- Financing and construction
- Securing grants and funding under ARPA and IIJA
- New grant opportunities
- Revenue bond financing and alternative delivery
Transcription:
Ira Smelkinson (00:09):
Everyone, welcome to this next panel entitled Airport Development with a focus on financing and construction grants and new opportunities in revenue bond financing and alternative delivery methods. My name's Ira Smelkinson. I'm with Loop Capital. I head up our transportation finance practice. Thanks to the Bond Buyer for inviting me to moderate this afternoon. It's great when you come later in the afternoon, the second day because a lot of topics that we're going to be talking about, you've heard a lot for the last day and a half, but we think we've got a great panel of experts who can provide their perspective on some of the happenings in airport development and really pull together some of those themes. I'm just going to let them go down the rail here and introduce themselves. Michael.
Michael Lexton (00:51):
Thank you, Ira. I'm Michael Lexton. After spending several decades in the public finance banking sector, I recently formed Lexton Infrastructure Solutions predominantly to provide consulting services to folks in the P three sector. I have a long history of airport finance background and looking forward to working in this new area for me.
Kurt Forsgren (01:20):
I'm Kurt Forsgren. I work at S&P Global Ratings. I'm based in Boston. I've been around for a long time as my hairline would indicate, but our team covers both states and transportation. I'm also here with some of my colleagues from our project finance team who we work with closely on some of our P three transactions.
Sam Nakhleh (01:41):
Thanks, Ira. I'm Sam Nakhleh. I work at Assured Guaranty in our project finance department. We cover all p threes. We're pretty active in the airport sector. We have about 9 billion in exposure, including garbs, two and a half billion to P threes, including 1.6 to our favorite transaction NTO. We're based in New York. We cover, like I said, anything that's a concession or anything that's kind of funky with construction risk. We cover North America and Latam. We've actually done some toll roads in Latam and we have a team in the UK and a team in now Paris that cover project finance in the UK and Europe, and we also now recently have an office in Australia and also in Singapore, so we're pretty active globally.
Manoj Patel (02:28):
Manoj Patel, CFO for JFK, New Terminal One. I believe the projects have been mentioned a few times. It's the 9 billion of the 19 billion project projects that are going around JFK today. Been in the industry for 20 plus years in airport development as well as airport operations and honored to be here. Thank you.
Ira Smelkinson (02:52):
Great. So I think many of us in this room know that 2024 year to date has been kind of a boom year for airport financing. We're at a run rate at least through August 31st. I've about $13 billion in financing same period of time. Last year was more than half was $6 billion, so that's 50% of that. These transactions have been for facilities all over the country as Manoj said, and we'll do a deeper dive into what's happening at A JFK with New Terminal One, but I thought maybe we'd start, Kurt, with your perspective. Obviously you get a chance to rate a lot of these issues. Why don't we start kind of with the general airport revenue bond market. What type of credit trends are you seeing? What do you think, as you think about 2025 and thereafter, do you think these trends continue? How are you looking at these financings?
Kurt Forsgren (03:46):
Sure, yeah. So yeah, it's a bit a busier year for us I think, and probably all the market generally when it comes to airports. I think a lot of it has to do with just sort of the momentum behind the post pandemic recovery in terms of traffic and operations. We've seen these capital programs sort of start back up again that had kind of run to a halt because of covid and supply chains, and I think we've seen sort of the big mega hub transactions as well as the trickle down to a lot of small and medium hubs. So it's kind of across the spectrum in terms of volume and I think we expect that to continue as these capital programs sort of continue on as they do usually in phases. The federal government's obviously had a hand in it in terms of the federal grants that are going out there. So a lot of stimulus that I think have been talking about for years that have now entered the system and it takes a while for it to work its way where it could stay through. But I think operationally and financially these airports have done very well.
(04:51):
I think a current count is about 25% of our ratings are now above their pre pandemic levels, so that's due for several reasons. One is there were a lot of small hubs that were really lowly rated that really outperformed our expectations in terms of the pandemic recovery and how they reacted financially and operationally. We had a number of airports that renegotiated the airline leases recently and have improved their cashflow back metrics. I think our calculations now, the coverage, median coverage in the sector is close to two times, which is better than it was pre pandemic levels. The debt that they've issued is now going to be coming all online over the next quarter years. So we'll see some of these metrics sort of deteriorate cash levels and liquidity levels, which had also improved during the pandemic thanks to the infusion of federal dollars likely will also come down, but we don't see that changing any of our key metrics going forward to a degree that would result in any erosion and credit performance overall. But I think on the whole, with the exception of the uncertainties related to unknowns and the airline industry, I think generally our view of the sector while stable has translated into credit quality positives for different airports for different reasons across the spectrum.
