Indianapolis Airport will take care of reducing its exposure to variable rates

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The Indianapolis Airport Authority goes into the market on Tuesday with a repayment of $ 107 million that will reduce its floating rate liquidity and swap exposure.

The repayment of the variable rate debt issued in 2010 will be sold through the Indianapolis Local Public Improvement Bond Bank. The bonds will be swapped at a fixed rate structure. Citi is the Senior Director and Fifth Third Securities is the Co-Senior Director. Frasca & Associates LLC is the city councilor. Frost Brown Todd LLC is a bond advisor.

“One area of ​​strategic focus for the IAA is sustainability and stability, and one of the goals of the strategy has been to change the risk profile of the IAA’s debt portfolio,” said Robert Thomson , chief financial officer and treasurer of the authority, in an e-mail. “While the risks associated with IAA’s variable rate debt are well managed and the program has performed as intended, reducing exposure to these risks is the reason IAA is now in the market with this transaction. reimbursement.”

The deposits are guaranteed by the authority whose real estate trust includes a pledge of the net income of the airport.

Thomson said that paying off variable rate debt and terminating associated SWAPs that had fixed a synthetic fixed rate could result in a small loss in net present value when all costs of issue are factored in. The mark-to-market of the outstanding bond swap was negative $ 21 million at the end of July.

After the transaction, the airport authority will have outstanding debt of $ 831 million, of which $ 308 million remains at floating rate and associated with outstanding swaps. The authority said it plans to remarket $ 71 million of floating rate bonds issued in 2010 to secure more favorable terms on the bonds at some point later this year, according to the offering statement.

Fitch Rating’s confirmed its unique A rating on income bonds. The outlook is stable. Moody’s Investors Service is expected to confirm its A1 bond rating.

“All rated debts are senior and fully amortizable with a final maturity of 2037, but IAA owes more variable rate debt than its peers, at 37% of the total principal outstanding, which is mitigated by swaps with counterparties. properly rated banks, ”Fitch noted in the credit report.

Fitch said the rating takes into account the new airport use and lease agreement which is in place until 2023. The agreement is a hybrid model that benefits from an “extraordinary cover provision that allows at the airport to pass the costs on to the airlines if operating revenues are insufficient by agreed levels, ”noted Fitch.

“The timing of the transaction was determined by the favorable relationship between the swap and bond markets and the credit strength of IAA’s new 5-year air deal, the new 10-year car rental agreements and the new concession program, ”said Thomson.

Fitch noted that airline revenues grew 5.3% in 2018 due to higher fares and charges and growth in passenger numbers. Both parking and concession revenues increased, reflecting the evolution of passenger traffic.

The authority has a five-year capital improvement program to 2024 that totals $ 453 million, of which $ 157 million is expected to be funded by bonds, with the remainder mostly funded by grants and other sources. external. The main capital investments are focused on the construction and rehabilitation of aprons / aerodrome, parking improvements and safety and security upgrades.


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