Indianapolis airport will deal to shed floating-rate exposure
The Indianapolis Airport Authority heads into the market Tuesday with a $107 million refunding that will reduce its floating-rate liquidity and swap exposure.
The refunding of floating-rate debt issued in 2010 will sell through the Indianapolis Local Public Improvement Bond Bank. The bonds will be swapped to fixed rate structure. Citi is the senior manager and Fifth Third Securities is the co-senior manager. Frasca & Associates LLC is the municipal advisor. Frost Brown Todd LLC is bond counsel.
“A strategic focus area for IAA is sustainability and stability, and one goal that is driven by the strategy has been to change the risk profile of IAA’s debt portfolio,” Robert Thomson, the authority's senior director of finance and treasurer, said in an e-mail. “While the risks associated with IAA’s variable rate debt are well managed and the program has worked as it was intended, reducing the exposure to those risks is why IAA is now in the market with this refunding transaction.”
The bonds are secured by the authority trust estate includes a pledge of net revenue of the airport.
Thomson said that the refunding of the variable rate debt and termination of the associated SWAPs that had set a synthetic fixed rate may result in a small net present value loss when all costs of issue are considered. The mark-to-market valuation on the swap tied to the bonds being refunded was at a negative $21 million at end of July.
After the transaction the airport authority will have $831 million in outstanding debt of which $308 million remains as variable rate and associated with outstanding swaps. The authority said it has plans to remarket $71 million of variable rate bonds issued in 2010 to secure more favorable terms on the bonds at some point later this year, according to the offering statement.
Fitch Rating’s affirmed its single-A rating on the revenue bonds. The outlook is stable. Moody’s Investors Service is expected to affirm its A1 rating on the bonds.
“All rated debt is senior and fully amortizing with a final maturity of 2037, but IAA owes more variable-rate debt than peers, at 37% of total outstanding principal, which is mitigated by swaps with adequately rated bank counterparties,” Fitch noted in the credit report.
Fitch said that the rating considers the airport’s new use and lease agreement which is in place through 2023. The agreement is a hybrid model that benefits from an “extraordinary coverage provision that enables the airport to pass costs to air carriers if operating revenues are insufficient per covenanted levels,” Fitch noted.
“Timing of the transaction has been driven by the favorable relationship between the swap and bond markets and the credit strength of IAA’s new 5 year airline agreement, new 10-year rental car agreements, and new concessions program,” Thomson said.
Fitch noted that airline revenues grew by 5.3% in 2018 due to increases in rates and charges and passenger level growth. Parking and concession revenues both grew reflecting trends in passenger traffic.
The authority has a five-year capital improvement program through 2024 that totals $453 million, of which $157 million is expected to be bond funded with the rest will primarily funded with grants and other external sources. Major capital investment focuses on apron/airfield construction and rehabilitation, parking improvements, and safety/security upgrades.