As travelers take back to the skies, Atlanta brought a $706 million airport revenue bond deal to market this month with a sizable green bond component.
The city's sale that priced Aug. 16 came in seven series, including three designated as green bonds totaling $500 million.
The deal was managed by BofA Securities and Ramirez and Co. with seven co-managers.
Frasca and Associates is municipal advisor and Hunton Andrews Kurth and Serena Nowell, LLC are bond counsel.
The deal contained a mix of new money and refunding general revenue bonds, bonds with tax-exempt interest subject to the alternative minimum tax and non-AMT bonds, and included series with a hybrid passenger facility lien and subordinate general revenue bond lien.
The firm Kestrel verified the green bonds, comprised of $206.6 million of tax-exempt non-AMT Series 2023 B-1 general revenue bonds, a $39 million non-AMT Series 2023D with hybrid PFC/subordinate lien, and $256.2 million Series 2023E general revenue bonds subject to the AMT.
Sustainable issuances have "triple benefits," Mohamed Balla, chief financial officer for Atlanta,
The green bonds were issued as part of the city's commitment to achieving 100% clean or renewable energy by 2035.
The sale also included $88.5 million tax-exempt Series 2023Fs revenue refunding bonds and $59.2 million of Series 2023 revenue refunding bond subject to the AMT.
Hartsfield-Jackson International was the world's busiest airport in 2022, moving 93.6 million passengers, a 23.8% increase from 2021, the
Overall, domestic air traffic grew by 25.8% in the same period, with international traffic for North American airports experiencing a 117.2% increase from 2021, when the COVID-19 pandemic depressed traffic, the report said.
Balla said issuers today are weighing environmental risk increasingly being "identified, quantified, assessed and analyzed," forcing them to think more deeply about deal structures to protect against that potential risk.
They're also looking for ways to reduce borrowing costs of sustainable deals, something that could happen as natural consequence of more issuers entering the emerging ESG marketplace and encouraging price competition, Balla said.
"Atlanta issued an
Kroll Bond Rating Agency assigned an AA-plus rating to the airport bonds with a stable outlook.
The assignment reflects "a large growing and diversifying service area, enduring locational strengths for hubbing resulting in favorable utilization, a distinctly advantageous debt position that can accommodate significant planned issuance, exceptionally strong liquidity, and broad debt service coverage," the rating agency said. "KBRA believes management responded well to the unprecedented traffic and revenue reductions associated with the COVID-19 pandemic through operational decisions, assisted by federal recovery funds."
KBRA said that in its opinion, "even though ATL is in the midst of substantial current ($581 million) and prospective ($4.9 billion) borrowing to fund the $10.6 billion capital program through fiscal 2029, debt metrics will remain moderate, particularly among large airports undertaking expansive capital programs."
Atlanta is by far the busiest airport in the U.S. in terms of total enplanements, departures, and 35% more connecting passengers than the second ranked airport, Los Angeles International airpport.
Fitch Ratings assigned the all new series of Atlanta's airport bonds its AA-minus rating with stable outlook and cited the city's "robust liquidity" and position as a leading transportation hub, along with the city's steady recovery from COVID-19 lows.
"As the airport nears a full recovery, the total enplanement base coupled with the long-term use and lease agreement with strong rate-setting flexibility should provide for ample coverage and favorable cost per enplanement, while successfully allowing for implementation of its capital program to meet current and future infrastructure needs," Fitch said.
Fitch also affirmed at AA-minus with stable outlook the rating on approximately $1.6 billion of outstanding senior general airport revenue bonds and on approximately $1.1 billion of outstanding PFC hybrid bonds.
Moody's Investors Service affirmed its Aa3 rating and stable outlook and assigned the same rating to new deal.
Moody's said the rating reflects the strategic importance of Hartsfield-Jackson Atlanta International Airport as the most traveled passenger airport in the world.
"Atlanta has a near monopoly in its service area, which is one of the nation's fastest growing economies with sustained population growth," Moody's said. "As of May 2023, the airport's enplanement levels are at 94% of the same month in 2019 and Moody's expects full recovery by fiscal year 2026."
The airport's position as a fortress hub for Delta Air Lines has plusses and minuses, the rating agency said.
"While the airport retains substantial carrier concentration and transfer traffic risk, the importance of the airport to the airline, the challenges related to accommodating such large volumes of transfer traffic at another domestic airport, a 20-year lease agreement, and competitive actual and forecasted cost per enplanement mitigate dehubbing risks," Moody's said.
Transportation related issuance was down in the region in the first half of the year.
Amid an nationwide slump in volume,
Stan Ladner of Butler and Snow's public finance team, which was the Southeast's second busiest bond counsel across the first half of the year, said industry experts expected a lower appetite for large transportation projects amid bad news about the economy, speculation about a recession, and anticipation of rising interest rates.
When it comes to airports it's only relatively recently traffic has hit pre-pandemic levels, Ladner said, and over the course of the last few years there's been "a lot of anxiety" about how much improved facilities would be used if major projects commenced.
"There was a long time in this country rates were much higher than they are today, many projects didn't move forward," he said. "Some elected officials haven't been in office long enough to remember that there was a time when tax-exempt rates were double digit, and that was not unusual."
A large amount of major airport work that continued through the pandemic did so as public-private-partnerships, he added, including the Port Authority of New York and New Jersey's three major airports.
The Authority's overhaul its regional airports, Newark Liberty, LaGuardia, and John F. Kennedy International, has featured heavy use of P3 arrangements and has been backed by a mix of pay-as-you-go funding and debt including $37 billion in bonds to support capital work started in 2017.