Ira Smelkinson (06:12):
Great. Sam, why don't you pick up on that? Obviously you look do your same credit analysis from kind of your guarantor hat on. What trends do you see either the same or different that you're thinking about as you look at the sector?
Sam Nakhleh (06:24):
Yeah, I mean we would agree. Obviously air traffic has recovered. If you look at the TSA passenger throughput, it's above 2019 levels at this point. Everybody knows traffic sort of opened up based on where people could travel to, so it was domestic first leisure primarily. Then sort of business picked up a little bit, all heard the bleisure people traveling and working remotely. Transatlantic has started to recover including business transatlantic travel, which is somewhat lagging, but it's almost back to 2019 levels. Obviously travel to certain areas in the Caribbean as far in excess of what it was in 2019. And to your point, I mean it depends on where the airports are located. Airports in kind of where there's been more in migration, you're seeing them far exceed where they were in 2019 and then airports on the coast that maybe have a little bit more exposure to Asian travel haven't recovered as much because that's probably the biggest area that's still lagging behind the recovery is the travel to and from China. But if you look at sea capacity for this year and for next year is projected to be above 2019 levels and load factors are projected to be above 2019 levels. So everything is looking good that we've been active in the P three space, not as much in the garb space unfortunately. It's almost too highly rated for us.
Kurt Forsgren (07:48):
They're doing too well.
Sam Nakhleh (07:48):
They're doing too well. Exactly. And then just from a credit perspective, obviously when we look at p threes, there's a whole separate analysis that we do. I mean it's a concession agreement. We look at the reasons that the granting authority like the Port authority can terminate the lease. We make sure that the operator can develop the project on time and on budget and that there's enough liquidity in the construction security package. We look at the fact that the contractor has the ability to complete the project. Can the structure with handle additional debt if you need it, what is the cost? People, there was a panel earlier today talking about just cost inflation building in New York City. Building public infrastructure in New York City is probably the most expensive construction in the world. And so we just look at the ability of the service area to handle that, the CPEs to handle that, which they can because I feel like every single airport is in the same boat. So these are all number of factors we look at from the credit perspective at assured.
Ira Smelkinson (08:54):
Before we go on, just Kurt and then Sam, are any of these factors different than what you were thinking about pre pandemic? Any the of the factors that you just mentioned, these credit items, are they different or just that they've been stressed that your thesis continues to be the same?
Kurt Forsgren (09:08):
Yeah, no, I think the pandemic kind of proved several things. One is that in this case, the federal government was a huge credit positive in terms of the support they provided to the sector and the airline industry in particular. But in terms of the fundamental credit factors, they're basically the same, just that they've really performed and exceeded expectations in some cases. And I think the financial resiliency and the innovations that took place out of necessity and the steps that management teams took really to take control of unpredictable and unforeseen circumstance, I think were all of passed with I think flying colors largely
Ira Smelkinson (09:54):
Great. Manoj, both Kurt and Sam talked about the composition of traffic. Obviously New Terminal One is strictly international. What are your thoughts about the recovery of international traffic and how that impacts?
Manoj Patel (10:06):
Yeah, I think it was said that international traffic as far as transatlantic has recovered fairly well. We've seen robust growth across lots of various areas except for obviously China and the Ukraine, Russia war, those things have impacted the international market as a whole, but overall, I think we're seeing that traffic is more than recovered in the other markets and that once those markets come back, we'll see a robust growth that we saw pre pandemic levels once these hurdles are overcome and overseen, but it is a little bit slower than we would like, but we believe that it'll be well in excess of what's required in order for the capacity play at JFK. I think it'll be more than back to the standards that we're looking at, and that's kind of where we're looking at our model. We're about two years out from completion of phase A, and so that's kind of our push and our target.
Ira Smelkinson (11:08):
Okay, great. Another topic that's been discussed at a number of the panels today is just cost inflation, whether it's labor costs, construction materials costs, et cetera. Manoj, it's NTO is a $9 billion project, obviously it's a multi-year build. How do you deal with the type of construction cost inflation that may be present in your project and what type of mitigants might there be for that?
