DALLAS — The Dallas City Council on Wednesday approved the sale by a special local government corporation of up to $500 million of special facilities revenue bonds to finance upgrades at Love Field, the city-owned airport located near downtown.
The 30-year, tax-exempt bonds will be issued by the Love Field Airport Modernization Corp., which the city established in 2008 to finance the project. The debt will be guaranteed by Southwest Airlines Co. under a lease agreement with the city.
Because the airline will manage the project and guarantee debt payments, the rating on the bonds will be based on Southwest’s rating rather than airport revenue.
Moody’s Investors Service lowered its rating on Southwest’s unsecured debt two notches to Baa3 in July, followed by a downgrade from Standard & Poor’s to BBB from BBB-plus in October.
The City Council also approved a revenue credit agreement that calls for Dallas to reimburse Southwest for the debt service from airport revenue, minus operations expenses and debt service on existing city-issued airport revenue bonds.
The modernization effort is required under a five-party agreement in 2006 to repeal the 1979 Wright Amendment, which originally restricted Southwest from flying passengers from Love Field to destinations beyond the four states bordering Texas.
The amendment was designed to help boost traffic at Dallas-Fort Worth International Airport.
The federal law was later loosened, to allow Southwest to fly from Dallas to destinations in Alabama, Mississippi, and Missouri.
The repeal agreement means all restrictions on passenger flights from Love Field are to be removed in 2014.
Parties to the repeal agreement included the cities of Dallas and Fort Worth, DFW Airport, American Airlines, and Southwest.
The modernized terminal will have a capacity of approximately five million passengers a year. Currently, about four million passengers a year pass through the facility.
The main terminal will remain intact, but three passenger gate concourses will be demolished and replaced with a single T-shaped concourse containing 20 operational gates.
The City Council also agreed to a negotiated bond sale of $164.5 million of general obligation bonds in March in place of a scheduled $314.5 million issue.
The total includes $128.9 million of new money and $35.6 million to refund existing debt.
The bonds are scheduled to be priced on March 9.
Dallas chief financial officer David Cook said the smaller sale, plus the reliance on a commercial paper program that is to be in place by October to finance on-going bond projects for the next 12 months, will result in an increase in debt service in fiscal 2011 of $6.8 million compared to fiscal 2009.
If the city went ahead with the full $314.5 million that was planned, debt service would go up by almost $17 million next fiscal year, Cook said.