DALLAS — Dallas-Fort Worth International Airport continues its record refunding year next week with a $269 million issue.
The revenue bonds, issued jointly by the cities of Dallas and Fort Worth, co-owners of the airport, will be priced through negotiation with Morgan Stanley, M.R. Beal & Co., Barclays, and Ramirez & Co. The bonds will refund Series 2001 A and B.
In the second half of the year, DFW plans to refund nearly $1 billion of its $4.6 billion of outstanding debt. Last month, the airport issued $290 million of refunding bonds. After next week’s issue, DFW expects to price another $300 million in October, officials said.
The refundings coincide with a terminal remodeling program and the bankruptcy of the airport’s major tenant, American Airlines.
In July, the airport sold $475 million of bonds subject to the alternative minimum tax and drew a true interest cost of 4.75% and a yield to 9-year call of 4%. The non-AMT issue for new money was three times oversubscribed, officials said.
The upcoming Series 2012F bonds carry ratings of A-plus from Standard & Poor’s and Fitch Ratings and A1 from Moody’s Investors Service, with negative outlooks from Fitch and Moody’s. The S&P outlook is stable.
“We could lower the ratings in response to project cost increases, weaker traffic, a strategy change by American Airlines that lowers traffic and debt service coverage below forecast levels, or a further decline in unrestricted cash and investments that leads to decreased liquidity,” wrote S&P analyst Todd R. Spence. “Given the increased leverage and projected coverage levels, we do not anticipate raising the ratings during the two-year outlook period.”
With $4.6 billion in outstanding principal, DFW has launched a $3.8 billion capital improvement program that will result in a peak debt load of $6.1 billion, according to S&P. The debt will include an estimated $1.9 billion to remodel the airport’s four original terminals, which opened in 1974.
DFW ranks as the eighth-largest airport in the world based on 2011 passenger counts. Although enplaned passenger traffic levels declined by 2.7% and 3.8% in fiscal years 2008 and 2009, respectively, those decreases have been less severe than those seen at other airports due largely to smaller reductions in connecting passengers.
Traffic rebounded by 1% in fiscal 2010 and increased by 2.4% in fiscal 2011. In the first nine months of fiscal 2012, enplanements are up 2%.
A consultant’s report forecasts that enplanements will rise to 31 million in 2020 from around 29 million in 2011 or by an average annual rate of less than 1%.
“We consider the forecast to be reasonable, assuming American Airlines does not change its strategy,” Spence noted. The airport is American Airlines’ largest hub and represents some 40% of American’s total traffic. American has a dominant market share of 85% of traffic at DFW.
American parent AMR Corp. is facing ongoing labor conflicts as it plans its departure from Chapter 11 bankruptcy protection.
“The negative outlook is based on the airport’s high leverage position and its revenue concentration risk in American Airlines whose future operational structure is uncertain in light of its parent company AMR Corp. (ratings withdrawn) filing for Chapter 11 bankruptcy on Nov. 29, 2011,” wrote Moody’s analyst Kurt Krummenacker. “Resolution of the negative outlook will be closely aligned with future announcements from American about their plans for operating at the airport, as well as the airport’s ability to meet its projections.”