Manoj Patel (11:37):
Yeah, for us, we were fortunate that we have a GMP on our construction with Tishman. That really helps us insulate ourselves from the construction inflation costs that have come up. We also had healthy contingency reserves in both design construction and then also owners and additional buckets just to ensure that for all the things that we don't know that are going to hit that we could weather that storm and see that coming. And then all our contracts as far as once we go into operations have inflation factors built in. So we'll have a little bit of insulation once we go into operations with our airlines, and that's pretty typical for most airline contracts that they have an inflation factor built in to help support the cost increases that we see on an annual basis. And then on top of that, any wage inflation is also sometimes carved out separate depending on what that is, especially if it's above and beyond the normal standard inflation that we're seeing today in the markets. Obviously we've all seen what California has done with their minimum wage. Port authority has also announced that they're upping their minimum wage and has a HTA, which is greatly beneficial for the employees, but we just got to make sure from an operating standpoint that we can cover those costs.
Kurt Forsgren (12:56):
Ira, just on that point, we offered some research earlier this year looked at that very factor in terms of cost inflation, and I think our view is that it's sort of a lagging metric in terms of being able to measure unless you're on the front lines and you see it coming through every day. But our expectation was that it was going to mitigate this year, so of slow down, but ultimately some of the key inputs on average were about 35 or 45% higher than they were pre pandemic levels, kind of key concrete and wallboard and electrical items and things like that. But one thing that's not, and those can change and obviously go back down, is supply and kind of readjust, but one thing that's not going to go down is labor. So borrowed phrase it's we're not going back to pre pandemic labor rates, and that's a permanent fixture going forward, and we'll probably inflate, I think the estimates are at 4% a year. That's maybe a little low, but ultimately that's a key input to a lot of these project costs and inflation and elements. It's just the labor component.
Ira Smelkinson (13:58):
And Michael, from kind of your advisor perspective to these projects, but the same question about cost inflation, how do you talk to potential clients about ways to mitigate or get their arms around that?
Michael Lexton (14:11):
No, I think Manoj pointed that out pretty well in terms of ensuring that whatever contracts you have have guaranteed maximum price elements to it, contingency elements, all of that is what we look for now in constructing these projects.
Ira Smelkinson (14:31):
Okay. Kurt, I think you mentioned the airline industry a little bit and appreciate that you're an airport analyst, not an airline analyst, but to what extent what's going on there factor into your credit analysis and what are you seeing there in terms of changes in with airlines? Clearly there's a lot of headline news about different carriers changing their business models, et cetera. Any comments on that?
Kurt Forsgren (14:59):
Yeah, no, it's something we pay close attention to. I mean, ironically, if you look back over time, I mean, and many of this panel can attest to this is that airports can do very well even when the airlines are doing very poorly. In fact, sometimes they do better because the airline solution to everything is to increase volume, which increase passenger flow, which helps airports. That being said, airports are kind of, well, the symbiotic relationship exists. They do depend on them for passenger flow. So after a number of positive rating implications last year, we've seen some negative airline rating actions this year with respect to JetBlue and I think Southwest Airlines has a negative outlook. They're still the only investment grade airline, Southwest Airlines, but you mentioned their revision to some of their operational procedures in terms of getting a seat. But I think overall, our view from the airline analysts and our team is that essentially they have too much capacity.
(16:10):
There's too many seats out there chasing, I guess, airline passengers who are not growing at the rate they were previously expected to grow, and I think that's a very high level macro view. I don't think the airlines get together and kind of compare their forecast. I think they're all going after the same passenger, and ultimately there's just too many seats right now. So that's pressuring profitability metrics, it's bringing down average fares, and I think ultimately a lot of the forecasts we've been seeing at airports in terms of the feasibility reports associated with large capital programs have pretty, I'd say higher than average forecast growth rates. Some of that is sort of pandemic bounce back. Some of that has a really unconstrained growth associated with the forecast they're getting from their airline partners, and I think we're going to see some kind of contraction and capacity and that'll trickle down to airports in terms of their overall growth rates. I think ultimately in terms of passenger flow,
Michael Lexton (17:11):
Yeah, I think it's important to understand the impact that airlines have on airport and airport development. Some of you in this room may be old enough to remember TWA and Pan Am and Eastern Airlines. I think there's been 50 airline bankruptcies since the nineties and yet not a single default of any airport revenue bond ever. So clearly airports have the tools to deal with fluctuating financial conditions of the airlines because ultimately it is the passengers who determine who is going where. And I think that's a key component here, and understanding now the evolution of the airline industry. As business models change, airport business models are changing as well. More and more we're now seeing airports going to rates by ordinance and foregoing what used to be considered the essential long-term airline use and lease agreement. And this tracks because the US is actually the only country that operates with airlines under use and lease agreements internationally. Airlines serve an airport under a rates and charges aspect, which of course, we're now seeing market rates being charged at the terminals at JFK as a new model here for the US and the impact of airlines being less important to overall airport development.
