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Finance Overview 61 A common trap is to restrict uses of airside facilities to aeronautical activities. While preser- vation of airside property and facilities for aircraft operations and movement seems appropriate on the surface, prudent closer examination acknowledges that some commercial aeronautical activities require interface with nonaeronautical functions. Cargo consolidator, expeditor, and sorting activities are examples of how nonaeronautical operators can justifiably occupy airside facilities. Large cargo operators require this support network to carry out their mission. 5.3 Bank/Financier Perspective The bank or financial institution that lends money against an airport development project will typically have a slightly different perspective than the developer or the airport sponsor. The bank must consider the possibility of the airport losing the tenant that will occupy the improve- ments they are being asked to finance, and/or losing the developer that is counting on a mutually beneficial business arrangement in a given airport development project. Many of the metrics that can be compared between the perspectives of the developer, the bank, and the airport sponsor are the same, but the bank/financier must always look at the worst-case scenario and be com- fortable with the business arrangement and its ability to cure, should an unpleasant scenario arise despite all efforts. 5.3.1 Debt/Equity Coverage An airport development project's debt-to-equity ratio is determined by dividing the total long-term debt of the project by the developer's/sponsor's The Lynxs Group entered into an equity in the project. Equity will include cash, as well as soft-costs paid up agreement with Ted Stevens- front such as for design, planning, and/or consulting services needed to estab- Anchorage International Airport to lish feasibility of the venture. The cash portion of the project may also include construct and operate the Alaska grant funds that are immediately available, which usually come through the CargoPort (ACP) air cargo complex airport sponsor. Existing improvements may also be considered as equity in for use by commercial carriers and the project. freight forwarders. To ensure the financial viability of the ACP, the The developer of a given airport project is likely to require a portion of the airport and the developer were development costs to come by way of debt from a bank or lending institution. willing to consider out-of-the-box The bank, financier, or lending institution will consider the debt-to-equity ratio ideas. The Lynxs Group secured as one metric in establishing the developer's ability to pay off the claims of its financing for the $35 million proj- creditors in the event of default and/or liquidation. The lower the debt-to- ect, but financing costs needed to equity ratio, the better the debt coverage or security to the bank in the develop- be minimized to be viable. As a ment project. In the event of default or liquidation, the primary lender will public entity, the airport was able typically have the first right of claim against any equity in the project. There- to obtain tax exempt financing for fore, the lender will be focused on the likelihood of recovering the principal the project, resulting in an esti- amount loaned in a liquidation scenario, even if the lender must discount the mated $1 million savings in debt value of the improvements to recover its money. So the lower the ratio, the service. Under IRS rules, the airport larger the margin between what is owed and what the project is worth, and, was required to actually take own- therefore, the more room a bank or lender has to work a new deal and cure its ership of the improvements and position in a distressed situation should the developer default on its obligations. lease the facilities back to the As part of a lender's evaluation of the developer's ability to repay the debt developer. This public-private service (principal and interest), the lender will consider the ratio of debt to financing partnership provided equity. Or, debt-to-equity ratios can be used to set standards for lending. If, for the ultimate construction for example, a bank requires a debt-to-equity ratio on a given project, after and profitable operation of this considering the pro forma of the project and the creditworthiness of the thriving facility. developer, of 1.5:1, and the completed development project is $1,000,000, the