Indianapolis airport deal to refund bank notes

Bonds

The Indianapolis Airport Authority is pricing $75 million of bonds Thursday to refund subordinate notes tied to a storm water expansion project and refund bonds issued in 2010 for a savings.

The bonds are being sold through the Indianapolis Local Public Improvement Bond Bank. They are not subject to the alternative minimum tax.

Barclays is senior manager. Ramirez & Co. Inc. is co-manager. Frasca & Associates LLC is the municipal advisor to the airport. Sycamore Advisors is financial advisor to the Bond Bank. Ice Miller LLP is bond counsel.

Indianapolis Airport Authority is up with $75 million refunding pricing on Thursday.

Robert Thomson, the authority’s senior director of finance and treasurer, said that the authority is issuing $40 million of bonds to permanently finance the remaining portion of IAA’s storm water expansion project, which has been funded to date with a draw facility and a continuing operations instrument fund.

“The remaining bonds will refund for 15% interest rate savings the 2010A (airport issue designation) bonds,” Thomson said.

The authority now has roughly $863.1 million in outstanding bond debt of which $308 million remains as variable rate and associated with outstanding swaps.

Fitch Rating’s affirmed its A rating on the revenue bonds. Moody’s Investors Service affirmed its A1 rating on the bonds. The outlook for both rating agencies is stable.

“The authority’s debt structure is relatively more complex than the majority of Moody’s-rated airports, but the debt program is carefully managed, material risks are hedged or largely mitigated,” Moody’s said in a report.

Next week’s bond pricing follows an August transaction that the authority undertook to shed about 51% of its variable rate debt in a bid to reduce its floating-rate liquidity and swap exposure.

Thomson said that the airport has put on hold plans to refund $70 million of the remaining $153 million of variable rate revenue bonds outstanding.

“The discussion back in August was a remarketing of the C-2 and C-4 series of IAA’s 2010C variable rate revenue bond portfolio that have margin rate factor as part of the calculation of the bank spread,” Thomson said. “When absolute interest rates declined, the remarketing no longer made economic sense as the cost of the transaction would be more than the savings expected from the early remarketing.”

The authority has a five-year capital improvement program through 2024 that totals $438 million, of which $102 million is expected to be bond funded with the rest will primarily funded with grants and other external sources. Major capital investment focuses on apron/airfield construction and rehabilitation, parking improvements, and safety/security upgrades.

Moody’s said the additional bond debt tied to the capital improvement project will be offset by the roughly $240 million of existing debt amortizing over the same period.

The authority has recently entered into a new 5-year airline agreement, new 10-year rental car agreements, and new concessions program.

Fitch said airline revenues grew by 5.3% in 2018 due to increases in rates and charges and passenger level growth. Parking and concession revenues both grew reflecting trends in passenger traffic.

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