Ira Smelkinson (18:47):
Sam, how about your opinion? Are you seeing any changes in the types of business arrangements between airlines and airports and with airline agreements? And if so, is that a credit factor at all?
Sam Nakhleh (18:59):
Yeah, I mean, we look at, for p threes, it's typically that they're going with a compensatory methodology where they're charging typically just a passenger base charge. Sometimes you have an anchor tenant that's being charged based on gate usage, but with some minimum amount. But what we look at is when we take a view on a region or an airport, we look at the demand for that region and JFK for international traffic. We look at the fact that it's still over capacity. I mean, there's just so much demand for the New York region for air traffic. So even if you did have a slowdown in other regions, we think that New York is still going to benefit from some of the recovery and international air traffic. And so we look at the airline use agreements and we make sure that there are cost escalators in there so that we look at the caps to make sure that if inflation goes above a certain level, that the structure can still withstand the cost increase and that the coverage levels are fine and that everything looks hunky dory.
Ira Smelkinson (20:04):
Manoj, can you share what are the airlines agreement going to look like at New Terminal One? Sorry? What are the airline agreements going to look like at New Terminal One?
Manoj Patel (20:12):
So they're generally, we have our anchor tenants that have a longer term agreements that go, some go out 15, 20 years. Some are a little bit shorter. I think now we're pretty much going out to the five-year range. The ones that are looking for about a 10 year is usually the ones that take lounges and put more CapEx into the terminal and really make JFK their home, which as it was mentioned, that JFK is a premier market internationally and overall New York is, so the demand for travel to JFK is higher than the capacity, and that's what we're trying to solve with our project as well as the T six project is to add that wide body capacity to the market. But to date with our first phase as well as T six is it's literally just a gate capacity replacement because then we're going to take down some of the older facilities and build over those facilities with some brand new facilities to really bring, as I believe Libby mentioned, the customer service aspect to the JFK market. I think overall, the US has not kept up pace with the international market when it comes to terminal facilities, customer service, innovation, terminal one, the future terminal one. The goal is to hit Sky Track five star there along with what was mentioned with Newark and LaGuardia, but also to be considered a top five terminal in the world. So putting us on the same stage as the chenge, the Doha, the Hans, the Dubais of the world, and really show that the US can play in the market and deliver above and beyond expectations.
Kurt Forsgren (21:55):
Just on that point, Michael mentioned some of the rates by ordinance, and we've seen that as well. One of the benefits of that business arrangement with the airlines is that you're not operating a residual business. You're not trying to share revenues and split revenues and have all these sort of accounting machinations that go on at the end of each year as you try to reconcile what was promised and budgeted versus what was actually taken in terms of revenues. But it also has the benefit of actually producing better coverage setting rates under a budget. The airport is looking to obviously meet a rate of return. They're not generating profits per se, but they're looking at having IT surplus revenues to help reinvest into the enterprise. So I don't view it as having particularly a lot of risk even because you're not having airline X sign up for 20 years, but it also has a lot of benefits financially for the airport operator.
Michael Lexton (22:52):
Well, terminal one and the other terminals at JFK are operating under a profit motive and they're using the international method of rates and charges, which is mostly per passenger rates, and that works very well under different terms for the longer term airlines, but I think we might start to see more of that in some of the traditional airports around the country as well. The airline use lose agreement really was generated by the airlines to keep their costs down.
(23:30):
Hence why we have undeveloped airport infrastructure in this country. And I think the ability to sort of break that stranglehold of the airlines, we will start to see much better airports here nationally. Sure.
Ira Smelkinson (23:47):
Let's shift gears a little bit. Excuse me, Michael. I think you're curious what your thoughts are about the appropriateness of alternative delivery methods for airports. Obviously the last panel they talked about airports seem to be the lead candidate for P three development. We've seen that over the years quite well and quite effectively. As you talk to potential sponsors, what are the pros and cons of, excuse me, pursuing that alternative method?
Michael Lexton (24:15):
Well, I think again, you sort of need to take a step back. Airports, seaports for that matter as well are exempt private activity facilities. And the reason they fall under the private activity category is because they're mostly private already all of the revenue, most of the revenue from an airports comes from private companies, airlines, parking, concessionaires shops, rental car concessionaires. So airports are about as private as they come to begin with. So as Hector noted in the last panel, they're probably the best candidate for P three project delivery. And we're seeing that again, as we said at Jeff K and LaGuardia, and I think we'll start to see that more frequently at other airport. In fact, the AAIP, which is the Airport Investment Partnership Program, AIPP has been around for over two decades now. Originally it was a pilot program, now it's anybody who wants to use it can use it, and I honestly think we might start to see some folks taking that alternative going forward.
