"DFW Airport Is Set to Shift Lien for $25M of Savings in $112M Refunding"

Tuesday, June 14, 2011

DFW Airport Is Set to Shift Lien for $25M of Savings in $112M Refunding
By Richard Williamson
Bond Buyer


DALLAS - In the midst of a $1.9 billion renovation of its four original
terminals, Dallas-Fort Worth International Airport will refund $112 million
of revenue bonds next week for total anticipated savings of $25 million.
 
The taxable bonds will refund Series 1998 and 1999 debt issued to build the
airport's car rental facility. Bonds used for such facilities usually aren't
tax-exempt.
 
The current refunding will close out the debt issued by the DFW Airport
Facility Improvement Corp. The new bonds are backed by the general airport
revenue pledge instead of the $4 charged by rental car facilities. The
refunding also removes insurance from MBIA Insurance Corp.
 
By shifting the lien to general airport revenues and shortening maturities,
DFW officials anticipate $12 million in net present-value savings, said Mike
Phemister, vice president for treasury services.
 
Although the airport will no longer have outstanding debt under the Facility
Improvement Corp., airlines and other private issuers still have bonds
outstanding through the conduit.
 
"To us the key issue is a rental car facility is an integral part of an
airport operation, so why issue debt under the Facilities Improvement
Corporation?" Phemister said. "It's kind of a no-brainer. If we went back to
the market to refund the bonds, it is going to be viewed as a lesser
credit."
 
Although rating reports are pending, the general revenue pledge is certain
to bring higher credit ratings and lower interest cost. Maturities on the
refunding bonds will also be three years shorter than the previous bond,
with final maturity in 2021 instead of 2024.
 
DFW's general revenue bonds are rated A-plus by Standard & Poor's and Fitch
Ratings and A1 by Moody's Investors Service. The facilities corporation is
rated A-minus by Standard & Poor's, Baa1 by Moody's and BBB-plus by Fitch.
 
"We anticipate we will retain our A-plus, A1 with stable outlooks,"
Phemister said. "For our purposes, there's nothing special about these
bonds."
 
However, the fact that the debt is taxable could add a bit of intrigue in a
year devoid of the popular Build America Bonds that carried federal
subsidies and a tax on interest. "It will be a good test for the taxable
market after the BABs have gone away," Phemister said. "There may be some
cross-over market."
 
The short maturities could also appeal to investors leery of the long end,
but Phemister said that was not the reason for the structure. "It's a good
market deal to be short, but that's not the overriding factor," he said.
"The overriding issue is to get these bonds paid off."
 
The negotiated deal is led by Morgan Keegan & Co. as book-runner, with
Morgan Stanley as co-manager. First Southwest Co. and Estrada Hinojosa & Co.
act as financial advisers. McCall Parkhurst & Horton, Vinson & Elkins and
Newby Davis serve as co-bond counsel.
 
The bonds are issued jointly by the cities of Dallas and Fort Worth, the
co-owners of the airport built in 1974. The cities have operated under a
joint ordinance for the airport since 1968.
 
With nearly $4 billion in outstanding airport debt, the cities anticipate
another $900 million refunding within the next 12 months and $300 million in
new money for the Terminal Renewal and Improvement Program.
 
Located halfway between Dallas and Fort Worth, DFW is the world's third
busiest airport in terms of operations, offering nearly 1,800 flights per
day and serving 57 million passengers a year.
 
As the primary hub for American Airlines, DFW recently added flights from
American's code-share partner Qantas Airways to Australia. Virgin America
also recently launched service to Los Angeles and San Francisco. With
Southwest Airlines' recent acquisition of AirTran Airlines, DFW will be
losing that discount carrier later this year. Southwest operates out of the
smaller competing airport Dallas Love Field.
 
As DFW begins remodeling its four original terminals this year, Love Field
is also undergoing a complete remodeling of its terminal and gates under
financing from Southwest.
 
DFW issued the first $301 million of revenue bonds for remodeling Terminal A
in November, taking a downgrade from Fitch in the process. Fitch lowered DFW
one notch to A-plus, as Standard & Poor's affirmed its A-plus. Moody's rated
the bonds A1 with a stable outlook but warned that future issuance "will
likely cause debt metrics to deteriorate beyond the parameters of the
current rating level."
 
As part of a new, 10-year operating agreement with its airlines, DFW is
restructuring its debt to keep costs from spiking in any given year,
according to chief financial officer Chris Poinsatte.
 
"Although airline costs will rise over the next 10 years as DFW borrows
money to fund the TRIP (Terminal Renewal and Improvement Program), DFW will
remain one of the lowest-cost large hub airports in the country," he said.
"This was very important to the airlines during the negotiations."
 
Love Field's $500 million remodeling is part of a 2006 agreement between the
two airports and Dallas and Fort Worth to limit the number of gates at the
smaller facility as restrictions on air service are lifted. Love Field
Modernization Corp. last year issued $300 million of tax-exempt bonds with
ratings of BBB from Standard & Poor's with a negative outlook and Baa3 from
Moody's with a stable outlook.
 
The so-called Wright Amendment, named for former U.S. Rep. Jim Wright,
D-Fort Worth, was passed by Congress in 1979 to protect the newly opened DFW
from competition from Love Field. DFW's 1974 opening fulfilled a federal
court order that Dallas and Fort Worth jointly build a new airport serving
the two cities.
 
DFW's cost per enplanement is expected to rise slightly this year to $6.90
from $6.78 in 2010, which was lower than the $7.29 that was budgeted and
less than the $7.17 from fiscal year 2009.
 
Debt service is not projected to increase during the current fiscal year
because all interest associated with new borrowings is expected to be
capitalized. Bond ordinances require a coverage ratio of revenues running
1.25 times debt service. In the future, ratios should run between 1.4 to 1.6
times debt service, according to the airport's annual report.
 
Over the next five years, DFW expects to issue about $2.2 billion of new
money while refunding up to $2 billion over three years, Poinsatte said.

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