As major airlines report losses and scale back forecasts amid weakening demand, Cleveland is preparing to go to market April 2 with $125.5 million of revenue bonds for city-owned Cleveland Hopkins International Airport.
The deal follows a $1.2 billion sale by the Columbus Regional Airport Authority a month and a half ago. Both Ohio airports are embarking on terminal modernization projects.
Airlines cut their earnings estimates last week, citing declines in corporate and consumer spending,
Cleveland Hopkins and John Glenn Columbus International Airport are each planning to fund terminal modernizations with around $2 billion of bonds.
While Columbus is well into the design phase of its project, according to Moody's Ratings, Cleveland is in the preliminary stages and has not yet finalized how much of its total project costs will be funded with debt.
Next month's Cleveland deal, all tax-exempt and not subject to alternative minimum tax, will refinance and restructure debt for savings.
Ahead of the deal, the airport's revenue bonds were affirmed.
Moody's rates Hopkins A2 with a stable outlook. Fitch Ratings assigns an A-minus rating with a positive outlook. S&P Global Ratings assigns the bonds an A long-term rating with a stable outlook.
"We have been seeing some weakening in the results that the airlines are posting, and then also when we take a look at the recent TSA numbers… it's a good measure just to see how many people are going through TSA checkpoints — that obviously correlates to how the airports are doing — [and] we are seeing some weakening this year versus the numbers that we saw last year," said Ursula Cassinerio, an analyst at Moody's.
Cassinerio noted that Moody's nonetheless has a stable outlook for the airport sector. The airports that Moody's rates are in a very good position in terms of credit quality, she said — they have strong liquidity and leverage that, while increasing due to capital plans, is not climbing to a level "that could make us think about a very significant weakening of credit quality; and debt service coverage numbers that are also strong," she said.
"So overall the airports are in a good position to tackle this weakening in passenger numbers," Cassinerio told The Bond Buyer.
Joseph Pezzimenti, a director at S&P, noted that the rating agency currently only has one airport on negative outlook. The rest are at stable.
"We're expecting air travel to be generally stable," he said. "It could fluctuate… but we're not thinking the sector itself is going to undergo significant drops in air travel demand. There could be some pockets here and there that might experience some weakness, but we're not thinking that they'll be material enough to cause downward rating pressure."
Cleveland's airport revenue bond proceeds will currently refund the city's outstanding Series 2016A airport system revenue bonds (non-AMT); purchase and cancel via a tender offer certain of the city's outstanding taxable Series 2019A revenue bonds; fund necessary deposits to any other funds under the indenture; and pay costs of issuance.
The tender offer expires March 31, according to an online investor presentation about the deal.
The April 2 pricing date is firm at this point, said Betsy Hruby, debt manager for the city.
"The 2016A bonds are currently refundable now and generate savings in excess of the 3% savings threshold established in our ordinances," Hruby said. "The 2019 bonds are taxable and not callable so purchasing and canceling a portion of those bonds for savings in conjunction with the refunding of 2016 bonds makes financial sense."
Later, Cleveland is planning more borrowing to fund a terminal
"It is expected that a large portion of this cost will be funded by the issuance of additional revenue bonds," Hruby told The Bond Buyer. "It should be noted that the airport's existing debt service payments drop significantly by 2030 which provides debt capacity for the program."
After the Series 2025A issuance, Cleveland will have approximately $378.3 million of airport revenue bonds outstanding, according to S&P.
"In terms of what we're watching, there's not a ton of clarity right now as to the amount or the timing of new money that's associated with the capital program," Quinn Rees, a senior analyst at S&P, said of Cleveland's terminal modernization. "Similarly, we're looking out for any updates on what the proportion of that program that's going to be bond financed versus paid for with cash or grants is going to look like."
Cassinerio said Cleveland has been talking with airlines, and some airlines have agreed to the modernization program, even approving about $175 million of initial projects. But it's not yet known what would be included in the airport's final terminal modernization project.
"Right now they have debt service needs of about $60 million per year until 2031, and then in 2032 they decrease to under $10 million," she said. "So at that point, they would be able to have additional debt to fund this terminal modernization project."
Fitch noted in its
The rating agency said its positive outlook reflects the airport's improved traffic recovery position, among other things.
According to the preliminary official statement, the Hopkins airport's 5.09 million enplanements in 2024 were its highest since 2008, when it carried overhead traffic as a hub for Continental Airlines. Now 99.5% of its passenger traffic is origin-and-destination.
"Based on results to date and forecast seat schedules, the airport anticipates continued passenger traffic activity increases in 2025," Hruby said.
While Cleveland already has a residual agreement with airlines in place, Columbus is moving from a compensatory to a residual agreement in 2029, Cassinerio from Moody's said.
The residual agreement will take effect once its new terminal is completed and will last until 2033 with the option to extend to 2038.
On Jan. 28, Columbus Regional Airport Authority sold $1.207 billion of airport revenue bonds: $1.019 billion of Series 2025A (AMT) bonds, and $187.95 million of Series 2025B (non-AMT) bonds.
The co-lead managers were RBC Capital Markets and Siebert Williams Shank. The municipal advisor was PFM, and bond counsel was Squire Patton Boggs, according to the
The deal was rated A2 by Moody's and A by S&P. Both outlooks are stable.
Bond proceeds will pay some of the costs of the New Midfield Terminal Project at John Glenn Columbus International Airport. The project features a 1 million-square-foot, 36‐gate facility with a 5,300-space parking structure, according to S&P. That facility is slated to open by early 2029.
"The Columbus Regional Airport Authority had a strong and successful sale," said Kristen Easterday, director of communications for the authority, calling it "a critical step" toward construction of the new terminal at the airport.
She added that the authority received orders for more than four times the initial offered amount. "This strong investor interest enabled [the authority] to increase the bond issuance from approximately $1 billion to around $1.2 billion, to take advantage of favorable interest rates," she said.
In 2024, the authority created a $300 million credit facility program for interim financing of capital needs. The proceeds of the 2025 bonds will also retire some of the outstanding principal on the 2024 credit facility bonds, and fund capitalized interest and the common debt service reserve account on the Series 2025 bonds, plus pay costs of issuance.
The authority "currently exhibits very robust credit metrics due to its low leverage, but … will undergo a significant change in its credit profile after the planned issuance of about $2 billion of debt between 2025 and 2028," Moody's said. "The expected debt issuance will place CRAA among one of the most levered airport obligors in the A2 rating category."
However, management has built de-risking strategies into the project, Moody's noted, including a guaranteed maximum price contract with the contractor and the accumulation of cash reserves for about $190 million to support the project.
As for any potential softening of demand in air travel, Columbus' Easterday said, "While the aviation industry can experience fluctuations in demand, Columbus has consistently shown strong air travel performance thanks to our region's growing population and expanding economy.
"The success of our recent $1.2 billion bond sale reflects investor confidence in CMH's strategic vision and the area's long-term strength," she added.
