Los Angeles World Airports comes to market Wednesday with $438 million of subordinate revenue bonds to fund the midfield concourse project at Los Angeles International Airport, a keystone in the $11.9 billion LAX capital program, and refund existing debt.
Ramirez is lead manager. Cabrera Capital Markets LLC and Morgan Stanley are co-managers. The municipal advisors are Frasca & Associates LLC and PFM. Bond Counsel is Kutak Rock LLP.
The subordinate revenue bonds will be sold in three tranches: $197.8 million Series A private activity/AMT, $49.7 million Series B government/non-AMT and $190.3 million Series C refunding, private activity/non-AMT.
LAWA has become a frequent issuer over the past five years selling bonds to complete projects started a decade ago to modernize the airport and accommodate larger planes. The airport had not experienced significant renovations since the 1980s when the massive capital program began in the mid-2000s.
The airport also has added billions in new projects to accommodate an 11.1% hike in passenger traffic over the past five years to reach 43.6 million in fiscal 2018, according to an online investor presentation.
Among projects spurred by growth is the $1.7 billion, 12-gate midfield satellite concourse project west of the Tom Bradley International terminal that is slated for completion in 2020.
LAX sold $1.7 billion in bonds in 2018, the highest annual volume it has issued since 2010 when it sold $2 billion, according to Refinitiv data.
Between 2010 and 2015, it only sold $241.9 million in two sales, but since 2015 it has sold debt 15 times, according to Refinitiv.
“We are continuing along a set plan,” Ryan Yakubik, LAWA’s chief financial officer. “We are periodically hitting the market and doing dollar cost averaging on the debt. The interest rates will go up and down over time, but we are funding as we go. So it averages out over time.”
The airport has $6.9 billion in outstanding debt, all fixed-rate, of which $3.14 billion is senior lien and $3.7 billion is subordinate lien, according to offering documents.
Fitch Ratings cited the strength of the airport’s revenues including 4.6% enplanement growth in 2018, more than twice that of competing airports, in affirming its AA-minus subordinate bond rating in a pre-sale report, but cautioned about risks from the airport’s two complex public-private partnerships and expectations of future debt borrowings. It rates LAX senior debt AA.
Last year brought the financial close of two major public-private projects, a 2.25-mile automated people mover that would connect to the city’s mass transit and offer passenger drop-offs at six stations outside the airport, and a complete revision of its car rental facilities.
LAX Integrated Express Solutions, the private consortium working on the people mover, won the Bond Buyer’s Far West Deal of the Year in 2018 for the $1.2 billion in private activity bonds sold in June by conduit issuer California Municipal Finance Authority.
“As the full costs of the capital program, including as much as nearly $5 billion in future debt borrowings, are phased in over the next five years, the projected coverage and leverage ratios are projected to remain close to historically strong levels but could be pressured in the event the airport underperforms on traffic and revenues,” Fitch analysts wrote.
The subordinate bonds were affirmed at AA-minus by S&P Global Ratings and Aa3 by Moody’s Investors Service. Senior bonds are a notch higher.
Though LAX has been a frequent seller over the past five years, Yakubik said they work to temper those sales.
“Part of our strategy as we go along is to not swamp the market with supply,” he said. “We also do our best to keep as much information out there as possible for potential buyers. In general, we have seen pretty good interest in our bonds as we go along.”
Roughly 10% in savings are expected on the $197.8 million refunding of 2009 PABs, Yakubik said.
