On Tuesday, February 5, the city of Phoenix completed the refinancing of $231.4 million of senior lien Airport revenue bonds that were originally issued in 2002 for terminal development and improvements, parking garages, and land acquisition. The refinancing resulted in $46.4 million in present value savings due to the strong credit and significant investor participation.
The refinancing received very strong investor participation with orders more than three times the available bonds allowing the interest rate to be lowered during pricing. Since the bonds were used for facilities that benefit the airlines, the interest earnings are subject to the Alternative Minimum Tax (AMT) providing extra yield investors currently demand. This, coupled with one of the highest rated airport credits in the market, resulted in attracting a significant number of high quality investors such as insurance companies, mutual funds, asset management funds and high net worth individuals.
The senior lien airport revenue bonds are rated AA- by Standard and Poor’s and Aa3 by Moody’s. Double A types of credits in the airport industry are exceedingly rare due to the stress the recent economy has had on the aviation industry and airline travel. With these strong ratings and strong investor demand, the senior lien bonds were refinanced at a true interest cost (inclusive of all costs and fees) of 3.24 percent which is extremely low for bonds with the interest earnings subject to AMT. The result was a 20.1 percent reduction in debt service and present value savings of $46.4 million. The lower debt service will be instrumental in continuing to maintain and make improvements to Sky Harbor and other facilities while maintaining some of the lowest airline fees in the country.
“We have one of the most vibrant and state-of-the-art airports in the nation. These savings will allow us to provide more services to the public as they pass through Sky Harbor,” said City Manager David Cavazos.
Phoenix Sky Harbor International Airport served over 40 million passengers in 2012 and ranks among the top ten busiest airports in the country.