Transcript :
Earl Heffintrayer (
Okay, it looks like the stream of folks have started to slow, so good afternoon everyone. My name is Earl Heffintrayer. I am a Vice President Senior Credit officer with Moody's in our Dallas office. I lead our infrastructure practice in Texas, stepping in for my colleague Jira, who had to step away here to introduce today. Asha Mathew, who will be moderating our panel today. This is near and dear to my heart as a transportation analyst, so very high. Happy to present. So Asha!
Asha Mathew (
Great. Good afternoon everyone. Thank you all for being here. For those of you who do not know me, my name is Asha Mathew. I am a Senior Underwriter and a Director at the Assure Guarantees Public Finance Revenue Group. I am happy to be moderating this transportation sector panel. Our panelists are well versed in their industry and familiar to most of us here, so I will just briefly give a little intro on each of them and then we will get right to it. Right next to me is Jordan Perdue. He is a senior financial analyst and legislative liaison for the Oklahoma Turnpike Authority. Where he has served since November, 2017. To his right is Chris Bergstrom. He is an executive director for UBS's Public Finance Group based in New York and has 18 years of serving transportation clients nationwide. And last but not least, we have Chris Poinsatte who is the CFO and executive vice president for the DFW airport and has held executive leadership positions in a wide range of international, private and governmental organizations.
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Chris Bergstrom (
Sure, happy to and happy to be here today with everyone. I think as we look at the transportation market for debt issuance, it really does mirror a lot of the trends that we are seeing in that broader national market. I think with large, we are seeing a downdraft in volume year to date and issuance in the transportation sector that is about almost 40% in the first quarter, which is creating an lighter supply environment, which is certainly helpful for those issuers who are coming into the marketplace. There is a bit of a better audience on the buy side when those issues do come. I think from a credit perspective, as we think about transportation, again, I think the sector broadly is being well received by the marketplace right now. we have certainly seen the credit outlooks have a little bit of a downshift on the rating side as we have moved from the recovery phase after the pandemic into now more of a growth oriented phase that is more closely linked to broader macroeconomic drivers.
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Asha Mathew (
Sure. And Jordan, we understand that the expansion, the improvements in Texas is not solely within Texas, it is going outside of the state itself. So maybe you can discuss how the growth and expansion within the state is also impacting that in Oklahoma. Yeah!
Jordan Perdue (
I mean it is very similar to what is happening here in Texas. Oklahoma's often thought of as a flyover state, but we are really a drive-through state. We have 35 and I40 cutting through the state, and between ODOT who manages 12,000 miles of highway and OTA, we manage 630 miles of toll network from urban and rural facilities. It is transportation is a need that continues to grow in Oklahoma. The 35 corridor, especially south of OKC is we are seeing more congestion, more activity as Horatio called it, more accidents and more serious accidents. And so what really this led to the development of the Access Oklahoma program, if you are familiar with it, it is a 15 year 5 billion capital improvement program, about 60 - 40 split between new investment on new facilities and improvements on our current network. And we have hit some challenges coming out of the gates. It is not uncommon, but we are, that is kind of the beauty of a 15 year plan where we have the flexibility to navigate these issues. Personally, I am quite excited about it. I think once we get through some of these legal challenges entering into the market is with so many unknowns and the craziness of it seems like it changes every day, we are pretty excited about trying to navigate those waters. But it is very similar model to what is happening in Texas. we are just trying to manage the growth and the projections, which all show just more and more people are moving to Oklahoma City, Tulsa, Norman, and all those areas. So it is a challenge for sure, but we are, we are going to work through it.
Asha Mathew (
Speaking of challenges this morning, we heard from Glenn Hager who mentioned that everyone in this room has experienced or witnessed several once in a lifetime moments. And so for us, we talk about the COVID pandemic and I am sure that every sector has been impacted greatly by it. So Chris, maybe you can discuss how Covid has significantly impacted the airports.
Chris Poinsatte (
Sure. And thank you for having me today. Yeah, April, 2020 down 95% in passengers and traffic. I mean, nobody was flying and it was looking pretty dim. And fortunately for airports, we had a lot of cash in the bank and things like that. But if we roll forward and during that timeframe, mostly thanks to American Airlines strategy of connecting more of their service instead of pulling service out, they doubled down on DFW and really grew service during that timeframe. And we actually got to number one in the world for operations and for passengers during the pandemic, depending on what period you were looking at, and finally beat Atlanta at something there. But this year we just finished back completely. If we finish 22 calendar, 22, number two in the world from an operations standpoint. And number three from a passenger standpoint, and to kind of put it in context for the first five months of this year, fiscal year, which ended in February 28 compared to 2019, our passengers are up 10%.
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Asha Mathew (
If we can stay on DFW for a second. So we know that DFW has been negotiating a new use agreement with the airlines. Can you tell us how the negotiations are coming along?
