CHICAGO - Wayne County Airport Authority officials are highlighting its legal separation from its struggling home county as the operator of Detroit's airport hits the market next week.
The authority is bringing nearly $600 million of new money and refunding bonds, and expects to save more than $3.5 million annually in debt service from the refunding piece of the deal. Part of the transaction will restructure debt originally issued by the county into debt backed by general airport revenues. The authority says it will save $1 million a year by wiping the county's pledge off the borrowing and replacing it with its own.
The airport authority issued bonds last year just months after Detroit emerged from the largest municipal bankruptcy filing to date. This year, it's the county's headline risk that the authority seeks to downplay.
Gov. Rick Snyder declared Wayne County to be in a financial emergency in July, and in August the county entered into a consent agreement with the state that grants it certain powers to oversee the restructuring.
"Last year, we had to go out of our way to explain that there is no financial or legal ties between the city of Detroit and this airport," authority chief financial officer Terry Teifer said in a telephone interview. "Now, in this setting, it's the county that has very public issues. There's so much notoriety about the county; it's the elephant in the room for us," he said. "We want to make sure that people interested in our bonds understand there are clear legal protections."
The airport authority runs Detroit Metropolitan Airport as well as the Willow Run general aviation airport. The authority carries more than $2 billion of debt.
The three major ratings agencies affirmed their ratings ahead of next week's deal, which is set to price on Sept. 22, and noted the legal separations that insulate the authority from the both the city's and county's financial problems.
Moody's Investors Service rates the airport's senior-lien bonds A2. Standard & Poor's rates them A, and Fitch Ratings A-minus. All three maintain a stable outlook.
The airport is a political subdivision of the county that was created by statute in 2002. It's governed by a seven-member board, with four appointed by the county executive, two by the governor, and one by the county board.
The finance team has posted a road show on the Internet and will hold a pair of investor presentations this week in Chicago and Boston.
Officials note that in addition to being a separate legal entity from the county, Michigan's law for governments under financial management prevents the county from monetizing or taking over any airport revenue or assets.
Federal law offers another level of protection, officials said.
"The consent agreement has specifically said the airport is off limits, and, if things get worse, federal law says airport revenue has to stay with the airport," Teifer said.
Even in the event of a bankruptcy, federal law should protect the airport's bondholders and halt any attempt to monetize the airport's revenues, Emily Neuberger, senior vice president and general counsel for the authority, says in the Internet presentation.
The airport is used to paying a penalty in the market for its ties to Detroit and the county, and even the state itself, Teifer added.
"If you look at equivalent A-rated airports, we do pay more; I've heard as much as 20 basis points, " Teifer said. "But the smart guys that buy our bonds know they're getting value for our bonds, they see through that."
The deal includes four tranches, one of which is $103 million of bonds that the county itself originally issued in 2002 to finance a new hotel at the airport.
The Westin hotel opened in 2003. Wayne County issued the debt in 2001, payable by hotel revenues and backed by the county's limited-tax general obligation.
The authority will restructure the debt as general airport revenue bonds.
They will still be payable from hotel revenues, according to Teifer, but will come off the county's books and onto the airport's books. The move will save more than $1 million in annual debt service savings, and generate additional non-airline-related revenue for the airport going forward, he said.
"Getting the hotel done is very important to the airport, and the hotel, and the county," he said. "You couldn't refund the bonds with the [county] credit anyway," he said. "If the county was still a double-A credit like it used to be, you could have done it, but not now."
Fitch Ratings, in its report on the bonds, warned that the financial problems of Detroit and Wayne County could challenge the airport if they "spill over into other surrounding areas causing a significant decline in locally based traffic demand."
But Fitch said the airport is generally insulated from the county's financial emergency.
"Fitch does not view the WCAA credit as being exposed to material risks from the ongoing Wayne County fiscal distress or actions it may take under the consent agreement," analysts said in the report.
The airport has also completed three private placements ahead of next week's public sale. The private loans total $185 million, including $85 million with the Bank of America Merrill Lynch, $75 million with PNC Capital, and $25 million with Citi.
It's the first time the authority has done private placements for fixed-rate debt. Roughly 20% of the authority's $2 billion debt portfolio is in a variable-rate mode and privately placed with banks.
"Private placements are becoming more vogue, particularly on the shorter end," said Teifer. "We'll see significant savings over the bond market, you avoid the underwriter fees and also the piece that would be [subject to the alternative minimum tax] would be gone too," he said.
He estimated the authority will see a net present value savings of $3.5 million over the 12-year life of the privately placed bonds compared to pricing them in the public market.
The public piece of the deal features four series, including $230 million of new money; $242.7 million of bonds to refund debt originally issued in 2005; $11.6 million of new money; and the $103.4 million series to refund the 2001A hotel bonds issued by Wayne County. All of the bonds mature in 2034.
The new-money piece will finance work on the airport's runways. Both of the airport's two terminals, one of which is used exclusively by Delta Air Lines, two terminals, are relatively new, built in 2002 and 2008.
"Our major capital expenses are behind us," said Teifer.
Detroit Wayne is Delta's second-largest hub behind Atlanta.
The airline accounts for just under 80% of all enplanements, a dominance that ratings analysts warn could mean problems for the airport if the airline decides to scale back.
But Delta has a lease agreement through 2032, which offsets the risk, analysts said. Other positives include strong management, limited future debt needs, and a regional economy that has strong international ties, which is a key to maintaining Delta's hub status, Moody's said in its report.
"The stable outlook reflects our expectation that financial metrics will remain stable based on reasonable assumptions for modest traffic and enplanement growth and limited future debt plans primarily focused on airfield and maintenance projects," Moody's analysts said. "We believe that enplanements are anchored by significant 47% origination and destination travel and that the authority will continue to proactively manage expenses while increasing nonairline revenue yields."
Citi and JPMorgan are lead managers.
Bank of America Merrill Lynch, PNC Capital Markets LLC, Loop Capital Markets, Siebert Brandford Shank and Wells Fargo Securities are also on the team.
Miller, Canfield, Paddock and Stone PLC is bond counsel. Public Financial Management Inc. and D+G Consulting Group LLC are financial advisors.
