DALLAS — As its largest tenant faces an uncertain future, Dallas-Fort Worth International Airport plans a mix of refunding and new-money debt for this week and late May.
In a deal scheduled to price Thursday, Dallas and Fort Worth together will issue $294 million of revenue refunding and new-money bonds in negotiation with Loop Capital Markets, RBC Capital Markets, Jefferies & Co. and Raymond James|Morgan Keegan.
That will be followed by a Series D issue of $403 million of new money for the airport’s $1.94 billion renovation of its four original terminals.
The Series D bonds are tentatively scheduled for May 24, said Mike Phemister, vice president for treasury services at DFW.
The Series C bonds will not be subject to the alternative minimum tax, but the Series D probably will, unless Congress extends an AMT holiday on airport bonds, according to Phemister.
“We would like for Congress to move on the transportation bill and maybe give a holiday, but it doesn’t look like that will happen,” he said.
The non-AMT provisions on the Series C bonds are unrelated to a recent ruling from the Internal Revenue Service on a DFW refunding for its Skylink automated terminal transportation system, Phemister said.
The refunding portion of this week’s Series C takes out $70 million of outstanding debt for the Grand Hyatt airport hotel, providing savings of about $6 million in net present-value and $13.7 million in the future.
Because of new provisions, the refunding frees up about $17 million held in reserves under requirements for the old hotel bonds issued by the airport’s Public Facilities Improvement Corp., Phemister said.
The PFIC bonds were backed by hotel revenues, whereas the refunding bonds are backed by airport revenues.
The new money from Series C will finance construction of a new parking garage for Terminal A and also provide $35 million for a Dallas Area Rapid Transit light-rail station there, Phemister said.
DART is scheduled to link its new Orange Line to DFW in 2014, providing connections to Irving and downtown Dallas.
A commuter line known as the Trinity Railway Express operated jointly by DART and the Fort Worth Transportation Authority provides limited service to the southern end of the airport.
The debt comes with caveats from Moody’s Investors Service and Fitch Ratings, which have negative outlooks on their respective ratings of A1 and A-plus. Standard & Poor’s maintains a stable outlook on its A-plus rating.
“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,” according to 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.”
The major suspense regarding American Airlines is whether the bankrupt carrier will accept or reject its leases in June.
Another big decision in bankruptcy court is whether the airline will be allowed to invalidate its union contracts.
In a slap at American’s management, labor groups at the airlines said on Friday they support a potential merger with rival US Airways Group Inc. in a deal they say would save more jobs than a plan by parent AMR to reorganize as a standalone carrier.
Unions representing American’s pilots, flight attendants and ground workers said they struck a deal with US Airways that would preserve 6,200 of the 14,200 jobs American says it would cut if it pursues its current plan.
For DFW, a merger with Tempe, Ariz.-based US Airways could mean the loss of American’s headquarters just southwest of the airport entrance.
However, Phemister said the airline would remain a major hub if the carriers combine.
The experience in Houston with the loss of Houston-based Continental Airlines through its merger with United Airlines provides some encouragement. Houston’s George Bush Intercontinental Airport is continuing its own terminal remodeling and expansion to accommodate United.
“It won’t be detrimental to DFW, regardless of what they decide to do,” Phemister said. “We will still be the primary hub.”
American, which represented 30% of airport revenues in 2011, will remain an anchor at DFW in some form, Moody’s believes.
“The two most likely scenarios seem to be either an emergence of American from bankruptcy with a business model very similar to its current one or a merger of some type with another carrier, most likely US Airways,” Krummenacker wrote. “In either scenario, we expect the carrier to continue to operate with a large presence at DFW, including significant connecting traffic at the airport, though either case will likely result in some reduction in total seat capacity offered at the airport.”
Phemister said the airport believes that American will accept all or most of the 13 leases it has with DFW and will continue the use agreement.
AMR says it lost $1.7 billion in the first quarter, mostly on costs related to its bankruptcy restructuring. Excluding bankruptcy costs and other special items, the company would have lost $248 million, compared to a loss of $405 million a year ago.
Despite all the turbulence in the industry, Phemister is optimistic on pricing for DFW’s debt.
“I think the market looks good right now,” he said. “The supply seems to be limited again. We believe we are hitting the market at a really good time.”