2011 when a $56,000 operating profit is projected.
Private developers put together a public and private financing package in 2007 to pay for construction of the airport, which opened in May 2009 to serve growing tourism in Branson, the self-proclaimed live music capital of the country. The airport has struggled to add service and has failed to meet original passenger projections. It suffered a $2.2 million loss for the first six months of the year.
The trustee UMB Bank reported over the summer that it drew $3.14 million from a supplemental reserve to cover a July 1 debt-service payment. That left about $3.2 million remaining in the supplemental reserve. The airport held total debt-service reserves of $15.8 million at the end of the second quarter on June 30, before its July draw.
The airport has added service this year and its passenger levels are rising, bolstering its prospects, but its travel projections remain far behind original estimates as the tourism and airline industries still lag. The city of Branson, facing its own budget crunch, has paid a 2009 subsidy but won’t honor its 2010 subsidy under a pay-for-performance agreement former city leaders agreed to provide to support development of the airport.
Airport officials tried to calm bondholder nerves at a meeting in August at the airport to discuss final construction costs, current operating activities, financial results, the fall service schedule, and efforts to expand air service. The possible infusion of funds from the $17 million sale, if it comes to fruition, into reserve accounts should help.
AirTran Airways has begun service between Branson and Hartsfield-Jackson Atlanta International Airport, but its future commitment is unclear as Southwest Airlines recently announced its proposed acquisition of the carrier. Airport officials said in published reports they welcomed the news.
The 2007 bonds traded most recently at 60 cents on the dollar last month, up from 57 cents in August and down from 65 cents late last year.
The bonds are secured by a pledge of the trust estate that includes rental payments owed under the operating lease. The company owned the land but deeded it to Taney County, which then leased the airport to the development district.
The district then entered into a 45-year ground lease with the company that entered into an agreement with UMB, guaranteeing repayment of principal and interest and providing a secured interest in the property, and providing the trustee with the right to file a claim independent of the operating lease in the event of a default.
Only qualified institutional buyers meeting the criteria as defined in Securities and Exchange Commission’s rules regarding their ability to undertake a risky investment and absorb the potential loss could purchase the securities.