DALLAS — Dallas-Fort Worth International Airport priced $225 million of refunding bonds — about half as much as expected — and advanced the deal by a day after the U.S. Justice Department opposed the merger of DFW's largest tenant, American Airlines, with US Airways.

"We took out any bonds that weren't in the money," said Mike Phemister, vice president of treasury services for DFW.

Phemister said one institutional buyer backed out because of the Justice Department's unexpected opposition to the airline merger.

"They said they didn't want the headache of explaining the issue," Phemister said.  "Nobody else seemed to care."

With all-in yield of 3.88%, spreads on the 2033 maturities were 135 basis points over the Municipal Market Data yield curve, Phemister said.

"We were happy with the sale in the current market conditions," he said.

On Tuesday, the U.S. Justice Department filed an antitrust lawsuit to halt the nearly completed merger, which was part of American Airlines parent AMR's plan to emerge from Chapter 11 bankruptcy.

The airport on Tuesday amended its preliminary official statement after the action by the U.S. Justice Department, six states and the District of Columbia.

"No assurances can be given as to whether or not the merger between AMR and US Airways will be consummated," the supplemental statement read.

The supplement to DFW's POS provides a link to the federal complaint filed in U.S. District Court in New York Tuesday. Justice Department opposition blindsided credit analysts, who had not factored such a move into their ratings outlooks. Previous mergers of major carriers in similar circumstances were not opposed by federal officials.

Intervention in the merger comes after months of negotiations between the two airlines and as DFW is undertaking a $2 billion remodeling project with the understanding that American will continue to operate its major hub there.

Under terms of the proposed merger, the headquarters of the combined airlines would remain at American's home office at the southwest entrance to DFW.

A confirmation hearing on American's reorganization is scheduled before Judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York on Thursday.

American's emergence from Chapter 11 was expected to coincide with the closing of its merger with US Airways in an $11 billion, all-stock deal. Only federal regulatory approval was still needed.

The airline entered bankruptcy with about $3.3 billion of tax-exempt revenue debt issued to fund projects at its hub airports, maintenance bases and other facilities, or to refund debt. About $1.5 billion was unsecured.  The other $1.8 billion of municipal bonds was secured by some form of collateral.

Under the reorganization plan now threatened by the federal antitrust action, even unsecured creditors are to be made whole.

In previous airline bankruptcies in which unsecured municipal bond received between 20 cents to 60 cents on the dollar. With the federal rejection of the American-U.S. Airways merger, the status of debt holders could change.

DFW will carry about $6 billion in debt after the upcoming refunding.  DFW was the largest issuer in the Southwest region for the first half of 2013, with more than $1 billion, according to data from Thomson Reuters.

While ratings analysts maintained stable outlooks on DFW's debt before the Justice Department decision, Standard & Poor's warned that "any change in strategy by American Airlines that affects traffic negatively at DFW could have negative rating implications and may lead us to lower the rating on the airport."

S&P rated the upcoming bonds A-plus.  Moody's Investors Service rated the bonds A2.

Fitch Ratings on Wednesday issued a report that the Justice Department's action would not have any short-term impact on its airport ratings.

"As a solid franchise, operational performance would likely remain intact even if American's operations should contract," Fitch analyst Seth Lehman wrote in reference to DFW.

"The central risk for the American hubs would be a major loss in connecting traffic, exacerbating the debt burden and airline cost profile since all three hubs have in place or will be facing high leverage metrics driven by large capital programs.

DFW decided in 2012 to move up plans to issue $2 billion of debt for the Terminal Renewal Improvement Program by one year to capture the current low interest rates.

The Fitch downgrade came a week after Moody's lowered DFW to A2 from A1 in advance of two issues worth a combined $800 million.

With 83% of DFW's traffic coming from American, "much of the airport's strength remains closely tied to the business risk of that airline," Moody's noted in its latest report.

This week's deal is led by Citi, with Barclays, Jefferies and Cabrera Capital Markets as co-managers.

First Southwest Co. and Estrada Hinojosa & Co. are co-financial advisors.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.