The San Francisco Airport Commission comes to market Thursday with $1.8 billion in revenue bonds to help fund a capital program driven by double-digit enplanement growth.
Passenger traffic at the airport grew 58.1% over the past 10 fiscal years and jumped 7.2% in fiscal year 2017-18 as compared to the prior year, according to preliminary offering documents.
The Airport Commission of the City and County of San Francisco approved a $7.4 billion capital improvement plan in December 2017 involving 56 projects that extends through fiscal year 2023 to upgrade aging infrastructure, handle passenger traffic growth and solve for terminal gate constraints during peak periods, according to the offering documents.
“We sell bonds on an as-needed basis to support construction projects included in the capital improvement program,” said Ronda Chu, capital finance director for the airport commission.
The spend rate has been going up as the airport’s CIP program gains speed, said Chu, but added that Thursday's sale also includes a sizeable refunding.
The airport sold $880 million in revenue bonds in May 2018.
The revenue bonds pricing Thursday are split into four tranches: a $1.18 million AMT series, $83.9 million federally taxable series, $93.4 million non-AMT and $422.6 million non-AMT/private activity refunding bonds.
The airport commission will use $1.3 billion from the upcoming sale to complete airport capital improvement projects, refund outstanding commercial paper notes and to fund a $20 million deposit to the contingency fund.
A number of factors including making them tax law compliant went into deciding to sell the bonds in four series that included tax-exempts and taxables, Chu said.
As spreads tightened beginning in early 2018 between tax-exempt bonds and taxables, many larger issuers including the California state government have sold taxable debt in some instances, rather than tax-exempt, because the tax laws are less onerous.
The airport expects to realize $100 million in present value savings from the refunding.
A syndicate led by JPMorgan and Goldman Sachs will price the bonds. PFM and Backstrom McCarley Berry & Co. are co-financial advisers. Squire Patton Boggs and Amira Jackmon, Attorney at Law are bond counsel.
The bonds received ratings of A1 from Moody’s Investors Service and A-plus from both Fitch Ratings and S&P Global Ratings ahead of the sale. All three provided a stable outlook.
S&P analyst Paul Dyson cited the airport’s extremely strong enterprise risk profile, strong market position, the strength of the Bay Area economy, and management and governance for the rating.
The stable outlook reflects an expectation that SFO's enplanement trends will remain generally favorable and that management will maintain debt coverage that S&P considers adequate, Dyson said.
