CHICAGO — In its second refunding since mid-April, the Wayne County Airport Authority plans to enter the market Wednesday with roughly $330 million in variable-rate demand bonds that will take out all the authority's auction-rate debt.
The transaction comes three months after the authority sold $145 million in fixed-rate bonds that refunded a piece of the airport's variable-rate debt that was insured by Financial Guaranty Insurance Co., the former triple-A monoline insurer that now carries junk-bond ratings.
After this week's transaction, the authority will have just less than $80 million in outstanding variable-rate debt that carries insurance coverage. Officials are also considering refunding that debt in the next few months, said J. Chester Johnson of New York-based Government Finance Associates Inc., the authority's financial adviser. That piece of debt, originally sold in 1996, is currently insured by Ambac Assurance Corp., which has also lost its triple-A ratings.
The transaction this week of variable-rate senior lien bonds will carry direct pay letters of credit. The bonds are divided into three series. Series B for $201.2 million is supported by a letter of credit from Landesbank Baden-Wurttenberg. Series C for $89.4 million and Series D for $39.7 million are both supported by letters of credit from Wachovia Bank NA.
Goldman, Sachs & Co. is the remarketer on the bonds. Miller, Canfield, Paddock & Stone PLC is bond counsel.
Both Fitch Ratings and Standard & Poor's have affirmed their A underlying ratings with a stable outlook. The airport has a total of about $2 billion of senior-lien debt and another $214 million of junior-lien debt. Of its total debt portfolio, roughly $405 million is variable rate.
"The authority has routinely followed a conservative debt management approach, and has wanted its debt composition to reflect 70% in fixed rate, 20% in variable rate, and 10% synthetic," Johnson said. Of the $330 million, roughly $112 million is synthetically fixed with swaps that will remain in place.
While fees for letters of credit have risen in the past several months amid a general liquidity crunch in the market, airport officials were able to secure their credit with relative ease, according to Johnson.
"Liquidity has become a rarer commodity these days, but we feel like we were very well-treated," he said, adding that the authority has worked with both LBBW and Wachovia in previous financings. "[Fees] are higher than they would have been if we had done this three years ago. But it was a symbiotic relationship."
"We've looked at this in three phases," Johnson continued. "We knew we needed to deal with the [$145 million of variable-rate debt] insured with FGIC, and then the second phase is refunding the auction-rate paper. In the third phase we might deal with the [$80 million in bonds originally issued in] 1996, and you may hear more about that in the next months,"
The airport's recent auction-rate debt has seen interest rates in the 4% to 4.5% range, Johnson said. "We did have some [interest rates] that popped up temporarily, but it hasn't been as bad as some of the headline problems that some of the other issuers have had."
The auction-rate debt that is being refunded with the deal this week is insured by XL Capital Insurance Inc., which is currently rated between double-B and the low double-A category.
Meanwhile, the airport's seven-member board last month agreed to postpone a vote on a 20-year, $3.6 billion master plan after heated protests from a group of suburban mayors. The vote has been delayed until at least July 24.
The plan includes building a fifth parallel runway, a passenger transportation system, and terminal expansion projects. Opponents say the plan overestimates future demand at the airport and would take too big a bite out of surrounding suburbs.