(25:39):
I was a little disappointed that the Virgin Islands did not use that program for their upcoming terminal developments because I think one of the key features of that program is under federal law, you are not allowed to take any airport revenues off the airport, but if you're part of that program, you can do that. And for a government like the territory of the Virgin Islands that has significant cash needs all over the place, they could have definitely used some additional cash, some ability to draw money off of the airports to finance other projects there, and I think it was actually a lost opportunity for them, but they are using the P three delivery model in any event for their terminal projects.
Ira Smelkinson (26:32):
Just staying on the AIPP, like you said, there's only been one example of the program being used. What do you think is going to provide the impetus or maybe the other way, what's been the problem that more haven't gone to the program?
Michael Lexton (26:45):
Well, I think the main reason more haven't is, again, it does require the approval of over 50% of the airlines. And so the airlines that are using this to not allow airports to do that because they fear their costs will go up. But I think this trend towards less stranglehold lease and use agreements, the airlines themselves are becoming more attuned to that operating model, and I think now over time, we're going to see them being less restrictive to new forms of project delivery and I think it'll be more accepting. And then on the other side of the equation, there are more and more communities that could benefit from the value of their airports. A small community has a hundred million dollars terminal project they want to do. If they go through the AIPP, they not only get that funded, but they also most likely would be able to generate upfront cash payment that could go towards affordable housing or underserved neighborhoods or other things that seem to be of tremendous need in most metropolitan areas.
Ira Smelkinson (28:05):
Kurt, how about you? Do you see increased use of true privatization type funding of airports
Kurt Forsgren (28:13):
On the whole? I don't think so. I think they're going to be some parts of airports that are probably ripe for that type of delivery model, and particularly as we transition into having more electrified components of the airport to meet the climate goals or maybe even some of the kind of rental car facilities that have historically been on the airport balance sheet, they may feel like those are not maybe in their wheelhouse of things they want to have in control, so they may find a P three way of delivering those and operating those as opposed to taking it on themselves. I think airport operators are a pretty savvy group. They know that their facilities are very profitable, and so I think there's a desire to have that kind of control and measure, which I think largely you can do with a P three model depending on how the concession is written. But I think wholesale P three probably not, but I think there are going to be parts of airport component components of airport operating divisions and functions that are probably ripe for that type of opportunity.
Ira Smelkinson (29:20):
Great. Let's shift gears again. Manoj has been several mentions over the last day and a half about what's going on at JFK at New Terminal One. You just want to maybe level set the audience on where you are, where you're going, and key milestones going forward?
Manoj Patel (29:37):
Sure. Yeah. So currently we are about a year and about 12 months away or 10 months away from opening. So there's a lot of great progress of the project. We're 50% complete. We procured almost 98 and a half percent of our trade packages, which also help us with the inflation risk and the cost increases. But overall, the project is moving forward and moving at pace. We've seen great reception from our last two bond issuances that have allowed us to take out a majority of our debt and leave some left for the final tranche that will come later in 25 or beginning of 26, along with potentially looking at based on the air traffic and the growth that we're seeing in the international market, our next phases, which is the phase B arm that will add an additional five gates and B one and an additional four gates and B two.
(30:39):
So the project is basically set to deliver a standard that's above and beyond what we see today. It will deliver Skytrax five star. The team is geared towards delivering that and pushing that kind of customer service model. We're doing a lot of great innovations to make the customer journey that much better when it comes through one stop processing biometrics, self bag drops, processing faster through TSA, utilizing technology as well as other customer service aspects in check-in areas, and then also the retail market will be one of those. So international, being a hundred percent international, you're allowed to do what's called cash and carry. So whenever you purchase anything from the duty free, you're actually able to walk out of the store with it, not wait for it at the gate. That always results in better throughput or better sale volume, which is one of our reasons for staying a hundred percent international.
(31:45):
And then just being able to push the wide body gate traffic through the facility and through the airport is one of the things that we're looking at. We're going to be a hundred percent green on the ramp EGSE across the board. We're pushing for no fossil fuel ramp equipment as well as we have a microgrid being put on the roof of our facility, and we're also doing the stormwater reclamation that'll feed the irrigation as well as the flushing of the restrooms. So really trying to be as carbon neutral or green as we can, and obviously we're also pushing for that zero waste or as close to zero waste as we can be. I think we're targeting about 90%. There's about some of the facility when airlines come in internationally, their garbage has to be incinerated. That's just the rules and the mandate. So those are the areas that we can't be as green as we would like, but we're pushing for all aspects of our business to deliver above and beyond.