Chris Poinsatte (
I knew you were going to ask that. Yeah, so we have been, our use agreement with the airlines expired September, 2020. Good. We had been negotiating with them for probably four years leading up to that and thought we were pretty close to an agreement. And of course covid hit and we extended the agreement a year, and we have been on a month to month since that timeframe. We have been negotiating very hard. The good news is that I believe in the next several months we will be bringing a use agreement to our board for approval. I can not get into the details specifically, but I can tell you there is a substantial pre-approved capital program as part of that. And from a business term standpoint, being the CFO of the airport, I feel very comfortable with where that the business terms can come out from a coverage and liquidity standpoint. So I would say the airlines, it was we did not get everything we wanted. They did not get everything they wanted. So I call that a win-win. So I am going to be very excited to tell you all about all the details in about two months.
Asha Mathew (
We look forward to it. So Chris, over the past couple of years, a number of pieces of federal legislation, not inclu, including the IAJA, have unlocked new fund funding and financing options for transportation issuers. Are you seeing an impact with respect to the types of projects transportation agencies are undertaking or how they are thinking about financing projects already that are underway?
Chris Bergstrom (
Yeah, I mean it certainly had an impact on our market with 550 billion of new funding has a way of upending things a little bit. But I think what we have seen so far is actually kind of more of a lag than anything because with all that new funding, a lot of that was into new programs. New programs as many of means new regulations that need to be first rolled out and then need to be adapted to in terms of the planning and the development, the strategy of agencies looking to take advantage of that funding. And so we continue to see that kind of working its way through the market and folks explaining in the meantime, that is put some projects on hold, especially for anyone who is out there looking for new discretionary or competitive programs that they are applying for. And there is uncertainty around the funding allocations that they are going to get.
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Asha Mathew (
And same with Jordan in terms of the state's plan projects and funding sources.
Jordan Perdue (
Yeah, we are pretty excited here in June, we are about to launch, or ODOT is about to launch what is called Fair Miles Oklahoma. It is a pay per mile pilot program that was set up with the legislature. it is one of the examples I like where the legislature listened to experts on an issue, saw that the declining fuel source tax sources with EVs and high efficiency fuel vehicles, that gas tax is not going to be there as it was once before. And we really have to start looking ahead. And they came up with the Fair Miles program.
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Asha Mathew (
When we look at DFW, we always see that DFW is always building something. Does the airport have expansion plans? And if you can discuss DFW's Capital program?
Chris Poinsatte (
Sure. Yes. We are always building something at DFW. Last year we announced our capital program through 27 at about 6 billion. There will be a new plan released here in early June. We put our preliminary official statement out, but I can talk about the program that we had announced. And the biggest project in there is our central terminal area expansion project. And that project is well over 2 billion. It is the renovation. If those of you that have been through DFW know we have renovated three of our four older terminals. The airport is going to maybe 50 years old next year. And so you just remember the clickety clacks of as you pulled your bag through. And terminal C is still a clickety clack terminal, but the plan is actually to add nine new gates. we are going to put a pier on terminal A and a pier on terminal C.
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Asha Mathew (
And with all of these projects, funding sources are always something that is of discussion. So a perennial topic in transportation finance is the interest for various private sector sponsors to use public private partnership to deliver finance and operate and maintain infrastructure in the us. So Chris, what trends are you seeing on that front and how broader market or economic trends have they dented investor interest?
Chris Bergstrom (
Yeah, from what we have seen, there continues to be a high degree of interest in the marketplace, certainly from private sector sponsors who continue to be eager to invest into US infrastructure, given the relatively slow pace at which projects have come online over the past years. But while activity has been, there is been less new P3 activity here in Texas, it is a place where we have seen a fair amount of growth elsewhere in the country in the last few years. And I think part of that, again, is that private sector interest, but it is being coupled increasingly with a growing number of public owners who are feeling, who feel more comfortable around how they identify appropriate opportunities for that kind of alternative delivery. And then how to go about procuring and managing those projects. And I think as there is increased levels of education and familiarity with alternative delivery in that market, knowledge is becoming more diffuse.
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Asha Mathew (
And Jordan, just to stay on P three financing, how has Oklahoma State's transportation sector benefited?
Jordan Perdue (
We dipped our toe into the P three sector. it is a little different. It was a build finance model, it is called the Gil Crease Expressway. It was a 365 million dollar, 5 mile road that had 23 bridges in it and in West Tulsa. And if you have ever been to West Tulsa, the Arkansas River cuts right through it. It was a huge barrier for the people in West Tulsa. I mean, there was, I think close to a 10 mile stretch where they would have to go if they wanted to cross the river. And so it was a huge need. It had been on the books for Tulsa since the 1960s and no one had really been able to wrap their arms around it. And so what it took was a partnership of OTA ODOT, the city of Tulsa, Tulsa County Incog, which is our kind of council of governments and a private partner to put up funding during the construction and finally US DOT and ATTIA alone.
