Houston sets bond sale for airport projects

Houston will be back in the municipal market this week with $719.5 million of bonds to help fund a multi-billion-dollar capital improvement plan (CIP) for its three airport system.

The deal, which is scheduled to price on Thursday, consists of $695.6 million of subordinate lien revenue bonds that are subject to the alternative minimum tax and $23.88 million of non-AMT bonds, according to the preliminary official statement. The debt is secured by a lien on the system's net revenue after payments for senior lien obligations.

The debt issue follows the city's November sale of $1.1 billion of special facilities revenue bonds backed by junk-rated United Airlines. Proceeds were earmarked for the third phase of the George Bush Intercontinental Airport's (IAH) Terminal B expansion and updating project.

The upcoming general airport revenue bonds were rated AA-minus by KBRA, which revised the outlook to positive from stable, citing the system's strong passenger growth, particularly at IAH.

"In addition, the (airport) system's comparatively modest capital needs and descending debt service requirements, in KBRA's view, should enhance its flexibility to address future demand driven facility enhancements," a rating report said.

S&P Global Ratings assigned an A-plus rating to the bonds, reflecting the airport system's "sizable enplanement base that historically has trended favorably by supporting a large and growing service area."

The rating agency said a stable outlook is due to an expectation "that financial metrics will be maintained at healthy levels as additional debt and some cash is used to fund a large but manageable CIP and as (the airport system's) enplanements will be near recent levels."

The system forecasts enplaned passenger volume at IAH, where United accounted for 73% of passenger traffic in fiscal 2024, will increase to 28.4 million in fiscal 2032 from 23.7 million in fiscal 2024, according to an investor presentation for the bond issue. At William B. Hobby Airport, where Southwest Airlines (LUV) has a market share of 94%, enplanements are forecast to rise to 8.5 million in fiscal 2032 from 7.3 million in fiscal 2024.

A $2.92 billion fiscal 2026-2030 CIP was recently adopted by the airport system, which includes Ellington Airport where a base used by the U.S. military and federal agencies is located. The plan includes terminal, airfield, parking, and other projects.

The system had $2.37 billion of subordinate lien bonds outstanding as of May 31, according to the POS. The deal will refund $35 million of the system's $71 million of senior lien notes. There are no senior lien bonds outstanding.

Wells Fargo Securities is the deal's senior manager. Co-managers are Siebert Williams Shank, Jefferies, Blaylock Van, BOK Financial Securities, and Cabrera Capital Markets. Co-financial advisors are Masterson Advisors and Knight & Day Group. Co-bond counsels are Bracewell and West & Associates.