CHICAGO — The Indianapolis Airport Authority plans to enter the market June 25 with a $350 million variable-rate revenue bond sale that will mark the agency's last financing to pay for a $1.06 billion new project at Indianapolis International Airport.

The Indianapolis Local Public Improvement Bond Bank will serve as the conduit issuer on the deal, as it has for all the debt issued for the airport. As the authority prepares to open its new terminal building in October, it recently retired all of its debt issued for the existing airport.

The transaction will be sold in one tranche with five subseries that will be marketed by five underwriting firms, with Goldman, Sachs & Co. as the lead re-marketing agent. Ice Miller LLP is acting as bond counsel. Depfa First Albany Securities LLC is financial adviser.

About $220 million of the proceeds from the new sale will go to refund commercial paper that the authority began selling in May 2007 to finance a variety of projects associated with the airport redevelopment. The remaining $130 million of the upcoming transaction represents new money that will finance projects as well as fund a debt service reserve account and a capitalized interest account, according to Jeremiah Wise, the authority's assistant finance director.

The 30-year bonds will carry insurance from Financial Security Assurance Inc., whose triple-A ratings are considered stable by all three rating agencies. In addition, the bonds will be enchanced by standby bond purchase agreements from JPMorgan Chase Co., UBS Securities LLC, and Siebert Brandford Shank& Co. The agreements include a trigger for termination if all three rating agencies downgrade FSA to below investment grade.

Ahead of the deal, Moody's Investors Service revised its outlook to positive from stable and affirmed its A1 rating on the debt. Analysts upgraded the outlook in recognition of their expectation that the Airport Authority will successfully complete its capital plan and will continue to achieve strong debt service coverage as well as manageable airline costs per enplaned passenger.

Fitch Ratings rated the bonds A-plus with a stable outlook. Standard & Poor's rates the airport debt A with a stable outlook, but has not yet released its review ahead of the new issue.

The Airport Authority currently has about $900 million in outstanding debt, all of which is fixed rate. The upcoming $350 million transaction is its first variable-rate debt issuance for the airport redevelopment. The authority plans to synthetically fix the upcoming issue with forward-starting swaps it began entering into in 2004. They take effect July 1.

The authority's $1.06 billion airport project is part of a larger, $1.6 billion capital improvement plan that is scheduled through 2010. Roughly 58% has been financed through general airport revenue bonds, 12% from federal grants, 11% from cash, 2.5% from bonds backed by customer facility charge, and another 15% from passenger facility charge-backed debt. The authority plans to return to the market in 2010 to finance a few remaining airport-related projects, Wise said.

The primary facility serving the Indianapolis area, the airport serves more than four million passengers a year, with passenger traffic reaching near-record levels in 2007. Its diverse group of carriers is one of its top strengths, said analysts, as well its agreements with those airlines that are in effect through 2010. The authority and the airlines are currently negotiating an amendment to those agreements that would extend them through 2012.

In addition to its strong line-up of passenger airlines, the airport benefits from its cargo operations that are driven by FedEx, which maintains its second-largest sorting facility at the airport. Cargo operations contribute 11% to the airport's overall revenues. Another 30% comes from airline revenues, with remaining revenue coming from a variety of sources, including PFCs.

The authority has been planning to redevelop the airport since 1975, and has currently scheduled an Oct. 28 new terminal opening. "We've been able to show that we have basically stuck to the plan, and to the airline agreements signed in 2001," said authority finance director Marsha Stone.

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