Car-rental center project reflects Hartford airport's growth
Rising passenger counts at the Hartford airport prompted a bond sale to pay for a consolidated car rental facility.
The quasi-public Connecticut Airport Authority, owner and operator of Bradley International Airport, priced $151 million of customer facility charge revenue bonds on Wednesday.
Bradley, 12 miles north of Hartford and sitting between Boston and New York, is New England's second-busiest airport. It had 6.7 million passengers in 2018, up 23% over six years.
"Generally the smaller airports, and airports in general, want to provide services for people as efficiently as possible. Car rental facilities are clearly something to consider," said Randy Gerardes, director of municipal research for Wells Fargo Securities. "How much time is spent in the facility post-security is important and you want to get people to their cars."
Bank of America Merrill Lynch was senior manager for the negotiated sale of 30-year, fixed-rate bonds, which included roughly $35.4 million of Series A bonds that are tax-exempt but subject to the alternative minimum tax, and $115.8 million of Series B federally taxable bonds. S&P Global Ratings and Fitch Ratings rate the bonds A-minus and BBB, respectively, both with stable outlooks.
The tax-exempt series, with a 2049 maturity, priced to yield 3.65% with a 4% coupon and 3.33% with a 5% coupon.
The taxables priced to yield between 2.166% on the 2023 maturity, a 70 basis point spread to Treasurys, and 2.812% on the 2045, a 147 bp spread to Treasurys.
Connecticut is home to major insurance companies and a plethora of defense contractors, including United Technologies. Visitors account for 40% of Bradley's passengers.
"The corporate presence within Hartford is helpful. Having that corporate base stay in the airport is important," Gerardes said.
Proceeds will finance a portion of the development and construction costs of a ground transportation center that will consolidate all car-rental activities; backstop debt-service revenue and rolling coverage funds; and capitalized interest and issuance costs.
Design-build contractor Austin Commercial has provided a fixed lump-sum price of $195.9 million. Customer facility charges have funded $10.5 million through the end of January, while an additional $67 million of pay-as-you-go CFCs will help fund the project.
Also, the authority will fund up to $5 million of a "project contribution" to cover contingency costs in addition to the $1.8 million in contingencies.
"Some of the issues with smaller airports are the fixed costs for infrastructure, but the alternative is not keeping up with the industry in terms of the consumer experience," Gerardes said.
"Key project strengths include strong operating agreements and debt structure terms; diversity of rental car operators serving the local market; and moderate rate-making flexibility with a backstop of a deficiency true-up mechanism to the participating rental car companies to fully support debt payments," Fitch said.
Offsetting factors, according to Fitch, include a high customer facility charge rate for an airport if its size, $8.40 per transaction day, which took effect in February.
Fitch also cited ongoing elevated leverage profile given the debt level to fund the project, and expected reliance on facility payments from rental car operators to maintain coverage levels should rental car activity underperform forecasts.
The federal government opened then-Bradley Field as a military air base in 1941 before transferring it to state control in the mid-1940s. It bears the name of Army Second Lieutenant Eugene Bradley, who died at the field during a training flight.
The airport authority, established in 2011, owns and operates Bradley and the five state-owned general aviation airports -- Danielson, Groton-New London, Hartford-Brainard, Waterbury-Oxford, and Windham.
Closing for the bond sale is scheduled for April 9.
Pullman & Comley is bond counsel, while Squire Patton Boggs LLP is representing the underwriters. Frasco & Associates LLC is the authority's financial advisor.