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Dallas Airport Doubles Refinancing as 30-Day Issuance Grows: Muni Credit
The Dallas-Fort Worth International Airport, the world’s eighth-busiest, doubled a refunding deal to $222 million as municipal issuers returned to sell in the next 30 days to take advantage of record-low yields.
Ten-year tax-exempt yields fell yesterday to a new low for the year of 2.26 percent, or 1.22 percentage points less than the year’s high on Jan. 18, offering issuers lower borrowing costs. Top-rated 30-year tax-exempt yields were 3.9 percent yesterday, compared with 5.09 percent Jan. 17, the highest for 2011.
The sale of tax-exempt Series 2011D refunding bonds, which are backed by airport revenue, was originally slated for September, Michael Phemister, the airport’s vice president of treasury management said in a telephone interview from New York. The decline in yields prompted it to bring the deal forward and more than double its size from $105 million.
“With the interest-rate environment, we decided to move the deal up a month,” Phemister said. “And right now it’s looking like that was a very good decision.”
The low yields enabled Phemister to include additional maturities and series in the refinancing. The bonds are rated A1, the fifth-highest grade from Moody’s Investors Service.
The refunding generated net present value savings of about $15 million, Phemister added.
The largest segment of the offer is $97.4 million of 24- year debt with a yield of 4.66 percent, according to data compiled by Bloomberg. That’s 35 basis points below an index of similarly rated 25-year transportation bonds. An A1 rated tax- exempt Dallas-Fort Worth Airport revenue bond sold in 2010 and maturing November 2045 traded yesterday at an average yield of 4.97 percent.
The third-biggest tranche is a 10-year segment and was priced to yield 3.04 percent, 40 basis points below a transport bond index with the same rating.
Municipal issuance in the next 30 days totals $8.7 billion as of yesterday, recovering from last week’s dip to $5.05 billion and compared with the year’s low of $3 billion on April 29, according to data compiled by Bloomberg. So far this year, the highest one-month schedule for issuance was $11.3 billion on July 14.
The increase in future debt sales is due in part to low interest rates and the resolution in Washington to approve additional U.S. borrowing to help avoid a default, said Tom Kozlik, director of municipal credit analysis for Philadelphia brokerage Janney Montgomery Scott.
Dallas-Fort Worth Airport will issue new debt in early 2012, Phemister said. The airport will sell about $3 billion of new-money bonds in the next five to seven years to upgrade four terminals that are 35 years old, he said.
The carriers operating at the airport have agreed to additional fees to support the debt and include American Airlines Inc. and its subsidiary American Eagle, which account for 84 percent of passengers October through March, according to the preliminary official statement. The airport is able to increase its debt levels because it serves a large affluent area and has a steady traffic base, said Howard Cure, director of municipal-bond credit research for Evercore Wealth Management LLC in New York, which manages $2.9 billion.
“Dallas is an area where the economy didn’t suffer that much and the enplanements held fairly steadily,” Cure said. “And there’s not much competition. Competing airports are fairly far away.”
The additional debt will increase the airlines’ cost for each person flying into DFW from $6.74 in fiscal 2010, according to Moody’s. That may rise to $15 in fiscal 2020, according to the airport’s outside consultant.
DFW may face a downgrade if future debt-service coverage levels fall below current projections, Kurt Krummenacker, one of the report’s authors, said in a telephone interview.
“The DFW is going to walk a finer line given the amount of leverage that they’re taking on,” he said. “So if they’re unable to meet their coverages set forth in their forecast, the possibility of a downgrade would increase, all else being the same.”
Following is a description of a pending sale of municipal debt:
THE UNIVERSITY OF CALIFORNIA REGENTS, which borrows for the University of California system’s 10 campuses, is selling at least $400 million of taxable and tax-exempt revenue bonds as soon as today. Proceeds will help finance capital projects and refund debt, according to sale documents. The bonds are rated AA, the third-highest, by S&P and Aa1, the second highest, by Moody’s Investors Service. Barclays Capital Inc. will lead underwriters in the sale. (Added Aug. 17)
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