MENLO PARK, Calif. — Alaska’s state airport authority will sell $174 million of tax-exempt paper next week to pay for debt refunding and runway repairs, according to a state official.

The Alaska International Airport System will price the revenue bonds — $142 million of refunding bonds and $32.5 million of new money to finish a runway rehabilitation project — on Sept. 14, according to Deven Mitchell, executive director of the Alaska Municipal Bond Bank Authority.

Mitchell said RBC Capital Markets and Bank of America Merrill Lynch will co-manage the offering. Scott Balice Strategies is the financial adviser on the deal and K&L Gates is bond counsel.

Fitch Ratings downgraded the system’s revenue bonds to A-plus with a stable outlook from AA-minus. The authority operates Alaska’s largest airport, Ted Stevens International Airport in Anchorage, as well as the Fairbanks International Airport.

“Principal credit concerns include the system’s heightened sensitivity to the apparently increasing volatile nature of cargo operations which contribute to a majority of the system’s $95 million of operating revenues,” Fitch said in a report last week.

During the last fiscal year,  cargo throughput declined 24.5% due mainly to the slow economy, Fitch said. In fiscal 2010, cargo operations were up 15.6% compared to the previous year.

Standard & Poor’s has an A rating with a developing outlook on the airport system’s senior outstanding revenue-backed bonds.

Moody’s Investors Service assigns an Aa3 rating with a negative outlook, citing above-average debt levels and declining enplanement levels for two consecutive years.

As part of the debt structure, Fitch said the airport system’s management plans for an optional early redemption of bonds and contributions of cash to the debt-service reserve account to reduce dependence on surety bond policies.

The report said the airport system used $25 million of cash reserves in fiscal 2009 and will likely use a similar amount over the next two years to reduce debt service demands to satisfy rate covenant requirements and keep landing fees low for carriers.

Strong liquidity is one of the airport’s strengths, Fitch analysts said. They also noted its strategic location for air cargo, stable passenger traffic, and a diverse presence of cargo operators, including major infrastructure investments by UPS and FedEx.

The airport has a five-year, $200 million capital improvement plan through fiscal 2013 for a mix of airfield and terminal renovation projects, which are funded by federal airport improvement program grants, passenger facility charges, bond issuance and other funds.

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