DALLAS — The first of two refunding deals planned by the Dallas-Fort Worth International Airport will be the largest bond issue this week in Texas.
The world’s third-busiest airport expects to offer $310 million of Series 2009A joint revenue refunding bonds to remove the alternative minimum tax requirements from revenue debt sold in 2004 and 2008.
Officials are refunding the bonds to take advantage of a stipulation in the federal stimulus bill passed earlier this year, which allows airports to sell debt not subject to the AMT and refund outstanding AMT bonds with the non-AMT debt through the end of 2010.
Siebert Brandford Shank & Co. and Morgan Keegan & Co. lead the underwriting syndicate for the negotiated sale.
First Southwest Co. and Estrada Hinojosa & Co. are co-financial advisers to the airport. Vinson & Elkins LLP and McCall, Parkhurst & Horton LLP are co-bond counsel.
The airport carries underlying ratings of AA-minus from Fitch Ratings, A1 from Moody’s Investors Service, and A-plus from Standard & Poor’s, which revised its outlook to stable from positive on $3.7 billion of revenue bonds outstanding.
Analysts attributed the outlook revision to “a weakening industry environment and stagnating airport traffic trends combined with weakening revenue trends likely to pressure near-term financial performance, long-term capital funding requirements, and uncertainty associated with an airline use and lease agreement under negotiation.”
The outlook had turned positive in April due to the benefits of the airport’s revenues from natural gas production on its property as an ongoing source of funding, according to Standard & Poor’s.
In late 2006, officials signed an agreement to have Chesapeake Energy Corp. begin natural gas drilling on airport land. But the company has scaled back plans to add hundreds of wells due to the overall economic malaise and declining natural-gas prices. Still the revenue from the agreement with Chesapeake is put in a capital-improvements fund, which is an unrestricted account available for debt service, according to analysts.
This refunding, and another one of similar size that’s expected to price next month, come as the airport is about to begin a $1.5 billion renovation of four existing terminals. Most of the project will be bond financed and construction is slated to start in 2011.
Elsewhere, the Southwest Higher Education Authority Inc. may price about $154 million of revenue refunding bonds on behalf of Southern Methodist University as early as Wednesday.
Merrill Lynch leads the underwriting syndicate for the negotiated sale.
Moody’s assigned its Aa3 rating and Standard & Poor’s assigned a AA-minus rating to the bonds. Both agencies said the outlook is stable.
Analysts said the strong ratings reflect the university’s adequate financial resources, consistently positive operating results, stable enrollment levels, and manageable debt. With this refunding, the university lowers the percentage of variable-rate bonds in its debt portfolio to 17% from 57%, according to Moody’s.
The university will use proceeds to take out Series 1999D bonds and Series 2006 bonds, refinance a swap-termination payment on the 2006 debt, and finance some campus improvements, according to analysts.
“SMU’s overall improvement in student demand at the undergraduate level since the beginning of the decade remains notable and reflects a positive return on the university’s strategic spending on capital and programs,” Moody’s said.
Current undergraduate enrollment is nearly 9,200, and there are another 2,100 graduate students at the university, which is in Dallas.
Farmer’s Branch plans to offer $10 million of combination tax and revenue certificates of obligation this week through a negotiated sale with Morgan Keegan as sole underwriter.
First Southwest is the financial adviser to the suburban Dallas town of about 31,100. Vinson & Elkins is bond counsel.
Proceeds from the certificates, which are structured as serials maturing in 2010 through 2024, will fund acquisition and demolition of “dangerous structures.”
Finance director Charles Cox said the city will be razing a long-abandoned supermarket and a strip mall that’s 75% vacant in the four corners section of town.
“We need to abate this dangerous situation,” Cox said. “Then once the demolition is complete the city will evaluate what to do with the property.”
He said the debt won’t be insured and the certificates will come to market with the underlying rating of AA-plus from Standard & Poor’s.
The town doesn’t issue much debt and still has about $28 million of unissued bonds from a 1985 authorization that the City Council has “formally acted not to issue” in a vote last September, Cox said.
Farmer’s Branch voters did approve $5.5 million of general obligation bonds in a May election to finance the relocation of a fire station but officials have yet to issue those bonds, as well.