DALLAS — With a $1 billion renovation of George Bush Intercontinental Airport in the works, the Houston Airport System will seek interest-rate savings in a $424 million refunding deal expected to price in mid-July.

The issue is made up of $347.3 million of Series A and $76.6 million of Series B airport system subordinate-lien revenue bonds.

Goldman, Sachs & Co. is senior manager and book-runner on the deal. Morgan Stanley, Wells Fargo Securities, Rice Financial Products Co., Cabrera Capital, and Raymond James are co-managers.

First Southwest Co. is financial adviser. Vinson & Elkins is bond counsel with Bates & Coleman. Fulbright & Jaworski is underwriters’ counsel.

The bonds carry ratings of A from Standard & Poor’s and A-plus from Fitch Ratings, both with stable outlooks.

Standard & Poor’s also affirmed its AA-minus long-term rating on the city of Houston’s senior-lien airport bonds. Fitch does not rate the senior-lien debt.

“The rating reflects our view of the system’s dominant position in a large, diversifying service area and strong liquidity,” said Standard & Poor’s credit analyst Todd Spence. “We expect that during the next two years, enplanement levels will continue to trend higher and that the airport’s capital improvement plan and associated debt needs will prove manageable in terms of financial resources.”

Houston is issuing the 2011A bonds to refund Series 1998A, 1998B, and 2000A bonds. The 2011B bonds will refund Series 1998C and 2002B bonds.

As of March 31, the city had about $450 million of bonds outstanding at the senior lien, all fixed rate, and about $2 billion at the subordinate lien. The subordinate-lien debt includes $323 million of auction rate, and $93 million of variable rate. There are no swaps in effect. Houston also has a $150 million commercial paper program, with none outstanding.

In his analysis of the city’s airport debt, Spence noted, “Debt per enplanement has increased recently, to about $100 in 2011, up from about $81 in 2008, but we consider this manageable.”

The Houston Airport System operates three airports in the Houston area.

William P. Hobby Airport, seven miles southeast of downtown Houston, is the city’s oldest airport and was the primary aviation hub until Intercontinental opened in 1969. Hobby now serves the city as a secondary airport handling domestic service and is a regional center for corporate and private aviation.

Later named for the first President George Bush, Intercontinental, north of downtown Houston, grew to become the nation’s seventh busiest airport and a major hub for Continental Airlines, serving more than 40 million passengers yearly.

The third airport in the Houston system is Ellington, a former U.S. Air Force Base with three runways near Hobby that serves as a reliever airport for the other two.

Earlier this month, Houston Mayor Annise Parker and airport and airline executives reconfirmed construction plans for the billion-dollar redevelopment at Bush Intercontinental, despite consolidations that will result from the merger of Continental and United Air Lines.

The agreement between the city and the airlines updates the agreement approved by the City Council in 2008. Under the revised plan, the airlines will develop the project in phases, as economic conditions improve.

“The new Terminal B will be larger and easier to navigate than the current facilities, with more amenities for travelers,” said Jeff Smisek, president and chief executive of United Continental Holdings Inc.

Phase one of the renovation is expected to cost $161 million and is projected to open in late 2013.

Future phases will redevelop the north concourse of Terminal B to provide a flexible facility that can accommodate a range of aircraft types and support international operations. It will also result in improved customer service, amenities, and options for travelers.

Fitch analyst Emma W. Griffith said the merger could have an impact on Bush Intercontinental’s role as a connecting hub. Currently about 40% of enplanements come from connecting traffic. In addition to its home base at Chicago O’Hare Airport, United has a major connecting hub in Denver.

“However, Fitch does not expect the recent merger of United and Continental, as well as the proposed Southwest acquisition of AirTran, to have material near-term impacts to the service levels at the airport system,” Griffith said.

After exhibiting average growth rates of 3.2% through the decade leading up to the downturn, in fiscal 2009 both Intercontinental and Hobby lost passengers, with declines of 8.2% and 8.8% respectively, according to Fitch.

For fiscal 2010, Intercontinental saw enplanements increase by 1.3% while Hobby saw more robust recovery of 5.7% to near-peak levels. At Intercontinental, the recovery of international enplanements was stronger than that of domestic enplanements, with a 5.6% upswing in international compared to 0.3% for domestic.

For the first 10 months of the 2011 fiscal year that began in July, Hobby enplanements are up 7.4% over the same period a year prior. At Intercontinental, enplanements are up 0.2% over the same period a year before. System-wide, enplanements are up 1.5%.

Airport officials expect growth of 2% for fiscal 2011 system-wide.

For the first nine months of fiscal 2011, total operating revenues were $303.2 million, up 0.6% over the same period for 2010. The increase is largely due to higher retail concessions and car rental revenues. On the cost side, for the first nine months of fiscal 2011, operating expenses increased 2.2% to $174.9 million due to higher salary expenses and higher third-party contract costs.

“These results compare favorably to the airport system’s 2011 fiscal plan, which anticipated a 1.1% decrease in operating revenues and a 2.4% increase in operating expenses for 2011,” Griffith noted.

Airport unrestricted cash reserves have remained “strong,” with $483 million of unrestricted fund balances in December 2010, equivalent to 720 days’ cash on hand and covering 20% of total long-term debt. Some of the airport’s internal liquidity will be drawn on for capital spending in upcoming years, according to Griffith.

The updated five-year capital improvement program for 2012 through 2016 totals about $874 million, above the 2011-2015 projections of $535 million. The higher figure includes the Terminal B improvement project, phases 2 and 3, additional expansion projects for Terminal D, and additional parking enhancements.

Phases 2 and 3 of the Terminal B improvement project are expected to be built in the years 2017 and 2018 and completed in 2021. Phases 2 and 3 will likely be financed with bonds backed by passenger facilities charge revenues. The bonds are not expected to be issued until the end of the capital improvement program.

The 2012-2016 plan also includes $81 million for Terminal D improvements, which the airport system will use for improving international facilities, introducing gates capable of handling the Airbus A380 super jumbo jet. The project will likely be funded with Airport Improvement Fund moneys.

Parking improvements at both Hobby and Intercontinental will be demand driven and are likely to be funded with Airport Improvement Fund moneys, according to Fitch.

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