Philadelphia plans to sell nearly $400 million in airport revenue refunding bonds to achieve near-term debt savings to offset revenue losses from the COVID-19 pandemic.
Pennsylvania’s largest city will sell $395 million in airport revenue refunding bonds in late September to refund debt sold on behalf of Philadelphia International Airport 10 years ago. The city-owned airport will concentrate the bulk of its estimated $73 million in present value savings from the transaction to the next three years to provide relief amid declining passenger volume.
“We probably would have been done level debt service savings each year had we done this deal earlier in the year, prior to the pandemic,” said Philadelphia International Airport CFO Tracy Borda, who noted the transaction was in the works prior to the virus outbreak in March. “We are now able to target savings for what we believe what will be the hardest hit years.”
The deal will feature roughly $191 million of Series 2020A private activity bonds that will refund the airport’s 2010A bonds and $40 million of 2020B bonds to refinance outstanding commercial paper. The transaction also includes $164 million 2020C bonds that will refund its 2010D bonds. The borrowing will achieve yearly debt savings through 2040.
The airport's bonds are rated A2 with a stable outlook by Moody’s Investors Service and A with a negative outlook by Fitch Ratings. The airport, which is a hub for American Airlines, has around $1.3 billion of debt outstanding.
Barclays will lead the negotiated deal with Frasca & Associates and Phoenix Capital operating as financial advisors. Saul Ewing and Andre C Dasent PC are bond counsel.
Moody’s analyst Myra Shankin said Philadelphia’s airport system boasts a “reasonable level” of financial resiliency that can withstand a 15% reduction in its current 2021 fiscal year operating revenue before needing to turn to airlines for rate recovery. The airport has roughly a year of cash for more immediate needs and benefits from a front-loaded debt service profile with an average life of less than 12 years, she added.
The airport’s passenger volume fell 26.7% in fiscal 2020 compared to 2019 due to COVID-19, according to Moody’s. Shankin said the airport’s recovery will likely trail national averages over the next 12 to 18 months because of its above-average exposure to international traffic.
“We have a sense that in 2021 the numbers are going to bottom out and then they will start to recover, but how fast they recover nobody really knows right now,” she said. “They will get that little punch of savings through this deal to add a little bit more cushion.”
Prior to the pandemic, the airport’s finances were in solid shape, Shankin said, with only modest capital needs. It is planning around $300 million of debt issuance the next five years, which, she said, would not have a material impact on leverage levels.
Fitch analyst Henry Flynn said the negative outlook on the bonds reflects severe revenue declines expected at all airports in 2020 that could extend longer, depending on how long the pandemic persists. While Philadelphia has a strong franchise position as a major market destination and hub facility, he said, it also is heavily reliant on leading airline carriers, such as American, which is facing financial pressures.
The Federal Aviation Administration awarded Philadelphia International Airport $116 million in CARES Act funding in April to support operations, which airport CEO Borda said equated to around 100 days of cash on hand. The airport hopes for additional stimulus funding from Congress this fall.
