In a quest for interim financing for an $8.6 billion capital program, Dallas Fort Worth International Airport jumped into the extendable commercial paper (ECP) market earlier this year to fund tax-exempt projects.
ECP has been used in public finance by issuers including water and power utilities, but not airports, making DFW a trailblazer for the sector, according to participants in the financing, which was selected as the Southwest region winner in
"Given the fact you don't need the bank support because of the ability to remarket ECP for up to 180 days makes it nice and attractive," DFW Chief Financial Officer Chris Poinsatte said, adding he plans to share DFW's ECP experience with other airport CFOs.
DFW, which has been using taxable traditional commercial paper backed by self-liquidity for several years for terminal projects, wanted to launch a tax-exempt interim-financing program and had been previously pitched ECP by its financial advisors, he said.
Laura Alexander, a senior managing director at HilltopSecurities, the airport's co-financial advisor, said DFW did not have the capacity to do another CP program backed by self-liquidity and that an ECP program allowed the airport to forgo the cost of a bank line of credit to provide liquidity.
While ECP, which is initially sold with maturities up to 90 days, was usually reserved for AA or higher-rated credits because of a reliance on market access to take out the debt, some high-A-rated issuers in other sectors tapped the market over the past year, she noted.
"In the event that there's a failed roll, the issuer has 180 days before an event of default to be able to pay it off or refinance it, or whatever," Alexander said. "So 180 days is a pretty long time in the market cycle for lesser credits that could present more market risk."
The financing began in March with the creation of a $600M subordinate lien joint revenue extendable commercial paper note program with JPMorgan as the dealer. The ECP was issued as a series of notes with the final issuances/rolls occurring in early August and coming due in late October.
The ECP program earned ratings of P-1 from Moody's Ratings and A-1 from S&P Global Ratings, which boosted the rating to A-1-plus in August.
Moody's said its rating "reflects the high coverage of maturing commercial paper by DFW's sizable and stable liquidity balances; conservative asset allocation; limited exposure to any single money market funds or external liquidity provider; and detailed policies and procedures for managing the new self-liquidity commercial paper program."
As DFW prepared to take out the ECP with an August revenue bond sale, S&P
Moody's Ratings revised the outlook on DFW's A1 rating to positive from stable, saying the move reflects an increased likelihood the capital program would be completed "without an undue increase in leverage."
Poinsatte said it was "quite unusual" to get upgraded at the start of a large capital program, noting the airport is using innovative off-site modular construction.
"In the case of Terminal F, we can build the base while we're building the rest of the terminal, and then you just wheel it in and put it on top of your base, and we're gonna build Terminal F in three years," he said. "Nobody builds terminals in three years, and that reduces the risk significantly."
The debt was also rated A-plus by Fitch Ratings and AA by Kroll Bond Rating Agency, with stable outlooks.
An underwriting team led by Wells Fargo Securities priced $723.5 million of tax-exempt joint revenue refunding and improvement bonds that were not subject to the alternative minimum tax.
The deal refinanced $445 million of outstanding ECP and raised $305 million for the airport's $8.6 billion capital program, which includes the tear-down and reconstruction of Terminal C, two new piers that add nine gates, construction of a 15-gate Terminal F, and an electric central utility plant aimed at allowing DFW to achieve net zero carbon emissions.
The deal, which was structured as serial maturities from 2028 through 2045 and in 2049, as well as a 2048 term bond, featured 4%, 5%, and 5.25% coupons. Pricing resulted in a true interest cost of 4.02%. The bonds had an average life of 16.5 years.
"The underwriters were able to generate over $1.9 billion in orders, or roughly 2.7x aggregate subscription," the deal's nominating statement said. "In total, the order book saw participation from 64 investors, which included at least six new investors to the DFW credit."
The financing team also navigated arbitrage issues with the help of tax counsel at McCall, Parkhurst & Horton by coordinating the timing of the ECP rolls with the Aug. 21 bond sale date.
"By rolling the ECP more than 15 days before the bond pricing and extending the ECP maturities, DFW took a calculated risk that the short-term investment earnings on the funds would exceed the rates paid on the ECP, which allowed DFW to save approximately $760,013 in net funding the escrow for the ECP," the nominating statement said.
Siebert Williams Shank & Co. was co-senior manager for the bond deal, which included co-managers JPMorgan, Academy Securities, and Truist Securities. Co-bond counsel were McCall, Parkhurst & Horton and West & Associates. Hilltop and Estrada Hinojosa were co-financial advisors.
As the capital program progresses, Poinsatte said DFW will use "all the tools in our toolbox," including ECP and traditional commercial paper, all of which will be actively managed.
DFW, where American Airlines is the dominant carrier, was the
DFW was The Bond Buyer's