Ira Smelkinson (32:57):
Sam AAG obviously has played a significant role in the financings for NTO to date. You want to maybe share your perspective on some of the initiatives that Manoj just mentioned about what they're going to be doing, especially with kind of a long-term perspective?
Sam Nakhleh (33:14):
Yeah, I mean, we were very excited to be part of both issuances, both of which, so in December of 23, they went out with a billion and a half, it got upsized to 2 billion, we did 800 million of that, and then in June of this year, they went out again with a billion and a half and it got upsized to 2.55 billion, which I think is the largest ever airport issuance in the US tax exempt, and we ensured 800 million of that. So we were very excited that also de-risked the project from a refi perspective, I mean there's five and a half billion of debt now. The last issuance is going to be what, less than a billion or so for phase A? For phase phase A, right. And so yeah, we were very excited obviously. Assured Guaranty we're rated AA by S&P, AA plus by Kroll, a one by Moody, so we bring in a whole different class of investors, investors that might not otherwise buy by the P three bonds, and so that sort of creates competition for the rest of the P three bonds.
(34:17):
So we lower the cost of financing for everybody, which is good for NTO. And so yeah, we like what they're doing construction's on track and on pace. We did a diligence trip before the second issuance and everything looks like it's going well. We do think also NTO benefited, they closed their financing back in 22. We're talking about costs when rates were a little bit lower and they were able to hedge their rates, so that helped reduce some of the interest rate risk, the interest carried during construction, which was good. Yeah, so we are excited we think. I think one of the questions was should there be more threes? I mean, we think so for sure. We think world-class operators that come in are much better at running the airport and creating a better customer service experience than what you see across many of the airports in the US.
Ira Smelkinson (35:11):
Manoj. Sam talked about the upsizing from a billion and a half to two and a half billion. What kind of went through NTO O'S thought process? I don't know if you were just acting on Hector's comment before, you should borrow as much as you possibly can today. Maybe that was it, but I'd be curious what your thinking was.
Manoj Patel (35:30):
So yeah, so no, that obviously did play a role on the ability to reinvest and not have a negative carry, which is fantastic. But I'll start kind of what led to that eventual upsizing on both fronts, both transactions that we upsized. We're very fortunate that this project, as was mentioned, closed of June of 22, so we put in a lot of great parts of our program that allowed us to hedge ourselves with a lot of risk both on the term loan as well as on the construction side. We're very fortunate in the fact that we have a port authority that is really set on delivering world-class as well as being able to deliver mega projects in the system. So they've done LaGuardia, they've done Newark, they've embarked on this massive renovation of JFK as a whole, so they're great to have as a partner. And then my own equity sponsors Ferrovial, JLC, uco and Carlisle all deliver something different to the project.
(36:36):
We have well versed in construction JLC and Carlisle in the investment category UCO with the pension funds and the unions. So that supported us quite a bit. And then Tishman is the design builder has really delivered on the project to date back last year around this time, we basically just started steel erection, I think October we did the first site tour for the transaction that we did in late November. Fast forward six months later when we did an investor roadshow, the investors were able to walk through the building and actually see the building with the roof and the different levels and really get a sense of the grandness of what we're trying to build there. So that was very timely and very fortunate for us, and then obviously led by Loop Capital as well as Bank of America as our co-sign or co book runners and a syndicate that just really marketed the heck out of the dead and the issuance.
(37:38):
When we got to the day, the Friday before, we put out the ricing wire just to test the water, see where we were at, checked it again on Monday, left it alone, and then on Tuesday just decided to upsize from one and a half to 2 billion before we started in the market, and also we're able to tighten spreads a little bit, so those always kind of go hand in hand is can you increase as well as tighten spreads, which we were able to do both of before going out and went out, got a fantastic group of orders, a little over 6 billion and then took that and said, okay, well can we tighten a little bit more and then upsides a little bit more as well. Obviously having the ability to reinvest these and be able to not have that negative carry was a big discussion and decision making point for us. And then we were fortunate that we were able to close and have quite a few orders about 18 accounts were over a hundred million in orders, five were over 250 million in orders, so really, really strong reception from the investors even after we've done two periods of tightening, saw a strong strong reception from there. And then obviously the Assured Guaranty supporting us with 800 million on both transactions really spoke to the credit worthiness and we're able to capitalize on all that as well.
Ira Smelkinson (39:06):
Michael, from your perspective, again, as you talk to participants in these infrastructure development opportunities, what lessons maybe from MTO do you think are transferable to new opportunities?
