Low rates, high investor interest greet Dallas-Fort Worth airport deal
In the largest airport refunding since the COVID-19 crisis began, Dallas-Fort Worth International Airport achieved net present value savings of more than 27%, far better than expected, according to chief financial officer Chris Poinsatte.
Tuesday's $489.5 million pricing is the first of two tax-exempt refunding deals the airport plans through August.
The airport also plans to issue $1.2 billion of taxable bonds later this month.
In a roadshow before the deal, the airport anticipated NPV savings of just under 20% on the bonds reaching final maturity in 2035. The actual NPV savings came to 27% or $132.3 million, with cash-flow savings of $168.8 million, Poinsatte said.
Overall, the serial bonds were eight times oversubscribed, Poinsatte said. Maturities of 2035 were oversubscribed by a factor of 11.2 and closed with a yield of 1.88%. True interest cost for the entire deal came to True Interest cost of 1.866%. Interest on the bonds is not subject to the Alternative Minimum Tax.
“We were able to lower the yields by 4 to 13 basis points,” Poinsatte said. “We achieved a spread of 75 basis points from MMD. We were looking at 100 earlier in the week.”
Siebert Williams Shank & Co. was senior manager. Hilltop Securities and Estrada Hinojosa are financial advisors.
The deal attracted 89 investment groups, almost twice as many as have participated in tax-exempt issues in the past, Poinsatte said.
“We have another tax-exempt refunding coming up of $500 million of bonds and $75 million in commercial paper,” Poinsatte said. “That’s currently scheduled for the middle of August. We might move that up.”
Michael Phemister, who retired in 2019 as DFW’s long-time vice president for treasury services and guided the airport’s bond strategy, said the Tuesday deal demonstrates the resiliency of DFW as an economic engine.
“It comes back to what we have been telling people for years,” Phemister said. “The aviation industry has demonstrated time after time its ability to overcome obstacles. In 2001, I took the first airport deal to market after 9/11, and it was the same story. They were telling me ‘you’ll never sell bonds again.’”
That bond sale for $650 million was used to build Terminal D, the airport’s showcase international terminal.
“The underwriter was telling us you may not be able to sell bonds,” Phemister recalled. “And I said, we will sell the bonds. We went to New York in December of that year and sold $650 million, and five years later, the terminal was built.”
Phemister said he heard similar warnings when hub carrier American Airlines filed for Chapter 11 bankruptcy in 2011.
“I kept asking the ratings agencies: Why are we not triple-A when we have proven time and time and time again that no matter what happens, we do not default?” Phemister said.
Tuesday’s sale followed a downgrade from S&P Global Ratings to A from A-plus, with a negative outlook.
"The rating action and negative outlook are based on the severe drop in enplanements and the significant negative impacts of the COVID-19 pandemic that, in our view, is likely to depress passenger levels and financial performance over the intermediate term and could increase volatility of activity," said S&P Global Ratings credit analyst Todd Spence.
Moody’s rates the bonds A1. Fitch maintains an A-plus rating with a negative outlook, while Kroll Bond Rating Agency rates the bonds AA.
In a Tuesday report, Moody’s cited DFW as one of the large hub airlines whose risks are heightened by the dependency on a single airline. American, rated Ba3 with a negative outlook by Moody’s, accounts for 68% of DFW’s traffic.
“Though large airports can bear the risk of high airline concentration, they also benefit from being essential to the airline’s network and are typically highly profitable for airlines,” Moody’s analysts wrote.
Poinsatte said the airport made a decision to aggressively disclose information to investors on the Municipal Securities Rulemaking Board’s EMMA Web site when the COVID-19 outbreak began to affect transportation in the U.S. in March.
“We want to be sure that investors have enough information that they can feel comfortable with DFW as a good investment,” he said.