The new Louis Armstrong New Orleans International Airport terminal, shown in this rendering, will be financed with various state and federal revenues, as well as $659 million in revenue bonds that the New Orleans Aviation Board expects to sell in February.

BRADENTON, Fla. — Louis Armstrong New Orleans International Airport's 55-year-old terminal is outdated, too big at 1.2 million-square-feet, and not so easy to maintain.

That's why consultants say a long-planned new terminal is necessary at Louisiana's largest airport, where a new 650,000-square-foot terminal will greet passengers in 2018, the year of New Orleans' tricentennial.

The New Orleans Aviation Board expects to issue up to $659 million in airport revenue bonds in February to finance the state-of-the-art terminal, while converting the existing facility into other airport uses.

The Louisiana State Bond Commission will be asked to authorize the sale in January, airport spokeswoman Michelle Wilcut told The Bond Buyer on Monday.

While the exact structure of the deal is not yet available, and ratings have not been released, some $486 million of the par amount will go toward the new terminal. Airport revenues will secure the new debt.

"If market conditions remain at current levels at the time of sale, the par amount required may be lower by as much as $60 million to $70 million," Wilcut said.

The City Council authorized the Aviation Board to borrow up to $700 million on Dec. 4.

The council also authorized a $75 million line of credit for interim financing.

Citi will be the book-runner for the Aviation Board's deal in February.

The board's financial advisor is Frasca & Associates. Foley & Judell LLP is bond counsel.

A line of credit or other short term facility may be used to provide immediate funding or bridge financing in the event of a delay in the sale of the permanent long-term bonds, according to Wilcut.

"At present, there are no immediate plans to use a short-term facility but approval was obtained should the occasion arise," she said, Along with a new terminal, the financing will provide for aircraft parking aprons and taxiways, a 2,000-space parking garage, and infrastructure associated with the new passenger terminal, council member Jared Brossett said at the time the financing was approved.

"The issuance of these bonds, which will be paid over time with airport revenue and not by taxpayers, is critical to the continued progress and eventual completion of necessary improvements at Louis Armstrong International Airport," Brossett said. "We are confident that these funds will contribute to the development of an efficient, accessible and pleasant airport experience for locals and visitors alike."

While the existing terminal underwent more than $300 million in improvements for the Super Bowl in 2013, the bonds to be sold early next year will also provide funding to convert the existing terminal into general aviation, cargo, multi-modal, office, and other commercial uses according to airport officials.

At the Dec. 31, 2013 fiscal year, the Aviation Board had $368.64 million in outstanding debt secured by operating revenues, or passenger and customer facility charges.

In October, Fitch Ratings and Standard & Poor's affirmed their A-minus ratings on the general airport revenue bonds and debt backed by PFC charges.

Both rating agencies said that the airport has continued to see growth in enplanements since Hurricane Katrina in 2005, though passenger levels are still below the 4.9 million of 2004.

The raters also said the new terminal project funding could pressure the airport's ratings, debt service coverage levels, and cost structure.

The Aviation Board maintains a "very strong" balance sheet, with 645 days cash on hand and low leverage of 1.77 times, Fitch analyst Charles Askew said when ratings were affirmed in October.

"Despite the airport's large capital plan, positive rating action may be warranted as financing plans are finalized with support from the airlines, and should positive traffic and operations trends continue," he said.

S&P analyst Robert Hannay said the agency views the airport's carrier mix as diverse, with Southwest Airlines representing 38% of enplanements in 2013, Delta Air Lines Inc. representing 21%, and American and US Airways representing a combined 19%.

New Orleans currently has 14 domestic carriers and their subsidiaries, two international carriers, as well as domestic and international charters.

"Although the airport's current debt level is low, in our view, additional debt associated with the terminal could pressure debt service coverage or the airport cost structure," Hannay said. "And as with any large and complicated capital project, we believe this project would entail construction risk."

The Aviation Board is assuming 2% enplanement traffic growth in its preliminary forecast, which considers the issuance of additional debt to fund the terminal project, he said. The airport also projects modest levels of cost control upon opening of the new facility, which will be roughly half the size of the existing terminal.

The airport is physically located in Kenner, about 10 miles from downtown New Orleans, and is a very important part of the local economy as a generator of jobs and revenues, according to an economic impact study commissioned by the Aviation Board.

"With the development of a new terminal building the airport will enter the modern, post-9/11 world of air travel," said the study by local economist and former University of New Orleans chancellor, Dr. Timothy Ryan, and the Mumphrey Group.

The new terminal will have a smaller footprint, cost significantly less to operate, and will reduce costs to the airlines, the study said.

A new layout will provide passengers with access to food and retail outlets on all concourses behind security, generating new airport revenue.

The Armstrong International Airport contributes more than $5.3 billion annually to the local economy, according to the study.

"There is every reason to believe that this spending will increase substantially in the future because of the increased construction mentioned earlier, increased travel due to a rebounding of the national and local economy, growth of the local tourism industry, expanded business due to the expansion of the air cargo facilities, and increased air service and air cargo activities for New Orleans," the study said.

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