When the Hawaii Department of Transportation heads to market Feb. 13 to sell up to $855 million of tax-exempt airport system revenue bonds, it will do so with across-the-board double-A ratings after receiving a ratings boost from Moody's Ratings.
Moody's upgraded the Hawaii DOT's airport system bond rating on Monday to Aa3 from A,1 citing the airport's strong passenger traffic performance, the state's economic resilience and the state's enduring desirability as a premier tourism destination.
The upgrade by Moody's means the airport system has double-A ratings from the three largest bond rating agencies for the first time in its history, according to airport officials. S&P upgraded the airport system's long-term rating to AA-minus from A-plus in March 2023 citing the airport system's strong recovery in air travel demand "that we believe is sustainable long term and its return to business-as-usual rate-setting flexibility."
S&P Global Ratings and Fitch Ratings affirmed the airport system's bonds AA-minus and the outlook at stable ahead of the sale.
"The state has been investing in Hawaii's airports to modernize our facilities and improve the passenger experience, and this rating upgrade is a testament to the state's ability to pursue these investments prudently, in a financially responsible manner," said Hawaii Gov. Josh Green.
Barclays Capital and BofA Securities, the deal's underwriters, will price the debt, split into two tranches of new money totaling $635 million maturing from 2036-2054 and two refunding tranches of $220 million taking out 2015A AMT airport system revenue bonds maturing from 2040-2045.
Five other banks – Charles Schwab & Co, First Honolulu Securities, Morgan Stanley, Raymond James & Associates and Siebert Williams Shank & Co. – are in the "selling group," according to an information sheet posted to DOT airport's investor relations website.
"The upgrade to Aa3 reflects the system's strong traffic recovery, which is broadly in line with the sector, with enplanements achieving pre-pandemic volumes despite persistently low levels of international travel," Moody's analysts wrote. "The airport's 2024 debt service coverage position was also a strong two times in fiscal 2024, although it will taper closer to 1.25 times as it issues additional debt in the coming years."
The airport's favorable traffic and financial performance was particularly notable in light of challenges stemming from the pandemic, Moody's analysts wrote.
"The successful rating review and upgrade by Moody's reflects the confidence the bond market has in the airports system and how we manage our program and finances," said Hawaii Department of Transportation Director Ed Sniffen in a statement.
Hawaii DOT operates and maintains 15 airports across the island archipelago – and served 19.2 million enplaned passengers in fiscal year 2024, above pre-pandemic levels, Moody's analysts wrote. The DOT "is one of 18 principal executive departments of the state and is empowered to establish, maintain and operate the transportation facilities of the state, including highways, airports, harbors and other transportation facilities."
All state airports operate as a single integrated system for management and financial purposes; and virtually all non-military passenger traffic throughout Hawaii passes through the airport system, which includes five primary airports and 10 secondary airports, Moody's analysts wrote. The primary airports are Honolulu International Airport on the island of Oahu, Kahuli on the island of Maui, Hilo International and Kona International, both on Hawaii Island, and Lihue on the island of Kauai.
Hawaii had 910,055 visitors to the Hawaiian Islands in December 2024, a 5.5% growth compared to the same month last year, according to preliminary statistics from the Hawaii Department of Business, Economic Development and Tourism published Jan. 30. Total visitor spending measured in nominal dollars was $2.04 billion, up 4.7% from December 2023, according to DBEDT.
Total visitor arrivals in December 2024 represent a 95.5% recovery rate from pre-pandemic December 2019 (952,441, negative 4.5%) and total nominal visitor spending increased compared to December 2019 by $1.75 billion, for a 16.6% increase, according to DBEDT.
The islands saw a slight bump in domestic travel, but international travel is still down from pre-pandemic levels, according to DBEDT's report.
DOT plans a retail order period for Wednesday, followed by institutional pricing on Thursday, according to a document posted on DOT's investor relations website.
The series 2025 bonds will be special limited obligations of the state, payable solely from and secured solely by revenues derived by the state from the ownership and operation of the airports system and the receipts from the aviation fuel taxes imposed by the state, according to a voluntary notice of potential finance posted on the state treasurer's website Jan. 22.
The bonds would fund part of the $1.8 billion in 2025 projects split between several of the system's airports. The proceeds would also fund a reserve and pay the costs of issuance.
"We look forward to meeting with investors in the coming days to discuss the strengths of the airport system and the Moody's upgrade will likely translate to lower borrowing cost for our bond issue," Sniffen said.
The airport system is underway on a $2.5 billion capital program running through 2031 to upgrade and expand airport infrastructure, including runway repairs, terminal renovations, security enhancements and the construction of new facilities. The airport system has $1.74 billion of senior-lien GARBs, $82.6 million of COPS and $37.9 million of customer facility charge revenue bonds, according to Fitch's Feb. 3 report.
Offsetting its rating strengths "is the substantial expected debt issuance in the coming years that will materially increase the airport's leverage profile," Moody's analysts wrote. "Nearly $4 billion in forthcoming additional bonds from 2025-2031 will increase debt per O&D enplanement to around $300, which while materially higher than historic levels is consistent with other large hub airport systems undergoing transformational capital programs. Similarly, costs per enplanement will increase."
The airport system, in recent years, has opened the Mauka Concourse at Honolulu International, which added 280,000 square feet of terminal space, a federal inspection station facility at Kona International Airport, adding a second port of entry for international traffic, consolidated car rental facilities at HNL and Kahului Airport and numerous additional projects across the state to improve terminal spaces with expanded duty-free, retail and concession spaces, according to DOT's airport division.
"These investments in our airports represent the next phase in enhancing the passenger experience for both residents and visitors, while also increasing safety, capacity and improving operational efficiencies," Sniffen said.