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Chris Bergstrom (
Well, I think on that point on TIFIA, everyone starts to kind of white knuckle and starts TIFF office. I think that is a place where we are seeing a number of different sectors kind of engaging more and more with the Build America Bureau and really trying to see if there is ways to get some forward progress on some of the pain points. And that in terms of streamlining some of the credit review pieces, the timelines involved in the process. I do not know. The reporting I think is kind of baked into the legislation. So think people'll have to live with that one. But kind of just looking at some of the kind of roadblocks to making that an effective tool because as in its current form, it really is, there is so many barriers to utilizing it that it really, so people think long and hard before they go down that road. And I think if there is ways to enhance that, it would become a much more effective vehicle to advance a lot more projects.
Chris Poinsatte (
I mean, TIFF is a four letter word, isn't it? Lot.
Asha Mathew (
Well, I think we are doing good on time. I have one more question and then we can open it up to the audience for just questioning. Chris, are there any additional infrastructure bills that you'd like to discuss, especially with the federal bill grants and how they might help?
Chris Poinsatte (
Well, it was very nice for the Congress to get together and put that bill together. I mean, I think we are going to get about 250 million. Excuse me. I hate it when that happens. Yeah. So I think we are going to get about 250 million in what would be considered formula type money from it, which helps. But what we have learned on the discretionary part, unfortunately, is I, I've with a hundred of my fellow finance airport people, and you go around the room who's going to turn in a bill grant's discretionary grant and a hundred Anns go up. And what has happened unfortunately is instead of getting meaningful pieces of money, we are getting 5 million for this project, 10 million for this project. And if you have a 200, 300, a billion dollar project, you may not want to taint the project with federal, all the federal requirements, the DBE requirements and things like that for a very small percentage of the project. So we kind of ran into some challenges with that. But if you look at our six year program, our program that we had in our OS last year, we were still 80% debt financed, 10% federal money, even assuming the bill and about 10% cash. So we are always going to need to be issuing debt for the majority of our program. Unless the comptroller wants to throw a little of that 33 billion airport's ways here. That would be kind of nice.
Asha Mathew (
Well, thank you. And let's open it up for any questions. there is a very bright light, so we can not really see how we have one here.
Audience Member 1 (
Just maybe for Chris, just curious, we hear a lot about cost from plane passenger and all the debt we are helping buy and the market. Can you talk a little bit about what airlines get out these projects from efficiency standpoint or some of the cost they get from some of the projects? Cause we often times come here, the airlines and what they get in depart.
Chris Poinsatte (
Sure. Well, in an airport there is different kinds of airports, right? You have seen one airport, you have seen one airport. But many of us have use agreements. Many of us require our use agreements require the airlines to approve a project before we issue debt to finance the project. And the rationale from that is they are going to be paying that back through rates and charges. So they should have the right to do that. Not all airports have that requirement. Some are very lucky and can just go do what they want and charge the airlines. It really depends on where an airport is. I mean, much of what we are trying to do is to build new stuff, new gates, which makes it more efficient and for the airlines to grow the, but when you have an airport that is 40 to 50 years old, most of the infrastructure, unfortunately, much of it is replacement and it just means your costs are going to go up.
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Chris Poinsatte (
Hope, I answered your question right there.
Asha Mathew (
I think we have time for one more.
Audience Member 1 (
The question is for Jordan, just curious about the air models program. I know that number.
Audience Member 2 (
Other states have looked at pilot projects and did you look at those other states and what they were doing, but then also what is kind of the implementation period? Are you going to run the pilot for a year or how long and what is your plan there?
Jordan Perdue (
Yeah, we attend the IVTTA conference every year. And so they always get up. The same states have kind of talk about their pilot programs and people further in those discussions definitely sat down and kind of learned some of the ins and outs of the program. But we plan on operating ours for six months, I think is what the ODOT plans on doing. And really after that, it is going to take all the data in a lot of interviews with the people themselves because it is a voluntary program. I think they get a $50 gift card that they can spend anywhere if they volunteer for it. So it is six months for the pilot and then really probably just take it in house and see what kind of next steps are and work with the legislature. There may be an interim study on it. I think that is probably likely just so the legislature themselves kind of get up to speed on something that is going to be very important. Maybe not during their tenure, but their successors and successor successors.
Audience Member 1 (
Was a follow up question then. Is the 50 gift card available for non-state residents?
Jordan Perdue (
I think it is, it is only Oklahomans and not state employees because I cannot get one.
Asha Mathew (
And I do not know if we have any more time. I think that might be, unless there is one more we can probably fit in for two minutes and if not, and I think that is all we want to thank the bonfire and our panelists.