DFW gets rating upgrade, positive outlook ahead of bond sale

Dallas Fort Worth International Airport will head to the municipal bond market next week with a $750 million deal boosted by a rating upgrade and an outlook revision to positive.

S&P Global Ratings raised its rating to AA-minus from A-plus, citing the airport's "relatively" strong enplanements, history of financial resiliency, and stable debt service coverage. The rating outlook, positive before the upgrade, is now stable at the higher rating.

"The upgrade is based on DFW's improved financial performance that we expect will be sustained over the forecast period (2025-2029) as the airport funds its large, but manageable, capital plan based on the recently renegotiated airline use-and-lease agreement and projected financial results," S&P analyst Ken Biddison said in a statement.

Moody's Ratings revised the outlook on DFW's A1 rating to positive from stable, saying the move reflects an increased likelihood the capital program would be completed "without an undue increase in leverage."

"This increasing likelihood is based on management's efforts to date to de-risk the construction program, with about 64% of costs contracted, a successful pilot for modular construction, strong passenger growth, and maintenance of above-average liquidity," the rating agency said, adding the A1 rating "recognizes that significant pricing and execution risks remain."

DFW's capital improvement program, which includes construction of a sixth terminal and expansions of terminals A and C, has a projected price tag of $8.6 billion through fiscal 2029. Its $7.224 billion of outstanding debt is expected to grow to $12.4 billion by fiscal 2029 with future debt issuances, according to an investor presentation for the upcoming bond sale.

"DFW is utilizing a lower risk construction approach through a more advanced version of the modular construction that was pioneered with our High C Gate project that opened in 2022," Chris Poinsatte, DFW's chief financial officer, said in an email.

Airlines, which entered into a 10-year use agreement with DFW that commenced in October, pre-approved $5.1 billion of the program, it noted.

While the COVID-19 pandemic led to a dramatic drop in the airport's passenger volume in fiscal 2020 and 2021, it has steadily risen since then, exceeding fiscal 2019's 73.3 million passengers with 79.7 million in fiscal 2023. The airport forecasts 92.7 million passengers for fiscal 2025, growing to 107.1 million in fiscal 2029, the presentation said.

DFW, where American Airlines (AAL) is the dominant carrier, was the second-busiest U.S. airport after Hartsfield-Jackson Atlanta International Airport in terms of passenger traffic in 2023, according to Airports Council International-North America.

The preliminary official statement for the tax-exempt, non-alternative minimum tax joint revenue refunding and improvement bonds indicates a structure of serial and term maturities. The deal, scheduled to price Aug. 22, will refund about $450 million of outstanding extendable commercial paper, along with the issuance of about $300 million of new bonds. The debt is also rated A-plus by Fitch Ratings and AA by Kroll Bond Rating Agency, with stable outlooks.

Wells Fargo Securities, which escaped a Texas bond underwriting ban last year, but remains under a state attorney general review, is senior manager and Siebert Williams Shank & Co is co-senior manager.

The underwriting team also includes JP Morgan, Academy Securities, and Truist Securities. Co-bond counsel are McCall, Parkhurst & Horton and West & Associates. Co-financial advisors are Hilltop Securities and Estrada Hinojosa.