PHOENIX — The Port of Seattle is set to sell nearly $600 million of bonds next week to refund outstanding debt and finance runway extensions and additional gates at the city's airport.
The port plans to price the bonds via negotiated sale in three series July 21 for delivery Aug.6, according to the preliminary official statement and investor roadshow. The A series will be about $73 million of revenue bonds that are not subject to the alternative minimum tax. The B series will be about $289 million of refunding bonds not subject to the AMT, and the C series will be roughly $231 million of revenue bonds subject to the AMT. The bonds carry an A1 rating from Moody's Investors Service, and A-plus from both Fitch ratings and Standard & Poor's.
All of the bonds will be intermediate lien debt. The Port of Seattle currently has almost $1.5 billion of intermediate lien bonds outstanding, as well as about $654 million of first lien bonds. The intermediate lien is supported by the port's revenues after the payment of operating expenses and payments required by the first-lien bonds. The bonds aren't backed by the full faith and credit of the port. Even though the bonds are being issued for the airport, all of the port's revenues are available for repayment.
Underwriting the deal is a syndicate including Morgan Stanley and Barclays as chief managers with Bank of America Merrill Lynch, Backstrom McCarley Berry & Co., J.P. Morgan, and Drexel Hamilton. The law firm of K&L Gates is bond counsel on the deal, and Piper Jaffray is the financial advisor. Elizabeth Morrison, director of corporate finance at the Port of Seattle, said that the refunding bonds will be used to pay off a 2005 issuance and that the port is anticipating present value savings in excess of $30 million.
Established in 1911, the Port of Seattle owns Seattle-Tacoma International Airport as well as well as port facilities including container terminals and cruise ship docks. Five commissioners elected by King County voters oversee the port and appoint a chief executive officer to manage the port's operations.
The airport accounts for the majority of the port's gross revenue, generating 76% of the $535 million in revenues that the Port of Seattle produced in 2014, port chief financial officer Dan Thomas said. The port stressed improving airport performance in an investor presentation earlier this month. Passenger enplanements increased 7.7% in 2014, said port aviation finance & budget director R. Borgan Anderson. Since 2010, annual enplanements have gone up to just under 19 million passengers from about 16 million. Enplanements are important because airports collect per-passenger fees that are available to pay debt service.
Anderson told potential investors that the port projects enplanements to continue rising at an annual rate of about 2.6% from 2016-2024, reaching 25.9 million enplanements. The new money in the deal will support improvements to support the airport's growing traffic, Morrison told The Bond Buyer.
"Our airport has been growing rapidly," she said. "We have a number of projects to accommodate the growth that we are seeing."
The two largest are an expansion and renovation of the airport's northern terminal, Morrison said, and a replacement of one of the runways. The terminal project is a major effort between the port and Alaska Airlines, the sole tenant in that section of the airport, to expand and update a facility that has received only limited modernizations in its 40 years. Alaska Airlines's increased business at the airport, along with Delta Airlines, has been a key factor in driving passenger traffic. The $530 million project aims to increase the number of aircraft gates to 20 from 12 and double the existing retail and dining space, and is slated for completion in 2020.
Total non-aviation revenues fell in 2014, Thomas said in the presentation, dipping to roughly $129 million from about $131 million the previous year. Driving that, according to the port's financials, was a nearly $6 million decline in revenue from the container terminals. The port owns four container terminals and collects money from leases with the terminal operators. Ports all along the West Coast experienced a cargo backup as a result of a labor dispute between the Pacific Maritime Association, which represents management, and the 20,000-member International Longshore and Warehouse Union that represents workers at 29 ports, including Seattle.
A major development at the port is the pending formation of the Northwest Seaport Alliance, which would bring the Port of Seattle together with the Port of Tacoma to jointly manage their container shipping operations. The two ports began the process last year and submitted the final documents to the Federal Maritime Commission in June, with an expected effectiveness next month. Traditionally competitors, the ports are coming together in an attempt to jointly offset threats posed by the expansion of the Panama Canal that will allow larger ships to reach the east coast from the Pacific and from Canadian ports that want to grab more of the Asian shipping market. The plan has been lauded by federal lawmakers from the area and by Washington Gov. Jay Inslee.
The Panama canal expansion is scheduled for completion next year and has stoked fears that West Coast ports like Seattle could lose their competitive positions. Analysts told The Bond Buyer earlier this year that the project probably isn't a big threat to major western ports, and that most cargoes will probably continue to land there and head east by rail or truck, rather than sail through the already congested canal.
The Ports of Seattle and Tacoma will form a jointly-owned Port Development Authority, but will retain their existing governance structures and debt portfolios. The alliance will not issue bonds, and Seattle and Tacoma will remain separately responsible for issuing new debt. In its report rating the upcoming bonds, Moody's said that successful implementation of the alliance could make the rating go up.
Morrison said that while the port is targeting July 21 for the new bond sale, it will retain flexibility to move the pricing based on market conditions.
