BRADENTON, Fla. — Miami-Dade County hired a new rating agency to help attract investors to next week's $534 million bond issue for Miami International Airport.
The strategic decision to add Kroll Bond Rating Agency to MIA's analytical line-up resulted in a 31-page review of the airport's credit, and an AA-minus rating for the bonds.
The deal prices Tuesday for retail and Wednesday for institutional investors.
Fitch Ratings and Standard & Poor's affirmed their A ratings ahead of the deal. All have stable outlooks.
"We are looking forward to investor response to [Kroll's] rating, and hoping that with the more detailed write-up investors will have a better picture of our economics," said Anne Syrcle Lee, chief financial officer of the county's aviation department. "If they do, it may help in bringing more parties to the table."
The fixed-rate, tax-exempt offering is preliminarily structured as $495.6 million of aviation revenue and refunding bonds subject to the alternative minimum tax. Final maturity is in 2045.
A second series of $38.6 million in non-AMT refunding bonds will also be issued. Final maturity is in 2027.
The transaction will raise $75 million in new money bond proceeds for capital projects in the first phase of the Terminal Optimization Program. TOP is aimed at central terminal facilities not included in the $6.5 billion capital improvement program completed in 2014 on time and within budget.
Next week's offering also will refund outstanding bonds for estimated net present value savings of $25.2 million or 5.18% of par refunded.
The deal is structured with level debt service through 2020, and includes capitalized interest for the new money portion.
Obtaining the airport's first rating from Kroll was designed, in part, to have "a fresh set of eyes" on MIA's credit, Lee said, adding that cost was also a factor as it meant dropping Moody's Investors Service for next week's deal.
Moody's, which has rated the airport's credit for more than two decades, assigns A2 ratings to MIA's outstanding bonds.
"Moody's cost has always been 30% to 40% higher than the other entities and we didn't feel that it was necessary to pay those fees when the market doesn't require three legacy ratings," she said.
Lee said she is "happy but not surprised" that Kroll rated MIA's bonds AA-minus because of the rating agency's focus on aviation as a business model.
She also said investors have also requested more detail on the airport's credit structure.
"We have noticed the last few bond issues that credit ratings have only been one part in the pricing of our bonds," she said. "Investors have been doing their own due diligence, and the pricing has reflected it."
Kroll gives investors additional insight into the credit, said Municipal Market Analytics partner Matt Fabian.
Because of volatility and inconsistency among ratings, he said rating reports are becoming less reliable guides to credit quality.
"The rating report helps set a baseline of common knowledge among investors and allows bonds to trade more freely," Fabian said. "Kroll's strategy of providing extensive rating reports has helped their entrance into the market."
The letter grade isn't everything, he said.
"When credit spreads are so tight, it's less about whether a security is A or A-minus," Fabian said. "Investors care more about a transaction's peculiarities, hidden risks, and potential headline developments."
Last year, MIA's credit spreads tightened in the nine months between the issuance of two refunding deals.
Spreads to Municipal Market Data's top benchmark on comparable maturities were 133 basis points on the 9-year maturities and 118 basis points on the final maturities in 2034 on an MIA deal in March.
In December, spreads were 92 basis points on the 10-year maturities and 95 basis points on the final maturities in 2036.
The Miami-Dade aviation department has $5.7 billion of outstanding debt.
Fitch, which released a 10-page review of the county's aviation bonds, said its A rating reflects the airport's strong position in the south Florida market for both domestic and international air service.
"Miami stands out as one of nation's strongest international gateway airports with a dominant position for Latin American and Caribbean air services," said Fitch analyst Seth Lehman.
All three agencies expressed concern about competition from Fort Lauderdale-Hollywood International Airport, which is less than 30 miles away.
Analysts were also concerned about Miami's airline cost per enplaned passenger, and leverage due to past borrowing.
"We expect MIA's debt load and airline cost structure to remain high," said S&P analyst Joseph Pezzimenti.
The airport's CPE was $20.54 in fiscal 2014, and is projected to be $20.14 based on 2015 budgeted figures, he said. Officials project that the CPE will be $19.97 from 2015 to 2022.
"The forecast shows cost per enplanement increasing to $23.83 by fiscal 2022, when enplaned passengers increase to 23.4 million," Pezzimenti said. "We believe the high debt load and airline cost structure could stress airlines that operate there, especially if the airport experiences a period of flat or declining demand."
Kroll said the airport's key strengths include "sound financial operations characterized by ample coverage and comfortable liquidity."
When asked about competition from nearby Fort Lauderdale, Lee said that between fiscal years 2005 and 2014, the number of domestic departing seats increased 5% at MIA and decreased 11% at Fort Lauderdale, and that corresponds with MIA's market share increase in domestic origination and destination passengers from 32.5% in 2005 to 35.4% in 2014.
"We hope that the airport improvements that will be provided by MIA's Terminal Optimization Program, and MIA's attractiveness to and recruitment of low-cost carriers such as Frontier, will continue this trend," she said.
The airport also anticipates a positive impact as a result of improved relations between the U.S. and Cuba.
The optimization program will redevelop the airport's central terminal and replace the airport hotel, both of which were not included in the previous capital improvement plan. The program will be conducted in two phases as a $650.5 million program between 2015 and 2018 with about half of the funding coming from bonds and the rest from state and local sources. Its second phase is estimated at $498 million between 2019 and 2025.
In the first quarter of 2015, MIA saw passenger traffic grow by 4.62% to 10.9 million travelers compared to the same period last year. Air freight increased by 2.3% to 524,000 tons in the first quarter.
RBC Capital Markets is the lead underwriter for next week's bond issue. Other firms are Drexel Hamilton LLC, Jefferies, Ramirez & Co. Inc., Rice Financial Products Co., Blaylock Beal Van LLC, Cabrera Capital Markets LLC, Citi, Estrada Hinojosa & Co., Goldman, Sachs & Co., JPMorgan, Loop Capital Markets, Morgan Stanley, and Raymond James & Associates.
First Southwest Co. is the financial advisor.
Hogan Lovells U.S. LLP and Steve E. Bullock PA are co-bond counsel. Nabors, Giblin & Nickerson PA and Liebler, Gonzalez & Portuondo are co-disclosure counsel. Bryant Miller Olive PA and Llorente & Heckler PA are underwriters' counsel.
