New parking is among projects planned at the Minneapolis-St. Paul International Airport.

CHICAGO – Joining the crowd of borrowers, the Minneapolis-St. Paul Metropolitan Airports Commission plans to hit the market next week with a $438 million deal that will mark its first new money sale in four years.

Proceeds of the sale tentatively set to price on Dec. 6 will help cover the costs of projects in initial years of a $1.5 billion capital improvement program that runs through 2022. It funds terminal renovations, expands parking, and funds a new rental car facility at the Minneapolis-St. Paul International Airport.

The sale is a follow up to a $483 million refunding completed in September. The finance team debated whether to do both the new money and refunding at the same time but settled on moving forward with the refunding first.

"We made the decision to do the refunding first so the feasibility [studies] would reflect the savings" in coverage projections incorporating the new-money issuance, said Steve Busch, the commission's vice president of finance and administration.

The refunding, which benefitted from an upgrade of the airport's subordinate credit, generated $125 million in present value savings. The refunding of the 2007 bonds in an A and B series included some minor restructuring to level out debt payments.

Busch said he has no regrets in holding off on the new money amid the post-election rise in yields and the feasibility study's debt service coverage projections provide room for yields to rise further. "We were less concerned with the market on the new money," he said.

The sale offers a senior lien, tax-exempt C series for $225 million that is exempt from the alternative minimum tax. It matures between 2019 and 2046.

A $25 million D series offers subordinate tax-exempt bonds that are subject to the AMT and matures between 2018 and 2041. RBC Capital Markets is running the books with five other firms rounding out the underwriting syndicate on the C and D series.

The issue offers an E series of subordinate, taxable bonds for $188 million that mature between 2019 and 2034. Wells Fargo Securities has the books on that series with five other firms rounding out the syndicate.

LeighFisher is serving as airport consultant. Jefferies LLC is advising the commission. Kutak Rock LLP is bond counsel.

Ahead of the sale, Fitch Ratings and Standard & Poor's Global Ratings affirmed the AA-minus and stable outlook that both assign to the commission's senior lien debt and the A-plus and stable outlook assigned to subordinate bonds.

Proceeds of the C series will fund MAC's parking facility and roadway improvements and renovations at the 50-year-old Lindbergh Terminal. "We need to rehab and make the terminal more conducive to today's passengers," said commission finance director Bob Schauer.

The D series will repay debt taken out in a credit line with BMO Harris Bank that funded a gate expansion at the airport's Humphrey Terminal. The commission maintains a $75 million line with the bank that expires next November. It currently has $41 million outstanding.

The taxable E series will also fund 2017 and 2018 capital projects including construction of the rental car facility at the Lindbergh Terminal. While all the bonds are secured by general airport revenues, the E series also is payable from customer facility charges, or CFCs. The fees were increased by the commission in January.

In an investor presentation, the finance team highlights the airport's importance in Delta Air Lines Inc.'s business plan as its second largest hub behind Atlanta. Delta accounted for 74% of all passengers, or enplanements, in 2015. The airport's dependence on Delta does, however, pose a credit downside.

The finance team also highlights the lack of nearby competing airports and a strong local economy that has bolstered the airport's originations and destination market.

"MSP has experienced positive enplanement growth over the last six years," Busch tells potential buyers. Average growth of 2.4% was seen between 2010 and 2015 with 2015 offering the most positive jump of 4.3%. Growth is up 2.8% for the first nine months of 2016 compared to same period last year.

Sun Country service accounts for much of the stronger growth, officials said. The airport is served by 25 passenger airlines and nine cargo carriers. After Delta, American Airlines accounted for 6.3% of travelers and Sun Country for 5.8 %. Delta's dominance has tapered from 81.7 % in 2005 as it tinkered with service following its bankruptcy and merger with Northwest Airlines. The airport had long served as a hub and headquarters for Northwest.

All of the airport's existing $1.1 billion of general airport revenue bonds are in a fixed-rate structure with generally level debt service through 2029. About $534 million was issued under the senior lien and $563 million under a subordinate lien.

Cost per enplanement is low at $6.44 and that's driven by the airport's diverse revenue base. Senior lien debt service coverage was at 3.41 times last year and is projected at 3.39 times this year and 3.77 in 2022. When counting all debt, coverage dropped to 1.6 times last year and is projected at 1.81 times this year and 1.64 times in 2022.

To fund the current $1.5 billion capital program, the commission anticipates returning to the capital markets to raise an estimated $166 million in 2019 and $121 million in 2021.

Fiscal projections incorporate the planned 2019 borrowing but not the 2021 issuance. The commission anticipates spending $747 million through 2017 and $727 in future years. The capital improvement program is being funded through a mix of borrowing, state and federal grants, internal funds, and passenger facility and customer facility charges.

"We base the ratings on our view of the solid air trade area economy, and MSP's reasonable cost structure, stable financial performance, and moderate debt plans," said S&P analyst Kevin Archer. The airport's market share concentration in Delta partially offsets those factors.

S&P said the rating is supported by demand that has grown from 2010 through 2014, after peaking at 18 million in 2005 then falling from 2006 through 2009 with growth now restored and the passenger near the 2005 peak at 17.7 million.

"The stable outlook reflects our expectation of continued strength in the service area economy, very strong financial performance in line with current MAC performance, and Delta's continued operational commitment to MSP during the next two years," Archer added.

Fitch said its ratings reflect the airport's stable and increasing enplanement base that serves a large metropolitan area of the Midwest, with stronger growth coming from the majority origination and destination traffic.

"Although some carrier concentration risk exists with Delta maintaining a dominant enplanement market share, this is partially mitigated by their heavy investment in MSP," Fitch said. The airline's use agreement includes a hubbing covenant to maintain minimum levels of service.

The credit also benefits from diverse revenue streams with aeronautical revenues accounting for only 34% of total operating revenues of $307 million. Parking, concession, passenger facility and customer facility charges, as well as other non-airline revenues make up the remainder.

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