Growing Tampa airport to sell $484 million in AMT bonds

Tampa International Airport plans to price $484 million in alternate minimum tax eligible senior bonds Thursday, about a week after Fitch Ratings upgraded the airport's subordinate debt.

The bonds, issued by the Hillsborough County Aviation Authority, are rated Aa3 by Moody's Ratings, AA-minus by Fitch, and AA by Kroll Bond Rating Agency. In late July Fitch upgraded the airport's subordinate bonds to AA-minus from A-plus. All outlooks are stable.

The Series 2024B bonds will have serial maturities from 2017 to 2044 and term maturities in 2049 and 2054. The bonds will be callable at par on a date set at pricing, said Ken Cushine, principal of Frasca & Associates, the municipal advisor on the deal.

"It's proven that not everyone who goes to Disney World flies into Orlando [International Airport]," said Joseph Krist, publisher of Muni Credit News. "As long as there is demand for Tampa's/St. Pete's beaches, Tampa will get its share of passengers. Once the train to Orlando is running, that will just support that trend. It's always been a pretty solid credit."

Cushine said Tuesday he's seeing "really good interest" in the bond. Fitch's late July upgrade of the related subordinated debt to AA-minus from A-plus has increased interest because it shows the airport's credit is strengthening.

Most of the interest in the bonds has come from insurance companies, banks, bond funds, with a little interest coming from single managed accounts, Cushine said.

The bonds are being sold on a negotiated basis with JPMorgan (JPM) the senior manager and Barclays (JJCTF), BofA Securities, Raymond James, and RBC Capital Markets the co-managers. Holland & Knight is the counsel.

Bond proceeds will be used for construction of a passenger facility at the airport called Airside D, which will add 16 domestic and/or international swing-gates to let the airport handle increasing demand. The project is expected to cost $1.5 billion with about $896 million financed by new debt. Additionally, the airport will create an automatic people mover guideway connecting Airside D with the main terminal complex, at a price slightly under $100 million.

The Airside D building will be 600,000 square feet.

Bond proceeds will also be used for capitalized interest, a debt service reserve fund, and transaction costs. The debt service reserve fund is for the benefit of the Series 2024B bonds and all but three of the airport's outstanding bonds. It is funded at a level equal to maximum annual debt service.

Airside D and the people mover are stage three of a three-phase capital plan, whose first phase was completed in 2018 and whose second phase is expected to be completed next year. The airport expects to start construction of phase three in September and complete it in September 2028.

Tampa International Airport bonds have underperformed airport bonds generally but their AMT bonds posted a composite total return of 0.92% in July, compared to 0.78% for all AMT airport bonds, Credit Sights reported last week.

The deal and the expansion project come at a time of generally high demand for U.S. air travel.

In July, 84 million passengers were screened at U.S. Transportation Security Agency airport checkpoints in the United States, an all-time record, Credit Sights reported.

The Series 2024B bonds will be payable solely from a lien on the authority's revenues from the operation of the airport, after payment of operating expenses. They are not secured by the airport's passenger facility charge or customer facility charge revenues.

In explaining its Aa3 rating, Moody's pointed to the authority's dominant position in the Tampa Bay area, the area's economic and population gains over the last decade, and its status as a major tourism destination.

It also noted the airport's strong passenger growth and price inflation as leading to non-airline revenue growth, increasing the authority's debt service coverage ratio.

According to the authority's online investor presentation Tampa had 11.56 million enplaned passengers in fiscal year 2023 ending September 30, 2023, eclipsing the previous record year of fiscal 2019, which had 11.09 million passengers. In the first three quarters of fiscal 2024, enplanements are 10.1% higher than in same period of fiscal 2023, Moody's said.

Moody's said the authority's ability to levy an ad valorem tax for about $200 million annually in Hillsborough County was a credit strength, though the authority reports in its official statement that it hasn't levied such a tax since 1973.

Total adjusted debt to net revenue has decreased each fiscal year since 2019 to 2023, according to Moody's, going from 9.05 times to 5.24 times.

The airport's competitive position is strong, Moody's said. Its competition with Orlando International Airport, 90 miles away, "is limited given the distinct service areas and the similar service offerings at each airport, with both offering a variety of carriers and multiple international routes."

Finally, Moody's said the airport's liquidity, which was 756 days as of Sept. 30, 2023, is strong.

For credit concerns, Moody's said the authority has a "significant capital program" of about $3.5 billion from fiscal 2025 to fiscal 2030 and the program will require the issuance of about $1.7 billion in new debt.

As Sept. 30, 2023, the airport had $1.33 billion in debt, according to Moody's. Of this, $833 million was secured by a senior lien.

The importance of tourism and the frequency of hurricanes can lead to enplanement volatility, Moody's said.

The airport just had a brush with Hurricane Debby, which skirted the Tampa area before making landfall farther north in Florida Monday.

"The airfield was able to remain open with the exception of several brief pauses in operation while the strongest of rain bands moved over the airport," airport officials said in a news release.

Fitch said its rating, and subordinate bond upgrade to match the AA-minus senior rating, reflects "the airport's strong origin and destination position in the expanding Tampa and Central Florida market, a favorable cost recovery framework with carriers, competitive costs per enplanement, and moderate leverage profile even through the peak of the capital program period."

Fitch said it viewed the airport's "ratemaking framework as a credit strength, with its rates by resolution approach providing for near full cost recovery."

The airport, in its investor presentation, said it had a 44% increase in destinations served in fiscal 2024 compared to the number served in fiscal 2014. Passenger activity levels are projected to increase at a compounded annual growth rate of 3.2% through fiscal 2030.

The Hillsborough County Aviation Authority's primary catchment area includes six counties with a population of 4.2 million, the airport said. Its secondary catchment area includes an additional six counties with a population of 5.5 million. Nearly 30% of Florida's projected population growth in the next 20 years is projected to occur in the airport's primary catchment area.

In the airport's air trade area 37.3% of the households make $100,000 a year or more in income, compared to a national average of 32.4%, the airport said.

Senior debt service coverage is expected to be 3.37 this fiscal year and decline gradually to 1.78 in fiscal 2030, the airport said.