DALLAS – Salt Lake City International Airport will shed its debt-free status in 2017 with a $900 million revenue bond issue, the first in a nearly $3 billion plan to completely redevelop Delta Airlines' largest western hub.
The bond issue planned for the week of Feb. 6 will be the airport's first since a $62 million revenue bond sale in 2004.
"That was a refunding issue, so it's been even longer since we sold a new money issue for the airport," said Maureen Riley, executive director for the airport.
The 2004 bonds were auction-rate securities, and the airport decided to pay them off when that market collapsed in 2008.
"To my knowledge, we're the largest airport in the country with no debt outstanding," Riley said.
The negotiated sale will come through book runner Citi, with Bank of America Merrill Lynch & Co., Goldman Sachs, RBC Capital Markets, Morgan Stanley and Zions Bank as co-managers.
Bob DeMichiel, managing director and head of Citi's Airport and Aviation Finance Group, shares the lead-banker role with Citi director Neal Atterman. Public Financial Management is financial advisor.
To get ready for this deal, airport officials had to dust off the public finance playbook, create a new indenture, and reintroduce themselves to rating analysts who had not written a report on Salt Lake City International in years.
"It's been a very exciting and interesting process," Riley said. "Few people in our business get the chance to commence a major financing program with a completely clean slate, but that's what we've had. Now we're looking forward to meeting with various investors and to the actual bond sale."
Ryan Tesch, director of finance and accounting, said he expects yields to compare favorably with those of other major airports.
"We think investor demand will be quite strong, both because of the high ratings we received and because we'll essentially be a new credit in the market," Tesch said.
SLC's first published rating under the new indenture came from S&P Global Ratings, which conferred an A-plus rating with a stable outlook.
Kroll Bond Rating Agency assigned a long-term AA-minus rating with a stable outlook.
Moody's Investors Service is expected to assign a rating by the end of the year.
"The market has obviously been pretty volatile since the presidential election," Tesch said, "but we're optimistic that it will settle down early in the New Year. And, from a historical perspective, rates are still quite attractive."
Tesch said the issue will include a series subject to the alternative minimum tax and a series of non-AMT tax-exempts.
"We are currently working with tax counsel on the allocation," Tesch said.
At a November Bond Buyer transportation conference, Mike Phemister, vice president for treasury services at Dallas-Fort Worth International Airport, expressed concern about the AMT market's ability to absorb a flood of bonds coming from the nation's largest airports over the next few years.
"We don't share Mr. Phemister's concern at this point, primarily because we currently have no debt outstanding," Tesch said.
"I think that part of the concern that DFW and some larger airports have is that certain institutional investors might be approaching the limit on the amount of bonds they want to own from a specific airport," he said. "Obviously, that's not a concern for us at this point, but it might be someday. In fact, I think we'll actually benefit from the opposite effect in that major investors will see us as a new credit and be eager to add us to their investment portfolio."
"SLC is beginning its debt issuance plans from what we consider a strong financial position," S&P analyst Joseph Pezzimenti said in the rating report. "We believe this position will allow SLC to adequately manage the $2.2 billion in debt it plans to issue, including this bond issuance and one in 2019 and another in 2021."
For Riley, who also chairs Airports Council International -- North America, the redevelopment project is by far the largest capital program in her tenure at Salt Lake City.
"Our existing terminal facilities are old, they are operating well above their design capacity and they do not meet current seismic standards," she said. "The completion of this development program will assure that we can meet the needs of both our local market and Delta's hub for many years into the future. The fact that we will spend about $3 billion over about the next seven to eight years will also have a major economic impact on the Salt Lake City area."
Measured by enplanements, Salt Lake City is the 25th busiest hub in the nation and the largest in the western United States for Delta. The fact that the nearest major airport is 400 miles away in Las Vegas protects SLC from competition, analysts noted.
United Parcel Services Inc. and DHL have stand-alone facilities at the airport, while FedEx Corp. is using a new $12 million facility.
Delta and commuter subcontractor Skywest also have aircraft maintenance hangars at the airport and Delta has a reservation center.
Boeing Co. has a fabrication and assembly facility on 16-acre site on airport property. The Utah Air National Guard occupies an 82-acre site on airport property.
The airport's Terminal Development Program and North Concourse Program are estimated to cost about $2.9 billion. The projects are already underway, and will be completed in several phases through 2024.
"In addition, we expect to spend about $225 million on normal capital improvement projects during this same time frame," Riley said. "The TRP and NCP will replace the airport's existing terminal facilities and parking facilities."
On Nov. 23, the airport announced that the estimated cost of the terminal redevelopment had increased by $350 million due primarily to rising construction and labor costs.
"Utah is enjoying a very strong economy, which is resulting in severe labor constraints and a substantial increase in the cost of materials," said Airport Advisory Board Chair Igor Best-Devereux.
In May, the Salt Lake City Mayor Jacqueline Biskupski announced plans to build a $740 million concourse north of the existing terminal to accommodate growth in passenger traffic and to replace aging facilities.
The addition of the North Concourse increased the TRP from $1.8 billion to $2.6 billion.
The North Concourse will replace existing gates now on Concourses B, C and D, which would require costly renovations if retained, according to city officials. Renovations would also disrupt airline operations and airline relocations.
The first phase of the North Concourse construction will start on the west portion of the building and is scheduled to be completed in 2020, in conjunction with the opening of the South Concourse-West and the new terminal. A flexible gate layout is designed to serve a mix of aircraft sizes, though the concourse will mostly serve narrow-body and small, wide-body aircraft.
The design allows for an additional 15 gates to be added to the east for a total of 45 gates.
"This addition is essential in building a state-of-the-art facility to help attract more business and tourism dollars, and completely in line with my plan for robust economic development," Biskupski said. "We are on track to making the entire experience more efficient and pleasant for everyone."
