St. Louis readies $97 million deal with rating tailwinds
With one upgrade in hand and an airport privatization plan still on the table, St. Louis heads into the market Thursday with a $97 million deal after a brief delay due to a skirmish between the city's comptroller and its mayor.
The city’s Board of Estimate and Apportionment signed off on the airport revenue bond sale for St. Louis Lambert International Airport in late April and the Board of Aldermen approved it May 31. Mayor Lyda Krewson did not immediately sign it, leading to a tussle with Comptroller Darlene Green, whose office manages city borrowing.
Green accused the mayor of holding up the deal as the city considers privatizing the airport under the federal government’s pilot program. The city has not yet issued a request for proposals for bidders and some like Green are opposed and pushing for a public vote first.
Green released an airline letter supporting the refunding and enlisted board members earlier this month in an effort to raise pressure on Krewson to sign the bill.
“There is no legal reason for the bill to remain unsigned, and there is no legal reason for the mayor to bring it back to the Board of Estimate and Apportionment,” Green wrote. “The mayor’s inaction is not without consequences. Each day the mayor delays signing risks pushing the close of the bond transaction past its call date, reducing our potential savings.”
Green accused the mayor of delaying the deal to better the chances of the privatization.
Krewson rejected Green’s accusation that the delay was tied to the privatization and countered that the holdup was due to changes in various financial terms of the deal such as the projected prices and maturity schedule that she believed required a new vote. That vote occurred June 11 and she signed the measure.
Bank of America Merrill Lynch is the senior manager. Siebert Cisneros Shank & Co. LLC and PFM Financial Advisors LLC are advising on the deal and Armstrong Teasdale LLP and Saulsberry & Associates are co-bond counsel.
The deal is selling in three series with about $75 million refunding 2009 bonds with more than $20 million in savings projected. The remainder is new money to fund various projects.
S&P raised the rating by one notch to A from A-minus and assigned a stable outlook while Moody’s Investors Service affirmed its A2 and stable outlook. Moody’s had upgraded the airport’s general credit last year. The airport has about $600 million of outstanding debt.
"The ratings upgrade reflects our view that STL's financial risk profile has improved to strong from adequate," said S&P analyst Scott Shad. "The rating benefits from a strong market position, extremely strong service area economic fundamentals, very strong management and governance, and strong liquidity and financial flexibility."
The airport located about 15 miles northwest of downtown St. Louis serves a metropolitan area of six million. “The stable outlook reflects our expectation that STL's enplanement trends will generally meet or exceed forecasts, and that the airport's debt service coverage will remain at levels we consider adequate as it incurs a modest amount of additional debt to support its capital improvement plan,” S&P wrote.
“The A2 rating reflects a trend of improved debt service coverage metrics and lower cost per enplanement due to a significant decline in debt service requirements from historic levels,” Moody’s wrote.
Moody’s analysts expect net revenue debt service coverage will remain stable at 1.3 times and the cost per boarded passenger known as cost per enplanement will be around or below $9 through the airport's 2019 to 2024 capital planning forecast period. The airport’s liquidity is solid with cash to cover 669 days of operations.
The airport’s passenger cost was down to $8.87 in 2018 from $13.77 in 2013. The airport, which served 15.6 million passengers last year, is owned by the city and operated by a city airport authority.
The city began exploring a lease deal in 2017 and the Federal Aviation Administration accepted its application to participate in the pilot program that allows operations at a handful of public airports to be privatized.
Supporters of the city’s effort say it would leverage the airport’s value by freeing funds for non-airport city-related investments. A city committee is leading the exploration and an RFP could be issued this summer. The city’s various boards, a majority of airlines, and FAA would need to sign off on any deal.
Also this week, Fitch Ratings revised the outlook on the city’s A-minus issuer default rating and BBB-plus municipal finance corporation to stable from negative.
The revision was driven by “an improved fiscal reserve position following favorable year-end results in fiscal 2018 and the strong likelihood that fiscal 2019 will close with reserves in a still-healthier position in contrast to several prior years of narrowing fund balances.”
The ratings and outlook also reflect the city's adequate spending controls and moderate long-term liability burden compared to the size of the economic base, set against slow-to-stagnant revenue growth prospects.