DALLAS -- The Indianapolis Airport Authority comes to market as soon as Thursday with a $171 million refunding structured to bring down its debt service costs on the long end.
The bonds to refund 2006 debt are being sold through the Indianapolis Local Public Improvement Bond Bank.
It offers two series. One is for $148 million that will mature between 2017 and 2035 with interest subject to the alternative minimum tax. A second series for $22 million matures between 2017 and 2036 and is taxable.
Raymond James is the senior manager on the deal. RBC Capital Markets is co-senior manager.
Ahead of the sale, Moody's Investors Service affirmed the airport's A1 rating and stable outlook and Fitch and S&P Global Ratings affirmed their A ratings and stable outlook. The authority has $957 million of outstanding debt.
"The refunding strategy is put in to place to shorten the average life of total debt and produce a significant savings," Robert Thomson, the authority's senior director of finance and treasurer, said in an investor presentation. While debt service, after the refunding, remains fairly on par with the current schedule, it will trim more than $80 million in debt service between 2034 and 2036.
The authority highlights Indianapolis International Airport's three-year airlines use agreement with the ability offer two, one-year extensions; a strong local economy; and diverse carrier mix in its investor presentation. Southwest Airlines leads market share at 30% followed by American Airlines at 25%. Airlines account for 25% of airport revenue.
The number of passengers is rebounding from past losses, growing over the last three years with growth from 2014 to 2015 at 8.7%. Pledged revenues provided 1.84 times debt service coverage in 2015 and after heavy debt issuance for a new terminal, no new debt is planned in the "near future," Thomson said.
"While leverage has historically trended very high for the A1 rating level, recent refundings and amortization have brought metrics more in line with the authority's A1 peers," Moody's said.
Moody's noted the airport's strong market position as an origin and destination airport in a diverse economic region with limited competition from other airports. The airport also counts on FedEx's presence to diversify its traffic and revenue base. Indianapolis is the second largest hub for FedEx and was the 8th largest cargo airport in the U.S. in 2015, according to the authority.
The airport authority's capital program is focused on asset preservation with spending over the next five years focused solely on maintaining airfield infrastructure and maintaining the terminal and related facilities, said Thomson.
The airport authority in March cancelled a proposed $500 million medical center and sports complex that would have been developed on the site of the airport's former terminal. The proposal, which was seen as too ambitious by the board, included several medical office buildings and a 20,000-seat sports stadium.
The airport authority's debt load is a mix of 66% fixed rate and 34% floating rate. The floating-rate securities are swapped to a synthetic fixed rate in five interest rate swaps – currently carrying a negative valuation of $85 million -- with four counterparties.
The authority notes it has $332.6 million of callable debt coming due in the next 12-18 months and expects to continue evaluating refunding opportunities.
