Atlanta Says Yes to Airport Deal’s $800M 1st Tranche

BRADENTON, Fla. — The Atlanta City Council on Monday gave unanimous final approval for the sale of up to $800 million of revenue bonds to finance the completion of a new terminal at Hartsfield-Jackson Atlanta International Airport.

The deal is the first of three tranches to be sold in coming months for the world’s busiest airport, which is owned and operated by Atlanta.

The city expects to sell the first tranche around Nov. 4, according to a marketability report submitted to the council on Monday by co-financial advisers First Southwest Co. and Frasca & Associates LLC.

The par amount of the deal depends on market conditions at the time but it is currently expected to be structured as $190 million of Series A bonds secured by general airport revenues and $450 million of Series B bonds secured by passenger facility charges and subordinate-lien general revenue.

Proceeds will provide completion financing for Maynard H. Jackson Jr. International Terminal, which is part of the airport’s $6 billion capital improvement plan.

The tax-exempt bonds are ­expected to be rated in the A category by at least two of the three major rating agencies, the financial advisers reported. The bonds also will be exempt from the alternative minimum tax.

“The $640 million will be the amount we need to finish the terminal, including the interior finishes and the exterior finishes,” Hartsfield-Jackson’s interim general manager, Robert Kennedy, told a city finance committee last week. The terminal is a $1.35 billion project.

Wayne Placide, a managing director at First Southwest, told the committee that market conditions have improved in the last three to four months and a number of airport transactions priced well during that time.

“Basically, the market is close to all-time low rates,” said Juan Pittman, a managing director at Frasca. “We expect [Atlanta’s] transaction to do well in the market.”

Though rating reports for the upcoming sale have not been released, Atlanta’s general aviation revenue bonds are currently rated A-plus by Fitch Ratings and Standard & Poor’s and an equivalent A1 by Moody’s Investors Service. The bonds backed by passenger facility charges are rated A by Fitch and Standard & Poor’s and A2 by Moody’s.

JPMorgan is the book-runner for next month’s sale. Jackson Securities is co-senior manager. Co-managers are Bank of America Merrill Lynch, Grigsby & Associates, Jefferies & Co., M.R. Beal & Co., Ramirez & Co., and Wells Fargo Securities.

Hunton & Williams is bond counsel. Greenberg Traurig LLP and Riddle and Schwartz LLC are co-disclosure counsel. Bryan Cave Powell Goldstein LLP and Haley & McKee LLC are underwriters’ counsel.

In the first quarter of next year, the city plans to sell $541.9 million of refunding airport revenue bonds to fix the interest rate on problematic 2003 variable-rate demand bonds.

The liquidity facilities for the 2003 bonds were terminated after Standard & Poor’s downgraded the insurer, MBIA Insurance Corp., to non-investment grade BB-plus from BBB.

Bondholders’ operational tender rights for the 2003 VRDBs have been suspended since last October due to the lack of liquidity facilities.

Atlanta plans to sell a third tranche of around $700 million of revenue bonds next spring to take out commercial paper and provide new money for other capital projects at the airport.

Though the bond sales received initial approval from the City Council in July last year, they have been delayed because of various problems, including the need to negotiate with major airlines to provide additional funding, accounting issues, and identifying additional underwriters..

After the transactions were approved, accountants discovered a number of errors in classifying airport expenses dating back to 2003.

The errors reduced the airport’s surplus and resulted in reductions in debt-service coverage ratios, though none were below covenanted coverage levels.

The accounting problems required ­restatement of 2008 financial results as part of the fiscal 2009 audited financial statements.

Some City Council members then ­questioned if the initial syndicate selected for the deals included enough minority participation. So the bond sales were delayed while Atlanta issued a request for proposals from underwriters.

The recession played a role in delaying the deals as well.

In fiscal 2009, passenger traffic at Hartsfield-Jackson decreased 1.1% while cargo traffic fell by 19.5%. The decline in traffic and revenue required officials to negotiate new funding agreements with the airport’s top carriers in order to move forward with the planned new-money bond financing next month.

The airlines agreed to make supplementary terminal-rental fee payments of $30 million from fiscal 2013 to 2016, which enabled Atlanta to move forward with financing the completion of the international terminal, maintain adequate reserves, and preserve the airport’s ratings. The airlines will be reimbursed for the additional ­payments as the economy permits.

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