BRADENTON, Fla. – Investors who bought $860.1 million of revenue bonds issued by Charlotte, N.C., for Charlotte Douglas International Airport could be impaired by a change in governance being considered by the General Assembly, according to a bond attorney hired by the state treasurer’s office.

Senate Bill 81, which passed on third reading March 13 and was sent to the House where it’s under review, creates the independent Charlotte Regional Airport Authority. If passed, the bill would transfer the airport from the city into the hands of an expanded, 13-member regional board appointed by various officials and local governments.

The change in governance raised a number of potential legal issues in a limited review of the bill by Steven Turner, a partner at Hawkins Delafield & Wood LLP. The legal review was requested by the state treasurer’s office.

Because the bill creates a state-mandated transfer of governance “this raises the issue of whether the enactment of SB81 by the state otherwise constitutes an impermissible impairment of bondholder rights under the contract clause” of the U.S. Constitution, Turner’s opinion said.

Other legal issues include potential events of default under the documents governing the airport revenue bonds and potential conflict with a state covenant not to impair bondholders’ rights as long as any bonds are outstanding.

“If in fact the enactment of SB81 constitutes an unconstitutional impairment, obtaining the consents of at least 51% in principal amount of the outstanding bondholders for appropriate amendments of the bond order or the refunding and defeasance of all of the outstanding bonds would provide legal alternatives insofar as bondholders, but not other parties, are concerned,” Turner said. “Our experience has been that consents often are difficult to obtain, depending on the facts and circumstances involved.”

Sen. Bob Rucho, R-Matthews, sponsored the bill and told the Charlotte Observer Wednesday that a Louisiana law firm has “spelled out” ways to handle the airport debt.

Bondholders would have no reason to object to the transfer to begin with, Rucho said, but the airport authority could protect itself by purchasing an insurance policy.

In a letter to Rucho March 25, Deputy State Treasurer T. Vance Holloman said the issues raised by Hawkins Delafield would create legal uncertainty that “could result in potential prolonged litigation.”

The entire reasoning for the legislative action this year is murky, though stakeholders interviewed as part of a $150,000 city-commissioned study on governance said there have been suggestions that Charlotte’s need for revenue to support services and programs could impact the airport’s goal of keeping operating costs low.

A special website established to keep the public informed about the potential change in governance says airport revenues cannot be diverted for general municipal purposes. The aviation department’s five-year capital improvement plan through fiscal 2017 totals $1.04 billion.

Charlotte is in the midst of holding public meetings as part of its study of best governance practices for publicly owned commercial airports. At a meeting Tuesday, speakers thought that the city should retain control of the airport, and some said they did not understand why lawmakers proposed the change.

Fitch Ratings Senior Director Seth Lehman told The Bond Buyer Thursday that other airports have successfully changed governance structures, and some transfers have resulted in litigation.

There are “now no facts that the [airport’s] credit would be at risk based on just what transpired to date,” Lehman said when asked if Charlotte’s governance changed under the proposed bill.

Fitch on Wednesday affirmed its A-plus rating on $694 million of senior airport revenue bonds. The outlook is stable.

Charlotte is a large-hub airport enjoying a stable-to-growing travel base benefiting from its location and status as a primary US Airways hub. The airport’s debt structure is “extremely low” for a large hub airport, according to Fitch.

The airport has $400 million in unencumbered reserves, translating to more than 1,200 days cash-on-hand. Its $35 debt-per-enplanement is “among the lowest in the U.S. for an airport with significant hubbing operations,” Fitch said.

Charlotte Douglas was built by the city in 1932. The airport is run by the city as a self-sustaining enterprise. It has four runways, and nearly 100 aircraft gates.

In addition to senior airport revenue bonds, $175.2 million of special facility revenue bonds are outstanding.

The airport senior bonds are rated Aa3 by Moody’s Investors Service and A-plus by Standard & Poor’s.

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