Investors drive upsizing of deal for Terminal 6 P3 at JFK

The P3-fueled upgrades to New York's John F. Kennedy International Airport have another municipal bond market stamp of approval.

The New York Transportation Development Corporation priced an upsized $1.9 billion of special facilities revenue bonds for the JFK Airport Terminal 6 Redevelopment Project.

The deal is part of the airport's $19 billion redevelopment program, which includes the $2.5 billion sale for the new Terminal One project in June.

The first tranche of the T6 deal, Series 2024A, consisted of $1.84 billion of green bonds; some of that tranche was uninsured and some was insured by Assured Guaranty (AGO). The remaining $100 million, Series 2024B, consisted of Assured-insured convertible capital appreciation bonds.

With the deal oversubscribed, the team added nearly $500 million of insured and uninsured bonds were to the first tranche, pushing the deal to the near-$2 billion mark.

Goldman Sachs (GS) and Siebert Williams Shank were co-lead managers, with 11 other co-managers. Backstrom McCarley and Berry and Frasca and Associates were co-municipal advisors, and Squire Patton Boggs and Hardwick Law Firm were co-counsels.

The deal received underlying ratings of Baa3 from Moody's Ratings and BBB-minus from S&P Global Ratings. The green designation was provided by Kestrel Verifiers. The Assured-wrapped bonds bring ratings of AA from S&P, A1 from Moody's and AA-plus from Kroll Bond Rating Agency.

The terminal is being built through a public-private partnership, with Vantage Group joining a team of RXR, American Triple I, and the public partner, the Port Authority of New York and New Jersey.

Ground was broken on the project in early 2023.

An ongoing construction project often carries considerable risk, as does the natural volatility of international air travel, but JFK's reputation seems to have mitigated investors' concerns, said Howard Cure, director of municipal bond research at Evercore Wealth Management.

"Ordinarily you would be concerned about the construction risk, because you're dealing with an active airport, and you have to do things like coordinate delivery of construction materials, and minimize the disruptions," Cure said. "But JFK and the projects at LaGuardia have proven that these contractors can do a project pretty much on time and on budget. So, I think that the track record going into this gives a lot of comfort on the ability to get these projects done."

The Port Authority also used public private partnerships to redevelop LaGuardia Airport, turning its once-reviled terminals into a place many passengers like using.

"The other issue is the airline costs are high, to become a signatory," Cure said of JFK. "But international travel is a pretty lucrative component for airlines, so they can make they can cover that. ... The costs here are high, but competitive when you compare it to the New Terminal One."

Investors concerned about the volatility of air travel might feel more comfortable about this airport than most; JFK is "the largest international gateway in the U.S.," the deal's investor presentation said, "generating more than 50% more international enplaned passengers than the second largest international gateway."

JetBlue (JBLU), which operates out of neighboring Terminal 5, is the airline sponsor of the project; international airlines Lufthansa, Cathay Pacific and Aer Lingus have been announced as tenants.

The first five-gate phase of the new Terminal 6 is expected to open in the first quarter of 2026, according to the official statement.

The second phase of the project will add five more gates, getting underway after demolition of the existing Terminal 7 when the first phase is finished. It's due to open in 2028.

"Construction is progressing well, with 85% of design packages submitted, 74% approved, and 85% of hard costs under contract," said Jennifer Janzen, director of communications at JFK Millennium Partners. "The project's manager, Vantage Group, also brings a wealth of experience having completed Terminal B at LaGuardia Airport on schedule and on budget."

The project also has strong reserves in case problems arise, Cure noted.

According to Janzen, JFK Millennium Partners "has fully funded a $100 million liquidity reserve and is committed to an additional $135 million ramp-up reserve and 12-month debt service reserve."

If the project's size and name recognition weren't enough to stand out in the market, the deal had another unique feature. The second tranche of the bonds uses a "convertible zero" financing structure. To the deal team's knowledge, these are the first convertible capital bonds ever issued for a U.S. airport, and the first AMT convertible capital bonds issued in more than 20 years.

"The convertible capital appreciation bond helps diversify the offering to investors and enhances credit quality by improving coverage and free cash flow during the early ramp-up years following construction completion," Janzen said.

The bonds will pay off $3.44 billion of non-municipal bond debt that JFK Millennium Partners took out at the beginning of the project. The partners plan to refund the rest of the debt in 2028, depending on market conditions, and the decision to upsize this deal means the next issuance will be slightly smaller.

The project's private partners contributed $1.3 billion of equity.

The project area will approximate 1.2 million square feet, and will consist of 10 aircraft gates.

The terminal will include a consolidated immigration facility, post-security connections to Terminal 5, airline lounges, concourses, concession areas, baggage handling systems, escalators and arrival and departure roadways.

Construction plans highlight the integration of new technology to reduce airline operating costs and improve customer experience.

Terminal 6 shares many similarities with Terminal One, another high-profile terminal project at JFK.

The projects have roughly parallel construction schedules and P3 structures. New Terminal One's developers have also turned to the municipal market for $4.5 billion of financing.

Both plan to complete their first phase of construction in 2026. But the construction of Terminal 6 is simpler, Janzen said.