Michael Lexton (39:19):
I mean, I think I've spoken about some of those. I do feel that we will see more P two procurement in the airport space and maybe not entirely AIPP where the entire airport's privatized, but certainly further term development. We've already seen it a lot in the cargo and FBO markets as well generally considered non-core assets of an airport. I think we'll see more of it on the landside area. Kurt mentioned rental car facilities where we have seen some standalone financing for rental car facilities, but honestly, I've been an advocate of airports looking at packaging up their entire landside operation and concessioning that because technology change is definitely going to impact how people get to and from airports over time with certainly more EVs, but ultimately the advent of automated vehicles and how that might impact parking. And if you're building a parking garage, a new parking garage that you're selling 30 year debt for, well 30 years from now, people may not be parking at airports anymore. So basically transferring some of that risk to a private operator so that you as an airport operator can really just focus on the terminal and your passengers and how they ultimately get to the airplanes might be a better risk transfer than you think.
Ira Smelkinson (40:50):
Manoj, you mentioned that obviously strong investor support for both of your transactions. You've got a multi-year construction program and selling long-term bonds. To what extent do you maintain dialogue with investors kind of during the year, whether it's construction? Is there any information that you put out routinely that might be of benefit to others who are embarking on these types of projects?
Manoj Patel (41:11):
Sure. We are very open and transparent. We have a lenders technical advisor through in Rada. They put out a quarterly report that we upload to Emma on a quarterly basis along with our financials, and then we also entertain tours to the extent that the investors would like to come out and see it. We have pretty much tours, I think going every week, generally always towards the later end of the day, but those things help to keep the interest and keep the momentum going from that aspect. And then also we put out press releases every as where development has hit a certain milestone. I think today one of the questions you asked was milestones, and I didn't mention that, but this year we're pushing for weather tight by December. The hope is that we could deliver it sooner, but we're on pace to achieve that and continue with the progress of finishing out the interior of the terminal and putting in all the systems as well as developing all the concessions to meet the demand.
Ira Smelkinson (42:17):
There was a lot of discussion in our last panel about climate change and what the potential impacts in the future could be for the broader muni market. Let's narrow the focus down to kind of airports where you've got a lot of carbon burning aircraft that land all the time. Kurt, again, as you look at credit, to what extent are climate considerations kind of factor into your analysis for airport projects?
Kurt Forsgren (42:37):
Yeah, no, it's a great question and then obviously it's a long-term issue. I think there's kind of more immediate credit implications for things like climate resiliency. For example, I think there're about 13 of the top 47 airports. A lot of the largest airports have at least one runway that's 12 feet, just over 12 feet above sea level. So clearly over time between sea level rise and storm sturges and all the kind of weather events that I think many people believe are going to become more frequent and more severe will have an impact on airports and there will be a requirement for them to mitigate those and adapt to those changes over time to address the operational risks. I mean, airports by default, they have operational risk every day, right? There's always something happening. So it's not like if they're shut down for a day or three days or three days, it's a problem.
(43:35):
But chronic delays associated with that kind of risk I think are things that airport operators have to address, and they may have to address that through some substantial capital investment. I think longer term every airport is looking at, and there was some great guidance put out by the Airport's Council International about sustainability reporting and meeting their climate goals. There's obviously a net zero goal that many airports have by 2050, and I think the industry as a whole, but how they meet that in terms of the airports operator is I think going to be a slow steady progress of, again, in capital investments to reduce their footprint, electrify portions of the airport, look at providing charging infrastructure for users, and over time that will help. But it's really just a small drop in the bucket in terms of their overall industry emissions. I think scope one and scope two for airports is like less than 1% of the industry total greenhouse gas emissions. So the airlines are the biggest component, and I think that's the longer term kind of drag on airport growth over time is to what extent do regulation and do airline's own efforts to reduce their carbon footprint by introducing sustainable aviation fuel and ultimately passing on costs that they will have to pass along in their fares to users. How does that impact demand over the longer term? I think that's kind of the pressure longer term that we see associated with climate change as it affects airports.
Michael Lexton (45:16):
And again, I think that's possibly another area for P three project delivery is the energy space at airports. NTO is going to have a microgrid being done by a portfolio company of Carlisle, and I think we might see more and more of that type of activity airports nationwide.
