Innovative Finance and Alternative Sources of Revenue for Airports (2007) / Chapter Skim
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Pages 12-22
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From page 12... ...
Airport Bond Ratings Major investor services use rating systems to grade bonds according to investment quality to inform potential investors about the creditworthiness of specific types of bonds at specific airports. Figure 8 shows the distribution of bond credit ratings for airports of all hub sizes as of August 2006, for two types of debt: (1)
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From page 13... ...
• No coverage requirement -- Airport operators are typically required to maintain coverage of 1.25x or 1.35x; that is, the ratio of net revenues after paying operating costs to annual debt service must be at least 125% or 135% to give investors comfort that their debt will be repaid. Because of the strength of GO bond credits, coverage is not required, which can also save airport operators money.
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From page 14... ...
The airport operator pays a fee at issuance, usually a percentage of the new or outstanding principal, and in the event that it is needed to pay debt service, the surety is drawn on. Use of sureties can reduce the size of a bond issue and therefore annual debt service by eliminating the need to fund a debt service reserve account and/or free cash held in a reserve to be used for any allowable airport purpose (allowable uses may need to be determined by the airport operator's bond counsel, depending on the provisions of its bond indenture or ordinance)
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From page 15... ...
Passenger Facility Charge Bonds Airport operators have increasingly issued bonds that either include a pledge of PFC revenues and/or are to be repaid in part or in full from PFC revenues. Approaches to leveraging PFC revenues include: • Combined flow of funds -- These bonds are a form of GARB, where the bonds are secured by an underlying pledge of airport revenues.
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From page 16... ...
• Back-up pledge of subordinate airport revenues -- These bonds are secured by PFC revenues with a back-up pledge of airport revenue that is subordinate to a more senior lien on airport revenue. This bond structure is used by the airports serving Baltimore, Las Vegas, Nashville, and Sacramento, among others.
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From page 17... ...
These bonds have greater credit strengths than single-tenant special facility bonds because of the more diverse revenue base from multiple tenants and users. 18 Ways of Addressing Alternative Minimum Tax Issues Under current tax rules, interest on private-activity bonds, including most airport debt, is subject to the AMT, which was introduced in 1969 to ensure that top income earners paid their share of income taxes.
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From page 18... ...
The change in status would eliminate the AMT penalty that increases interest rates on the bonds and allow advance refundings of airport bonds. Potential New Tax Credit Bonds for Baggage Screening Infrastructure A recent Baggage Screening Investment Study conducted on behalf of TSA resulted in the recommendation that Congress adopt new legislation authorizing the use of a federal tax credit bond program for the capital costs of a baggage handling system and related infrastructure.
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From page 19... ...
Possible pledged revenue streams include one or more of the following: • General airport revenues from airline rents and fees and nonairline sources, as is the case for traditional GARBs. • PFC revenues, as is the case for stand-alone PFC-backed bonds and double-barrel bonds backed by PFC revenues and general airport revenues.
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From page 20... ...
AAAE established the program to make low-cost, tax-exempt loans to eligible airports to finance improvements and equipment that constitute non-AMT governmental use projects under federal tax law. The program offered airport operators a flexible and low-cost method of financing capital needs (Airport Capital Projects Loan Program 2001)
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From page 21... ...
Approaches to leveraging an LOI include: • Bonds -- Airport sponsors have long used LOI grants to pay debt service on outstanding bonds on a double-barrel basis. The investment community has identified credit concerns related to pledging future LOI grants as security for debt, including that an LOI is not a binding obligation of the government and LOIs are dependent on appropriations by Congress, LOI entitlement payments are dependent on enplanements levels, LOI payments are dependent on actual expenditures, and LOI payments may decrease owing to a change in hub status or PFC amount collected.
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From page 22... ...
• If the project is not undertaken by a state or local government or an agency or instrument of a state or local government, the project must be included in both the state transportation plan and an approved State Transportation Improvement Plan. TIFIA credit assistance backed by a regional gas tax and rental car fees helped complete the financing for a $1.3 billion Miami Intermodal Center, designed to improve access to and within Miami International Airport (Innovative Finance Brochure -- Credit Assistance 2006)
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