Attorney Patents New Credit Structure for Airports

Bond attorney and longtime market participant Linda Grant Williams has secured a patent on an alternative credit structure that is designed to lower interest rates on special facility bonds for ­airports.

In essence, the structure that Williams has patented would allow tax-exempt bonds sold for airport terminals to be rated on their underlying value — passenger demand — instead of on the value of the airlines that serve the terminals.

The patent, named “Process and Architecture for Structuring Facilities Revenue Bond Financing,” was issued Nov. 23 by the U.S. Patent and Trademark Office. The structure, which is based on a method that has been used for sports arena financings, could be used for other transportation assets, according to patent documents. The assets could include seaports, roads, and railroads.

Under the patented structure, an airline or airlines would form a single-purpose entity for tax purposes and for protection against bankruptcy risk, then sublease the facility for airline use. The revenue bonds would be issued by the airport authority, but the bonds could be backed by the SPE’s revenue. The structure also could be used for bond refinancings.

The structure would allow rating agencies to evaluate the bonds based on the underlying demand for the asset, Williams said. For example, analysts could rate airport bonds by considering the demand for use of a terminal, instead of viewing the bonds as an obligation of a single airline.

As a result, airline bankruptcies and mergers and overall credit problems would not have as much of an impact on bonds’ interest rates, Williams said, predicting interest rates typically would be 200 to 300 basis points lower.

The structure was valued in 2008 at $49.5 million by Russell L. Parr, president of IPRA Inc., a company that researches the value of intellectual property that is patented. Parr valued it based on a royalty rate equal to 10% of the interest savings that would be realized in the refinancings of 27 revenue bond deals totaling $1.1 billion. Parr also assumed the refinancings would be done in 2010 and 2011 and that the issuers “will embrace and implement use of the subject invention,” which Parr said was likely based on a previous assumption that using the structure would result in a new interest rate of 4.6%.

Williams said in a letter to the three major credit rating agencies that she is “hopeful that some airlines, airport and seaport owners and parties seeking to privatize an airport or seaport will seek to license the use of my patented structure.”

A license to use it would be “priced far below a letter of credit or bond insurance policy which confer similar benefits to the borrower,” Williams said in an e-mail.

Airports have weathered airline bankruptcies, mergers and capacity cuts, but the recent economic strain on airlines has been an adverse factor in many credit rating agency reports on airport finances.

However, Williams said she believes investors and airport bankers have not used the structure because they want to maintain a high yield on airport revenue bonds.

The structure was the basis of a civil lawsuit Williams filed in U.S. District Court in the Southern District of New York against Citigroup Inc. and Citigroup Global Markets Inc. in late 2008, alleging that they conspired to keep her from marketing the structure.

Judge Loretta A. Preska dismissed the lawsuit in November, but Williams filed an appeal to the U.S. Court of Appeals for the Second Circuit in February, which is still pending, according to court records.

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