Manoj Patel (45:39):
Right? Yeah, I was going to say, when it comes to the carbon emissions, one of the big things that I always saw when I was operating is the wide body aircraft don't like to generally hook up to the GPUs and the PCR units that are available at the facilities sometimes because they just don't have enough power for a wide body aircraft. And same with the air conditioning on an aircraft while it's sitting at the gate. If you get on and it's really hot, that's usually because it's not enough power going through there or not enough air capacity. So that's kind of what we're also pushing forward with a hundred percent wide body gate capacity is those GP air and PC air units to give those airlines that certainty that they could shut down their APU, they could shut down their engines so they're not burning jet fuel and not emitting pollutants to that extent. The microgrid is a great one, but we're pushing with electrification across the ramp as well as one of the other things that I mentioned is the glycol recovery. We will recover it, store it, and then process it so it's less impactful when we release it back into the water system.
Ira Smelkinson (46:51):
Manoj. I also seem to recall, I think at one point you were thinking about, or NTO was thinking about potential applicability of the TIA program. Obviously we know TIA regulations were expanded over the last year or so to make more airport projects fall under the new guidelines. I'm just curious, where's that going? Is that still part of your longer term financing plan?
Manoj Patel (47:13):
It is. It's part of our longer term financing plan with Phase B, phase A, there were certain elements that we didn't meet the criteria, so we're pushing hard on phase B. We're hopefully going to get on an LOI soon and then start the discussions to secure TIA funding for the amount that we can to support the program.
Ira Smelkinson (47:37):
How about you? Do you see TIA as being kind a Component here?
Michael Lexton (47:39):
Yeah, I mean, as I think Morteza mentioned, there are a number already in the pipeline. I think as airports become more aware of this as a financing tool, they'll understand the value. And again, as they're looking to have less control by the airlines of their operations and more control themselves, that will lead them to looking for more sources of low cost capital and components of baggage claim systems or areas where they'll need to improve. Those are very good candidates for TIA loans. And I do think we'll start seeing more of that.
Ira Smelkinson (48:21):
I'm not sure where this ends, but I think we have a couple minutes left. I don't know if, should our proctors here, if we're supposed to open it up for questions now, if there are any questions from the audience, we go to 3.35. Is that it? Yeah. They didn't put a stopwatch up. No,
Kurt Forsgren (48:37):
We can go with it really all day if we'd like.
Michael Lexton (48:40):
Okay. Yeah, that's a problem. I could talk about airports all day.
Ira Smelkinson (48:45):
Let me, well, since we have a couple minutes, I'll ask the question I was thinking about and didn't bring it up when we were prepping, and it's primarily for Kurt and for Sam. I love these ones. When I was talking to you in April, 2020, there was a lot of concern about what's going to happen with airports being able to pass on costs to the airlines when there's nobody flying.
Kurt Forsgren (49:07):
Yeah.
Ira Smelkinson (49:07):
Clearly the federal government came in and bailed a lot of people out. Do you think there's a federal government put with airports that, in other words, is that risk now gone as you think about credit? Or do you foresee a scenario where in the future if there's another event, the feds may not come in and you've got a very different result?
Kurt Forsgren (49:26):
Great question. I forgot about that.
Ira Smelkinson (49:29):
We're almost out of time.
Kurt Forsgren (49:30):
Yes. What do you know? Any 20 seconds? We do not factor that into our ratings, and I think if our a federal regulator, I would take a look at what happened to the airport sector during the pandemic and say, wow, they did so well. Why did we give them so much money? But I don't think our expectation is that they would step in again to the same degree. And I think whether they help out the airlines to that same degree, I think is another question because they had less ability probably to weather some of this based on their own capital structure. But I think it's really hard to sell. I don't think we're going to see one of those experiences again to that level. It's my prediction. I'm going to make a prediction right now, at least for a hundred years, and so we've got plenty of time to kind of work on that. And certainly without, it's beyond the scope of and maturity structure of even the longest maturity I think of your deal is like 60, right? Yep. Yeah. So we got some time to think about it, but I think ultimately the ability of airports to pass through the true costs of no one flying is really still untested. We don't know, and I think ultimately what would've happened in the US is what happened outside the US is they would've borrowed. They would've leveraged up and now be in the process of paying it off when times are good.
Michael Lexton (50:59):
I must think the money that was given to the airlines was more valuable than the money given to the airports.
Manoj Patel (51:04):
Yeah, I was going to say, because I was running existing terminal one at the time, and there was very little that came to the airports compared to the airlines. Yes,
Ira Smelkinson (51:13):
Agreed.
Manoj Patel (51:14):
We weathered the storm through our various provisions in our contracts, but it was a challenge, but weathered it and we're able to come out the other side.
Ira Smelkinson (51:26):
Okay. Well, I think we're at the expiration time of our session, so thanks everyone and.