The Indianapolis Airport Authority priced $149 million of fixed rate refunding bonds, subject to the alternative minimum tax, on Wednesday to strong investor demand, according to market sources.
Robert Thomson, the authority's senior director of finance and treasurer, said sixteen institutional and several retail investors placed a total of 53 bond purchase orders.
“Citi ran the book on this transaction and the strong orders enabled Citi to reprice up to 5 basis points tighter on certain maturities throughout the curve.” Thomson said. “The resulting all in TIC on the refunding bonds was 1.62% (6.4 year average lived transaction).”
The final spread for the 10-year bond was 40 basis points over the Municipal Market Data's top-rated benchmark.
“Besides being a pretty solid credit, because of its alternative minimum tax it probably adds 25 basis points,” said Howard Cure, director of municipal bond research for Evercore Wealth Management. “In the current market a pretty solid airport credit would ordinarily be about 15 basis points, AMT probably added another 25 to make it a total 40 basis points spread. AMT is interesting because there are so many fewer individuals and families subject to it (after tax reform) that the spreads or the differentiation between AMT and non AMT has come in and people are realizing after just paying their taxes that they are not subject to it anymore so the attractiveness of it has I guess lessened.”
The refunding of floating-rate debt issued in 2010 was sold through the Indianapolis Local Public Improvement Bond Bank. The AMT, fixed-rate bonds refund more than 50% of the Authority’s outstanding indexed floating rate bonds and terminate the associated Authority interest rate swaps.
The bonds are secured by the authority trust estate which includes a pledge of net revenue of the airport.
Fifth Third Securities is the co-senior manager. Frasca & Associates LLC is the municipal advisor to the airport. Sycamore Advisors was financial advisor to the Bond Bank. Frost Brown Todd LLC is bond counsel.
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,” Thomson said.
The authority now has roughly $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 Ratings affirmed its A rating on the revenue bonds ahead of the pricing. The outlook is stable. Moody’s Investors Service affirmed its A1 rating.
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.
