Item 6a Supp
ITEM NO. 6a-Supp DATE OF MEETING March 5, 2009 Consolidated Rental Car Facility Financing Update March 5, 2009 Briefing Overview Background Enplanement Forecast Financial Markets Financing Tools Bank Lines of Credit Fixed Rate Bonds Airport funds Finance Scenarios Next Steps 2 Background Project Suspended in December, 2008 Without a clear means of economically financing continued construction, Port Commission authorized project suspension Turner Construction is winding down site activity Project and Finance update provided on January 27, 2009 Changes during January and February, 2009 warrant today's briefing Thawing in financial markets Availability of additional financing tools Change in Airport passenger traffic forecast 3 Enplanement Forecast Airport is in the process of revising the enplanement growth forecast January enplanements decreased 6%, lower than forecast Airlines' planned capacity indicates lower activity forecast For the purposes of today's analysis a conservative forecast was used Forecast in Budget Forecast for Analysis 2009 -3% -7% 2010 0% 0% 2011 0% 0% 2012 2.5% 5% 2013 until 45 MAP * 3% 3% * MAP = million annual passengers 4 Update of Financial Markets Treasury yields near historically low rates Liquidity in the market as measured by TED Spread has returned to pre-September 2008 levels Market access for investment grade credits has unquestionably improved since the beginning of 2009 Credit spreads have narrowed considerably since late 2008 PepsiCo 10-year bonds sold at the end of October at +420 to Treasuries traded at +211 this week Challenges remain for lower rated investment grade credits Historical Interest Rates Historical TED Spread 10.00% 5.00% 9.00% 4.00% 8.00% 7.00% 3.00% -mo Treaury) Interest Rate 6.00% 2.00% 5.00% 4.00% 1.00% 3.00% Spread (3- mo Libor minus 3 10 Year TSY 0.00% 2.00% 30 Year TSY 1.00% -1.00% 89 Feb- 90 91 Feb- 92 Feb- 93 Feb- 94 Feb- Feb- 95 96 Feb- Feb- 97 Feb- 98 99 Feb- 00 Feb- Feb- 01 Feb- 02 Feb- 03 04 Feb- Feb- 05 Feb- 06 Feb- 07 08 Feb- Feb- 09 Jan- 07 Feb- 07 07 Feb- Mar- Apr- 07 May- 07 Jun- 07 Jul- 07 Aug- 07 Sep- 07 Oct- 07 Nov- 07 Dec- 07 Jan- 08 Feb- 08 08 Mar- Apr- 08 May- 08 Jun- 08 Jul- 08 Aug- 08 Sep- 08 Oct- 08 Nov- 08 Dec- 08 Jan- 09 55 Recent Taxable Bond Issuance Total Issue Size Issuer ($MM) Pricing Week Maturity Ratings Yield Treasury Spread Corporate Issues: Hewlett-Packard Co. $ 1,000,000,000 2/23/2009 2/24/2012 A2e/A/A+ 3.63% +295 bps $ 1,500,000,000 2/23/2009 6/2/2014 4.72% +285 bps Western Union Co. $ 500,000,000 2/23/2009 2/26/2014 A3e/A-e/A-e 6.58% +475 bps Noble Energy Inc. $ 1,000,000,000 2/23/2009 3/1/2019 Baa2e/BBB 8.12% +550 bps Waste Management $ 350,000,000 2/23/2009 3/11/2015 Baa3/BBB/BBB 6.58% +462 bps Arizona Public Service $ 500,000,000 2/23/2009 3/1/2019 Baa2/BBB-/BBBe 8.73% +595 bps Municipal Issues: Vanderbilt University $ 250,000,000 2/23/2009 4/1/2019 Aa2e/Aae/Aae 5.25% +250 bps University of Minnesota $ 17,035,000 1/26/2009 4/1/2014 Aa2/AA 3.38% +180 bps (Revenue Bonds) 4/1/2019 5.00% +240 bps 4/1/2029 6.00% +240 bps Superior Sch District $ 9,020,000 2/2/2009 3/1/2014 AA- 3.65% +175 bps (GO Bonds) 3/1/2019 5.00% +210 bps 3/1/2029 6.00% +220 bps 6 Financing Tools Appear Available The Port now has available to it: Short-term bank lines of credit up to $200 million Long-term, fixed-rate bonds $200-400 million Option of issuing non-AMT bonds for airport project funding to conserve cash, which could be loaned to project up to $100 million Total resources: $500-700 million Can combine these tools in most appropriate manner, based on exact terms and market conditions