CHICAGO - The Wayne County Airport Authority plans to enter the market next week with $145 million in fixed-rate airport revenue bonds for Detroit Metropolitan Wayne County Airport in the first of two transactions to refinance a swath of outstanding variable-rate debt.

The airport plans next Wednesday to sell $145 million in fixed-rate, senior-lien airport revenue bonds that would refund roughly $142 million in outstanding variable-rate demand obligations originally sold in 2002. That debt was insured by Financial Guaranty Insurance Co., the former triple-A monoline insurer that now carries junk-bond ratings.

"There have been some problems in the recent past in remarketing those [bonds] at a level that, from an interest-rate perspective, was fully acceptable," said J. Chester Johnson, of New York-based Government Finance Associates, Inc., the airport's long-time financial adviser. "By doing a refunding through the issuance of fixed-rate debt, we fix it out and it's a conservative way of handling the difficulty of FGIC."

Citi is to be senior manager on the transaction, and officials are still selecting the rest of the underwriting team. Miller, Canfield, Paddock And Stone, PLC is acting as bond counsel. Officials are currently considering either Financial Security Assurance Inc. or Assured Guaranty Corp. to insure the bonds. The bonds are being issued through the authority and are secured by a pledge of revenues collected by the authority, whose largest asset is the Detroit airport.

The airport has a total of about $2 billion in senior-lien debt and another $214 million of junior-lien debt. Of its total debt portfolio, roughly $550 million is variable-rate debt - though about $200 million of that has variable-to-fixed rate swaps.

Fitch Ratings and Standard & Poor's both assigned the bonds an A rating with a stable outlook. Moody's Investors Service rates the bonds A2 with a stable outlook.

The transaction is the first of two deals the airport plans to refund some of its outstanding variable-rate debt.

Within the next two months, officials plan to sell $328 million of VRDOs backed with a direct-pay letter of credit that would refund the airport's outstanding auction-rate debt.

"The rates have been high, and we want to get rid of those," said Johnson, adding the interest rates have risen to around 6% and 7% in recent months. Goldman, Sachs & Co., the banker on the original deal, will also act as senior manager on the transaction.

The airport is also watching another $80 million in variable-rate bonds, originally sold in 1996, that carry FSA insurance with a standby bond purchase agreement. "They've been trading pretty well, so we're not planning immediately to do something about those," Johnson said.

When it comes to borrowing, airport officials aim for a so-called 70-20-10 approach to debt - with at least 70% in fixed-rate debt, no more than 20% of variable-rate debt, and no more than 10% in synthetic swaps.

"That's been in place for a number of years, and really it's been put the airport in a pretty good position when you face the times that they're facing," Johnson said.

The transactions come as Northwest Airlines - the airport's largest carrier by far - announced an intention yesterday to enter into a merger with by Delta Airlines. Northwest and its affiliates account for 76% of Detroit Metropolitan Wayne County Airport's 18.1 million total enplaned passengers in 2007.

Though Northwest's enplanments declined slightly in 2005 and 2006, they increased again in 2007 as the airline emerged from bankruptcy. While analysts said the proposed merger could have a long-term impact on the airport's credit strength, it's unlikely the merger will impact the upcoming bond deals.

"A more immediate concern is the fact that the economy in Detroit has weakened, so that might have an impact on the origin-and-destination traffic at the airport," Fitch analyst Peter Stettler said. "But we do think that Wayne County has some advantages. While the Detroit economy is weak, it is still home to the U.S. auto industry, and there's a lot of research and development and Asian automakers moving there, so there's a lot of demand for a strong business airport."

Meanwhile, in May the airport's seven-member board will vote on a 20-year, $3.6 billion master plan. The most expensive piece of the plan is a passenger transportation rail system that would shuttle passengers between terminals as well as potentially to parking lots and even link to a proposed commuter train system running between Ann Arbor and Detroit. Also under the master plan, the airport would build a fifth runway.

 

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