The developers of New Terminal One at New York's John F. Kennedy International Airport are in the position that any salesperson would want: they have something you can't find anywhere else.
It's the biggest airport public-private partnership in the country and the only terminal in the country that solely serves international travel.
That uniqueness,
Those New York Transportation Development Corp. deals
The New Terminal One is a P3 between the airport's operator, the Port Authority of New York and New Jersey, and a consortium including Ferrovial, JLC Infrastructure, Ullico, and Carlyle.
The project has been in the works since 2016, said Bob DeMichiel, who at the time was advising the partners through Citi.
"This deal was initially scheduled to close financially and have a lease signed with the Port Authority in 2020," said the NTO's director of financial planning, analysis and strategy, Bryan Rowan. "And the initial plan of finance included a significant portion of funding at financial close to come from a municipal bond issuance."
Of course, 2020
By June 2022, the partners were able to sign the lease, and the P3 was launched — with
Instead, the partners and private banks provided the $9.5 billion for Phase A of the project, and the team planned to refinance the bank debt over the next four years as market conditions allowed.
By the time the NTO was ready to issue its first bonds, in late 2023, the project was already well known to muni investors, Rowan said. From conversations about the scrapped bond plans in 2020, then at investor events earlier that year, which the partners held "just to keep people warm, and say, 'Hey, hope you didn't forget about us. We are coming eventually.'"
Even if they hadn't held those events, investors would have known about JFK. It was a P3 at the largest airport in the country, coming to market in a year with few airport issuances.
The bonds bore underlying ratings of Baa3 from Moody's Ratings and BBB-minus from Fitch Ratings and Kroll Bond Rating Agency. $800 million of the bonds were insured by Assured Guaranty, and those were rated A1, AA, and AA-plus, respectively.
With the P3 structure and the project's size and scope, the underlying ratings were lower than the usual general airport revenue bond rating.
"You have to build a terminal in an existing space that is being heavily used already, and there's a lot of coordination with the Port Authority to make sure you're fulfilling their needs," said Howard Cure, director of municipal bond research for Evercore Wealth Management. "And it's not only that, but then you don't have all the signatory airlines signed up yet, so there's no guarantee that it's going to be occupied before it's completed."
There was also the risk of a fully international airport terminal; the precarity of international travel was fresh on everyone's mind after COVID-19.
But the team felt confident as the pricing date neared, Rowan said.
"I think we all knew that people would be there," Rowan said. "I think what we weren't sure of was our initial pricing level. There are very few comps that are direct for us."
The deal came to market as $1.5 billion of green special facilities revenue bonds, subject to alternative minimum tax, with Citi as lead underwriter, Loop Capital Markets as co-senior manager, and nine co-managers. Katten Muchen Rosenman and D. Seaton & Associates were co-counsels.
Investors were less concerned about the risks than the team could have expected — the deal was ten times oversubscribed.
The deal team was "ecstatic" when they saw the investor interest, DeMichiel said. It tightened the spreads and upsized to $2 billion.
"That largely took out basically all our bank funding that we had drawn down on at that time, with a little bit of carry that was consumed by January," said the NTO's CFO, Manoj Patel.
In the next six months, construction continued, on time and on schedule. The NTO signed up more airlines and vendors.
In the meantime, Citi
The NTO decided to refinance another piece of its debt in June while market conditions were favorable, getting out ahead of the presidential election, Patel said.
The deal in June was virtually the same as the 2023 deal, although Citi was replaced with BofA. The second time around, with a better idea of investor interest, the team planned to issue $1.5 billion.
2024 had many more airport deals than 2023, but it turned out not to matter; when bids came in from more than 140 investment houses, the deal was still more than three times oversubscribed.
They upsized twice, and ultimately
The upsizing "de-risked our program," Patel said. "We're about 85% financed with our anticipated financing, and with the reinvest strategy, we're essentially able to realize no negative carry on the monies, which is something that was not envisioned."
In many ways, the NTO was in a perfect position for investors — it has the yields associated with a high-risk construction project, but most market participants trust the NTO's team, the Port Authority, and the terminal's importance to the country's air travel. As long as investors believe that New York will remain the international gateway to the U.S., Cure said, they can trust the project's long-term revenues.
"I think there's a real belief in the New York market. I think there's a real belief in the need for this project," DeMichiel said. "And if you take a look at the sponsors, you know, between Ferrovial, JLC, Ullico, Carlyle, you know, they've got a lot of money invested in this. And I think investors took a lot of comfort from all of those things."
The NTO's model would be difficult for airports outside to replicate — although it appears to extend to the rest of JFK, judging by the new
But JFK's model, in which separate terminals essentially compete for traffic, is unheard of outside of New York, DeMichiel said.
Making each terminal its own P3 is an even bigger departure from the norm.
Even if another airport were to follow this model, it could not replicate the NTO's size, DeMichiel added; the $9 billion price tag on the renovations certainly helped attract investor interest.
Other airports might also be hesitant to yield control of their gates, Cure said, which would deter them from P3s.
But the NTO team is in conversation with the other JFK P3s, and they hope their success can be influential to the rest of the market.
The terminal's bonds have all had a green designation, and Rowan said they're proud that designation was attached to such high-profile deals. Patel added that 40% of the deals' underwriting syndicate was minority and women-owned business enterprises — a
Patricia Mollica, a partner at Katten who represented the New York Transportation Development Corp. in the deals, noted that she is a native New Yorker and the project created more than 10,000 jobs in New York State.
"TDC, in its partnership with NTO, has paved the way for a transformative international airport in New York state," Mollica said. "The team at Katten, along with our co-bond counsel, D. Seaton & Associates, are proud to be part of the tremendous endeavor."
Assured Guaranty has wrapped $1.6 billion of the NTO's bonds, its largest commitment to a single P3 credit.
"Assured Guaranty's large commitment to the New Terminal One is a function of this essentiality, the infrequent nature that an asset of this type is redeveloped, a solid consortium that is developing and will be operating the New Terminal One and investor demand for our wrap," said Assured Managing Director Lorne Potash.
The NTO plans to issue bonds one more time in late 2025 to refund the last of its Phase A funding, then stay out of the market until Phase B starts in 2026. The team is optimistic that that deal will be similarly well-received.
Phase A is being built on the sites of the former terminals 2 and 3. It will open in 2026, allowing Phase B to begin by demolishing of the existing Terminal 1.
Rowan pointed to the Terminal 6 deal, which was also upsized by half a billion dollars.
"Even with over four and a half billion of paper that folks have taken down in the past 12 months, they still came out and participated in the [Terminal 6] transaction," Rowan said. "That gives us hope that we will continue to see investor participation as we complete our Phase A program debt issuance and eventually embark upon securing debt for future phases."
