Salt Lake City deals as airport rebuild advances
Salt Lake City is heading to market with $875 million of revenue bonds, the second issue for its $3.85 billion airport redevelopment project.
The bonds are expected to price Oct. 15 through a syndicate led by Goldman Sachs, with closing expected on Oct. 31.
The tax-exempt bonds maturing in 2048 will be issued in two series, with one subject to the alternative minimum tax and the other as non-AMT. While generally considered tax-exempt, interest paid to investors on private activity bonds subject to the AMT is generally 10 to 30 basis points higher than non-AMT bonds, according to the Airports Council International-North America. ACI-NA, which has lobbied to lift the AMT provisions, estimates that without the AMT liability airports could save $748 million over the next decade.
At its Sept. 18 meeting, the Salt Lake City council approved issuance of up to $1.25 billion for the airport, with the $875 million pricing this month and the remainder coming at a later date.
This month's deal is the second for the project. The first $1 billion revenue bond issue priced Feb. 8, 2017. That deal represented the end of Salt Lake City International’s debt-free status and was the first issue on behalf of the airport since 2004.
“It is rare to have the chance to commence a major financing program with a completely clean slate, but that’s what we did and the market clearly responded very favorably,” said Ryan Tesch, director of finance for the city.
As the 23rd-busiest U.S. airport by passenger numbers and a major hub for Delta Air Lines, Salt Lake City International has a critical economic rule in the region.
“This is a just-under $4 billion public works project, the largest in the state of Utah, and it currently employs about 1,600 people,” city council member Derek Kitchen told the Sept. 18 council meeting. “This will really be the crown jewel of our tourism industry in the state of Utah, and airport director Bill Wyatt mentioned to us that this will likely be the only new airport constructed in the United States in this century.”
While Salt Lake City will essentially build a new terminal and concourse system on the site of the current facility, it is hardly alone in major bond-financed projects.
San Francisco International Airport is remodeling its oldest terminal under a $2.4 billion capital program. Seattle-Tacoma International Airport is rebuilding its international terminal under an $800 million project.
In August, Denver International Airport issued $2.53 billion of revenue bonds for a $3.9 billion remodeling project just 23 years after the airport opened. The airport is using private partners to manage and help finance the project.
In June, a conduit issuer priced $1.2 billion of private activity bonds backed by a private developer for Los Angeles International Airport’s $4.9 billion people mover project connecting six stations. The project comes after an $8.5 billion redevelopment of LAX terminals.
In May, the New York Transportation Development Corp. sold $2.4 billion of special facilities bonds in May 2016 for the $8 billion LaGuardia Airport modernization project. A conduit issuer also sold another $1.39 billion of special facilities bonds in April for redevelopment of Delta Air Lines Terminals C and D as a public-private project. Newark Liberty Airport is just launching a $3.4 billion capital improvement project, and officials are lining up financing for rail connections at both Newark and LaGuardia.
In March, the Chicago City Council authorized the first $4 billion of bonds for an $8.5 billion O'Hare International Airport terminal remodeling project.
Salt Lake City International already has a rail link provided by the Utah Transportation Authority.
The 2017 deals drew ratings of A-plus from S&P Global Ratings, A2 from Moody's Investors Service and AA-minus from Kroll Bond Rating Agency. They assigned stable outlooks.
Kroll affirmed its rating ahead of this month's deal; other ratings are pending.
SLC’s Terminal Development Program and North Concourse Program are well underway and will be completed in several phases through 2024.
The completed project will include a new airport terminal, two concourses and a parking garage. The first phase of the new airport will be completed in 2020 with the second phase scheduled to be completed in 2023-24.
Delta earlier this year signed a 10-year extension to the airline use agreement with the airport. The original use agreement expires on June 30, 2024, but the extension takes that to 2034. Delta’s lease, one of the longest in the nation, provides that if revenues from the airport fell short in making payments on the bonds, Delta would pay the portion of debt the airport could not pay.
Other airlines that signed the use agreement that expires in 2024 have not signed the extension, officials said. However, the Department of Airports executive team currently is negotiating with them to reach agreement.
SLC is one of the nation’s most cost-efficient airports for airline operations, and replacing aging facilities is intended to keep costs low. In addition to revenue bonds, the program is funded by federal grants, user fees, and airport reserves. No local tax dollars will be used for the airport redevelopment program.
The airport project began under former executive director Maureen Riley, who retired on June 30, 2017 after 10 years in the post.
On Oct. 12, 2017, Mayor Jackie Biskupski announced Bill Wyatt, former chief executive of the Port of Portland, Oregon, as her choice to replace Riley.
In 17 years at the port, which oversees Portland International Airport, Wyatt oversaw the logistics of day-to-day operations and managed $2 billion in capital construction projects and a $330 million annual operating budget.
“As the Salt Lake City International Airport undergoes the largest construction expansion in its history, it is critical that we have an individual at the table with extensive management and logistics experience,” Biskupski said. “I am confident that Bill’s expertise and knowledge will lead us well as we enter into an exciting new chapter of operations.”