Next month the board of the New York City Industrial Development Agency will likely weigh a $700 million sale of special facilities revenue bonds on behalf of American Airlines for a terminal construction project at John F. Kennedy International Airport.
The IDA had postponed a public hearing that had been set for January, and delayed a subsequent board review, because the necessary paperwork was not complete, IDA spokeswoman Janel Patterson said. The American Airlines item will likely be subject to a public hearing on April 7.
If approved at the April 12 board meeting, the sale will face scrutiny from market participants in the wake of the United Airlines bankruptcy lawsuit. Last month, the U.S. District Court upheld a bankruptcy court's decision that United was not required to repay its $34 million of special facilities revenue bonds issued for projects at JFK Airport in order to continue operating at the airport. The decision is currently under appeal in the Seventh Circuit Court of Appeals in Chicago.
United's default on a total of $1.1 billion of special facilities revenue bonds at five airports, including JFK, have sent shudders throughout the investor community. Investors had believed that the airline was required to repay the debt as a condition of its leases, but United has challenged that assumption and prevailed in the case of its $34 million issue at JFK.
The volume of special facilities revenue bonds has sharply declined in the years since United filed for bankruptcy protection in December 2002, according to analysts.
While the structure of the up-to-$700 million deal for American Airlines has not been finalized, the bonds will likely sell in the summer, if approved, Patterson said. Citigroup Global Markets Inc. will price the bonds, which are not expected to carry insurance.
The banker working on the deal, Robert DeMichiel, was traveling and did not return a call by press time. American Airlines declined to comment on the transaction, company spokesman Ned Raynolds said.
Whatever its final form, investors will be looking for significant bondholder protections from the deal.
"I think investors will be looking for a belts and suspenders type of deal," said Jerry Solomon, senior managing director and research analyst at Bear, Stearns & Co.
In 2002, the IDA sold $500 million of special exempt facility revenue bonds for American Airlines. The bonds were backed by a common pledge by American, with debt service coming from lease payments paid by the airline.
This time around, investors will likely expect a mortgage backing for extra protection, Solomon said. In a separate deal, Kansas City will sell $40 million of special facilities revenue bonds for American Airlines that will be backed by a city appropriation in an effort to appease investor demands for extra security.
Solomon said the IDA-issued special exempt facility bonds will likely share the corporate credit of American Airlines, which has junk-bond status. Fitch Ratings assigns a CCC-plus rating to the company's senior unsecured debt. Moody's Investors Service rates the company's senior unsecured debt Caa2 and Standard & Poor's rates it B-minus.
Bond proceeds from the up-to-$700 million sale will be used to finance an ongoing terminal construction project at JFK. The $1.1 billion facility will include a 57,000 square-foot ticketing lobby with a 65-foot ceiling, six baggage claim carousels, 10 security checkpoint lanes, and other capabilities. The first phase of the project, including the main terminal and Concourse C, is scheduled for completion by the end of the second quarter this year, Raynolds said.
Yvette Shields contributed to this story.
