CHICAGO — Milwaukee County will take retail orders Wednesday and price for institutional investors Thursday $51 million of new money and refunding general airport revenue bonds to finance a baggage claim expansion at its General Mitchell International Airport.
The roughly $47 million of new money will primarily fund the expansion of the baggage claim area and in-line baggage security construction. The remainder will refund GARBs issued in 2003 for about 8% present value savings, according to ratings reports.
Bank of America Merrill Lynch is senior manager.
Ahead of the sale, Fitch Ratings revised its outlook on the A-plus credit to negative from stable as the airport struggles with passenger levels.
Moody's Investors Service downgraded the senior lien bonds to A2 from A1. The action affects $188 million of outstanding senior lien GARBs as well as the new debt. It assigned a stable outlook.
The rating reflects "the declining level of enplanements at the airport which is expected to settle at levels experienced in the early- to- mid 2000s and the more constrained financial flexibility resulting from the combination of additional debt and declining enplanements," Moody's said.
The rating also factors in anticipated rate increases due to the projected decline in passenger levels and slower growth as well as some uncertainty due to the expiration in late 2015 of the current airline use agreement.
The airport's passenger traffic dropped after Frontier Airlines ceased using Milwaukee as a hub and Southwest Airlines began integrating its recently purchased subsidiary AirTran. Passenger levels declined 20.6% in fiscal 2012 to 3.8 million and dropped an estimated 14.3% in fiscal 2013. Airport operators believe the passenger declines will stabilize through 2013 and 2014 and settle at levels from a decade ago with growth returning in 2015.
The airport benefits from a relatively stable service area economy and origination and destination markets. While the airport has seen a loss of Frontier flights, Southwest has a growing presence there as it integrates AirTran operations. Southwest now accounts for nearly 50% of operations. The airport also has modest future debt needs and last year it raised its passenger facility charge to $4.50 from $3.
Other challenges include competition from Chicago's O'Hare International Airport only 73 miles down the road and the local economy's lagging economic recovery that could delay enplanement growth, Moody's said.
Fitch raised similar concerns. "The negative outlook reflects concerns that the severe reductions currently taking place in passenger traffic, primarily caused by Frontier Airlines' service actions, could pressure the airport's financial metrics," Fitch said.
Passenger levels are expected to fall about 38% below their peak level which and that could drive up the airport's cost per enplanement and other financial metrics. "Should these conditions continue on without clear indications of stabilization or improvement, a downward rating action is likely." Fitch added.
Debt service coverage, including fund balances of up to 25% of annual debt service, was a strong
1.66 times in 2012, similar to the 1.68 times in 2011, Fitch said. The rating agency also cited as positive credit factors the airport's conservative, fixed-rate debt schedule and its manageable five-year $272 million capital improvement program that relies on the future issuance of about $51 million in debt.
