The Greater Orlando Aviation Authority, Florida, is heading into the municipal market next week with a $286 million bond deal that sports a new ratings upgrade that reflects its better-than-expected economic recovery.
S&P Global Ratings on Jan. 19 raised the long-term rating and underlying rating on the GOAA’s senior-lien airport facilities revenue bonds to AA-minus from A-plus. S&P assigns a stable outlook to the credit.
In August 2020, S&P placed GOAA and many other U.S. airports on CreditWatch to reflect the impact of the COVID-19 pandemic. In November 2020, S&P lowered GOAA’s rating to A-plus from AA-minus.
In April 2021, Orlando's airport was among those included when S&P revised the outlooks on 185 long-term debt ratings associated with 126 issuers in the U.S. not-for-profit transportation infrastructure sector to stable from negative, citing improving business conditions for the sector.
In connection with the January senior-lien upgrade, S&P raised GOAA’s subordinate-lien debt to A-plus from A.
"The upgrade reflects Orlando International Airport's (MCO) demonstrated financial resilience and rate-setting flexibility during a period of materially depressed activity levels, along with MCO's strong passenger recovery trends exceeding our expectations and S&P Global Ratings' updated activity recovery estimates," S&P said.
"We believe the traffic levels are sustainable and support an improved market position assessment and very strong enterprise risk profile," according to the rating agency.
“We appreciate the recent upgrade from Standard & Poor’s and the affirmation from the other three credit rating agencies acknowledging GOAA as one of the strongest airport credits in the United States," Kathleen Sharman, GOAA's Chief Financial Officer, told The Bond Buyer.
The bonds were affirmed at Aa3 by Moody’s Investors Service, AA-minus by Fitch Ratings and AA by Kroll Bond Rating Agency. All three also have stable outlooks on the credit.
"With the support of our board, we have been able to right size our capital program and our debt service profile. This combined with the strong demand for air service to Orlando puts us in an excellent position to enter the capital markets next week,” she said.
Wells Fargo Securities is expected to price the authority’s airport facilities revenue bonds Tuesday with a closing date of Feb. 22.
Co-managers are BofA Securities, Citigroup, J.P. Morgan Securities, Jefferies, Barclays Capital, Drexel Hamilton, Loop Capital Markets, Morgan Stanley, Ramirez & Co., RBC Capital Markets, Siebert Williams Shank and UBS Financial.
Frasca & Associates LLC, National Minority Consultants and Raymond James are the financial advisors. Bond counsel are Nabors Giblin & Nickerson and D. Seaton and Associates.
"GOAA has managed the challenges of the pandemic extremely well, successfully advancing the development of the new South Terminal Complex, redeeming bonds to effectively manage its debt portfolio resulting in lower airline rates and enhancing debt service coverage, and experiencing a very strong recovery in passenger traffic," Ken Cushine, principal at Frasca & Associates, told The Bond Buyer. "All of this led to the upgrade from S&P with Orlando now having four ratings in the 'AA' category. We expect strong investor interest in the bonds."
The deal consists of five tranches: $182.66 million of Series 2022A tax-exempt revenue bonds subject to the alternative minimum tax, $62.955 million of Series 200B taxable revenue bonds, $8.73 million of Series 2022C refunding revenue bonds subject to the AMT, $20.045 million of Series 2022D refunding revenue non-AMT bonds, and $11.51 million of Series 2022E taxable refunding revenue bonds.
The City of Orlando owns the Orlando International Airport and the Orlando Executive Airport; GOAA operates them under a 50-year agreement expiring in 2065.
The senior bonds are secured by a pledge of airport system revenues, which include available passenger facility charge revenues.
Proceeds will finance some of the costs associated with the new South Terminal Complex as well as to make a deposit into the debt service reserve account. Additionally, some of GOAA's outstanding bonds will be refunded.
The airport’s 2021-2027 $3.57 billion capital improvement program is almost fully funded, according to an online investor presentation. Expenditures after June are expected to only total $315 million with the South Terminal Complex Phase 1 slated to open in July.
Since 2011, the authority has sold about 2.9 billion of debt, with the most issuance occurring in 2019 when it offered $1.1 billion of bonds.
S&P said cash-funded debt service reserves for GOAA's outstanding senior and subordinate bonds will total about $122.9 million and $60.3 million after the sale, respectively, providing additional liquidity to bondholders.
As of Dec. 31, GOAA had about $2.8 billion in debt outstanding, according to S&P, consisting of about $1.639 billion of senior-lien bonds, $882.9 million of subordinate-lien bonds, $251.2 million outstanding lines of credit, and $50.2 million in loans outstanding from the Florida Department of Transportation. Not included were GOAA's $121.3 million of outstanding special purpose facilities bonds secured by customer facility charge revenues.
“The ratings reflect Orlando International Airport's leading origination and destination market position and diverse carrier mix,” Fitch said in a report released Jan. 18. “Fitch also views positively the authority's proactive capital management and maintenance of its strong liquidity position.”
Fitch noted that like a lot of other U.S. airports, Orlando saw a large drop in passengers starting in March 2020 as air travel plunged due to the pandemic.
In fiscal 2021, passenger travel continued to be affected by the pandemic in fiscal 2021 with enplanements down 32% from fiscal 2019 and off 41% from fiscal 2020.
Fitch said that international passenger traffic, which represented 14% of the airport's passengers in fiscal 2019 before the pandemic, recovered significantly in 2021, reaching 45% of 2019 levels in November 2021. International arrivals had been
“Orlando continues to be a leader among the large-hub airports in terms of traffic recovery to historical levels, with estimated year-to-date enplanements through the first three months of fiscal 2022 recovering to 89% of enplanements during the same period in 2019,” Fitch said.
Kroll said its rating “reflects the airport’s unique air service market, which features a substantial leisure and hospitality component, a rapidly growing population base, and an expanding, diversifying economy.”
Orlando is home to Walt Disney World, Universal Orlando Theme Park, Legoland Florida, Sea Life Aquarium & Madam Tussauds and the Crayola Experience among scores of other attractions.
Kroll said the whole metropolitan statistical area is a leading global venue for tourism, with seven of the 10 most visited theme parks in the world. In 2019, the Central Florida region saw a record 76 million visitors.
While air traffic plummeted with the outbreak of the pandemic, a recovery began with the reopening of area’s theme parks in July 2020.
Fiscal 2020 passenger enplanements were down 41.5% from fiscal 2019. In fiscal 2021, enplanements were up 16.8% from fiscal 2020, but 31.6% below fiscal 2019.
Traffic at Orlando International has continued to recover, bolstered by vaccine availability, pent-up demand for travel and the start of the peak travel season.
Still, the rate of growth in passenger throughput has moderated in the first quarter of fiscal 2022 fiscal year, Kroll said, “likely related to the outbreak of the Omicron variant, the back-to-school period, and the unusually high level of flight cancellations experienced nationwide over the busy holiday travel period.”
However, the rating agency noted the region is also a growing center for life sciences, health care, aerospace and defense, advanced manufacturing and innovative technologies.
“Thus, while we continue to view the airport service area as susceptible to disruption by exogenous declines in the travel, leisure and hospitality sectors, this concern is increasingly mitigated by the economic diversification and growth exhibited in the years following the Great Recession,” Kroll said.
