DALLAS — Phoenix is preparing to issue $710 million of revenue bonds next week to finance a five-mile automated transit system linking Sky Harbor International Airport’s terminal to the city’s new light-rail line as well as parking and rental car facilities.
The negotiated deal ranks as the largest in the city’s history. Barclays Capital and Bank of America Merrill Lynch are senior managers of an underwriting team that includes six co-managers. Transportation consulting firm Frasca and Associates is financial adviser.
“This will be the biggest deal we’ve ever done in the city,” said Phoenix finance director Jeff Dewitt, who noted market conditions look opportune for an issue of this size.
“We’re hitting some of the lowest long-term fixed rates ever,” he said. “We’re just hoping it holds.”
The bonds — to be issued by the Phoenix Civic Improvement Corp. — will come in three series, all issued under a new junior-lien indenture and backed by the airport’s passenger facility charges, or PFCs, which are levied on airline passenger tickets.
Series A will be about $654 million of fixed-rate tax-exempt bonds, while Series B will be $21 million of recovery zone economic development bonds with a 45% direct-payment federal interest rate subsidy. Series C, for about $35 million, will convert 1998A senior-lien bonds to junior lien. About $200 million of Series A proceeds will refund the city’s commercial paper for the Sky Train transit project that is already under construction.
The bonds carry ratings of A-plus from Standard & Poor’s with a stable outlook. The senior-lien airport bonds are rated AA-minus. Moody’s Investors Service was expected to release a rating today. The bonds are not expected to be insured.
“The ratings reflect the airport’s continued strong financial performance, which has resulted in a low cost structure, as well as its large, fast-growing service area,” said Standard & Poor’s credit analyst Mary Ellen Wriedt.
The structure of the issue was fairly typical for an airport project, according to Dewitt.
“We’re doing standard fixed-rate financing,” the finance director said. “It’s a fairly conservatively leveraged issue. If you’re a bondholder, you’re going to get paid regularly out of the PFC.”
After this issue, the city has no plans to issue more airport debt through 2016, Dewitt said.
Despite Arizona and the airlines’ economic struggles, Sky Harbor has maintained steady revenues amid modest growth.
“The last seven months have had positive growth,” Dewitt said. “The last 11 months, traffic’s up about 0.7% at the airport. It took a hit in the economy but it’s starting to recover.”
Sky Harbor had 18.9 million enplaned passengers in fiscal 2009 and ranks as the ninth-busiest airport in the United States. It is the major hub for Tempe-based US Airways, and Southwest Airlines accounts for more than a third of the passenger traffic.
In its earnings report this month, US Airways reported a $279 million second-quarter profit, with revenue up 19.3% from the second quarter of 2009. Airline officials attributed the improvement to higher passenger yields systemwide due to an improving economy.
Currently, Sky Harbor ranks in the lowest 20% of the nation’s hub airports in costs for passengers and airlines, and city officials want to keep that reputation, even as projects such as Sky Train develop.
The comprehensive airport development plan approved in February 2007 by the Phoenix City Council anticipates about $3 billion in construction over 10 years.
Funding will come through fees levied on rental cars, restaurants, retailers, and taxis. Airline costs will increase an average of 5% per year over 10 years, boosting the cost per enplaned passenger to between $7 and $8 by 2016 from the current $5, according to the plan.
Construction of Phase 1 of the Sky Train has already begun. Crews are working on a 350-foot bridge over the airport’s taxiway R.
Builders began working from the ends of the bridge toward the middle to keep the taxiway open as long as possible.
The first phase of the automated Sky Train is expected to be completed in the first quarter of 2013. It will connect passengers at 44th Street and Washington with an airport ground transportation center and the Valley Metro Light Rail station.
It also will connect to the East Economy parking facilities and deliver riders to Terminal 4, serving about 80% of Sky Harbor’s passengers.
Construction of Phase 2, scheduled to begin in 2016, will link the remaining terminals and the rental car center. The five-mile system is expected to be completed by 2020.
Airport officials expect as many as five million passengers to ride the free Sky Train in the first year. The new system will relieve pressure on the road that passes through the airport by removing the buses that now navigate between the terminal and the parking and rental car facilities.
Sky Harbor, which is located about four miles east of downtown Phoenix, will gain an important link to the fledgling Valley Metro Light Rail system. The system appears to give the city a running start on other hub airports in the Southwest.
Dallas-Fort Worth International Airport has studied a similar system to replace the buses that now navigate between the remote parking lots, rental car facilities and the terminals, but has not launched a project. Rail connections from downtown Dallas and Fort Worth, however, are under construction.
Colorado’s Regional Transportation District is expected to issue debt the same week as Phoenix for a commuter rail line called the Eagle P3 Express connecting Denver International Airport with downtown Denver’s Union Station.
The Valley Metro Light Rail system that completed its first full year Dec. 27 consists of a 20-mile line from downtown Phoenix to the eastern suburbs of Tempe and Mesa. Extensions currently are in the planning stages. In future years, the rail system is expected to extend to the western suburbs. The system is unusual in that each city served by the line funds only its portion, and officials from participating cities serve on the board of directors.
In its first year, Valley Metro Light Rail carried more than 11.3 million riders, exceeding first-year projections by 34% on weekdays and 61% on Sundays and holidays.