Florida’s busiest airport brings a $1.12 billion bond deal to market Thursday.
The Greater Orlando Aviation Authority's deal, to finance a major capital program, will be airport facilities senior lien revenue bonds subject to the alternative minimum tax.
Proceeds of the fixed-rate, otherwise tax-exempt deal will fund a portion of Orlando International Airport’s $4.12 billion capital improvement program, including continued development of the new south terminal, a project driven by the airport’s growing domestic and international passengers. About $148 million will fund other capital projects.
The market shouldn’t have trouble absorbing the all-AMT deal, according to Alan Schankel, managing director and municipal strategist at Janney Montgomery Scott.
“I believe the Orlando airport issue will be well received,” Schankel said. “The December 2017 tax reform legislation sharply reduced the number of taxpayers who are subject to AMT treatment, so demand for AMT paper has been moderately stronger.”
About half of the airport bonds are expected to be structured as serial bonds maturing from 2020 to 2039. Three term bonds are anticipated: $195.7 million maturing in 2044; $249.7 million due in 2049; and $92.3 million due in 2054.
The bonds are rated AA by Kroll Bond Rating Agency, AA-minus by Fitch Ratings and S&P Global Ratings, and Aa3 by Moody's Investors Service. All have stable outlooks, except Fitch.
Fitch changed its outlook to positive from stable on the senior lien debt to reflect GOAA’s “demonstrated positive operational performance” and growing and diversified origination and destination traffic base. A recently enacted airline use and lease agreement will provide for strong cost recovery terms for the airport's expanded facilities, Fitch said.
Analysts said the airport benefits from strong management.
Kathleen Sharman, GOAA’s chief financial officer, said about $10 billion of bonds are on the calendar for sale this week, “but a lot of that is taxable so we think we’ll have good interest in this transaction.”
Sharman also said she anticipates favorable pricing due to the fact that there has been interest in AMT paper spurred by the Tax Cuts and Jobs Act and because of
“The last time we did a senior-lien transaction was in 2016 and we think there’s a great opportunity for investors to get exposure to our good credit,” she said.
Sharman also noted that S&P placed its highest Green Evaluation, an E1, on $1.08 billion of the bond issue.
The buildings within the south terminal complex have been designed and will be constructed under Leadership in Energy and Environmental Design (LEED) Version 4 standards, and GOAA is updating its master design guidelines to meet those standards for new projects and renovations, S&P said.
“We believe the financing structure provides strong protections that will prevent bond proceeds from being diverted to other purposes outside capital projects that adhere to the airport's Sustainability Design Guidance Manual,” said S&P analyst Erin Boeke Burke.
The city of Orlando owns the airport, which is managed by the GOAA.
The current deal funds the already under-construction $2.3 billion south terminal complex, which will include 19 new gates, an already completed parking garage and people mover connecting passengers to the existing north terminal, and a new intermodal terminal that will support three rail systems, including Virgin Trains USA.
Sharman said GOAA anticipates being back in the market to issue between $400 million and $485 million in 2021, a deal for which about 15% of the proceeds will complete financing for the south terminal.
The region includes the largest concentration of theme parks in the United States, and also benefits from a diverse economy supported by employment growth in research, medical care, and education, according to S&P. It is also home to the Orange County Convention Center, the second-largest such facility in the nation behind Chicago's McCormick Place.
In 2018, Orlando was the most visited destination in the U.S. with a record total of 75 million visitors, said Visit Florida, the state’s marketing agency.
With more than 49 million passengers annually, Orlando International Airport is the busiest airport in Florida and 10th busiest in the U.S., according to airport officials. Some 60% of the Florida’s population can reach the airport within two hours.
The airport's carrier diversity is a credit positive, Fitch said, with Southwest accounting for the largest market share at 23.8% of enplaned passengers in 2018, followed by Delta Airlines with 13.9%, JetBlue with 12.2%, and American Airlines with 12%.
Raymond James & Associates, Frasca and Associates, and National Minority Consultants are co-financial advisors on Thursday’s deal.
Bank of America Merrill Lynch will be the book-runner for the syndicate, which includes Citi, JPMorgan, Jefferies LLC, Wells Fargo Securities, Barclays, Drexel Hamilton, Loop Capital Markets LLC, Morgan Stanley & Co., RBC Capital Markets, Ramirez & Co., Siebert Cisneros Shank & Co., and UBS.
Nabors, Giblin & Nickerson PA and D. Seaton & Associates are co-bond counsel. Greenberg Traurig PA and Ruye Hawkins PA are co-disclosure counsel.