available when ready to issue debt Combinations can help balance Certainty Flexibility Cost 7 Short-Term Bank lines of credit Two banks each willing to provide $100 million 2 3 year term Issued as a line of credit or a loan Variable interest rate currently around 3% Debt held by the bank, so no remarketing risk Can be converted to letter-of-credit backed long-term variable rate debt as market stabilizes 8 Long-term Fixed Rate Bonds Taxable market currently could support issuance of Port Revenue bonds: Port's First Lien likely to attract investors for $200 - 400 million 30 year bonds Rates of 8 8.5% Port's Intermediate Lien is less attractive to investors $200 - $250 million 10 year bonds (some 30 year bonds possible) Rates of 8 9% Fixed rate taxable bonds cannot be called without a penalty Port Revenue would be pledged to these bonds and they would be paid from CFCs Bonds with CFC-only pledge not currently supported by the market 9 Airport Development Fund Loan Federal stimulus package provides AMT debt "holiday" Significantly improves market access Can more economically finance airport projects with lower cost non- AMT bonds Funds can be held in reserve to re-pay a bank line Could loan that cash to project or used to pay down bank lines/loans with most flexible terms of any other option State legislature considering statutory change to facilitate such a loan 10 Scenarios Assumptions used in scenarios Updated enplanement forecast Transaction day growth based on enplanement forecast CFC rate increases 2% per year CFC revenue = CFC rate X transaction days Life cycle analysis: CFCs pay for Debt service Transportation operations and maintenance Major maintenance costs Project re-starts in summer 2009 Approximately $64 million spent through 2008 cash funded Need for debt funding over the next two years (2009-2010) estimated to be less than $200 million 11 Scenario One: Base Case 2009 $200 million 10 year fixed rate bonds $200 million bank lines of credit 2010-2011 Repay one bank line with $100 million 10-30 year fixed rate bonds Convert one bank line to long-term variable rate bonds By 2012 the finance structure will be: $300 million fixed rate bonds 10-30 yrs $100 million variable rate bonds By 2019, the 10 year bonds will be refinanced 12 Scenario One: Impacts Estimated opening CFC: $6.50 7.00 Note: major projects are typically funded with multiple bond issues Advantages Debt is issued on Intermediate Lien that was designed to accommodate CFC funded debt 10 yr maturities carry lower interest rates than long term and provide flexibility in structuring debt when refinanced Variable rate debt provides lower interest rates and flexibility to refund or pay off without penalty Disadvantages Refinancing risk when bonds mature rates could be higher or lower Variable rate debt has rate fluctuations and bank exposure (with letter of credit structure) 13 Variable Rate Debt Component of Structure The short-term market has historically provided borrowers with a lower cost of capital Short-Term Borrowing Cost Relative to Fixed Rate Cost 8.00% 7.00% 6.00% 5.00% Interest Rate 4.00% 3.00% 2.00% 20-Year Treasury 1.00% 1-month LIBOR 0.00% Jan- 97 Jul- 97 Jan- 98 98 Jul- Jan- 99 99 Jul- Jan- 00 Jul- 00 Jan- 01 Jul- 01 Jan- 02 Jul- 02 03 Jan- 03 Jul- Jan- 04 04 Jul- Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 07 Jul- Jan- 08 Jul- 08 Jan- 09 1414 Scenario Two: Maximize Certainty $425 million fixed rate 30 yr debt First Lien Note: negative carry of 100% fixed rate debt issued in 2009 requires greater use of capitalized interest and therefore more bond proceeds 15 Scenario Two: Impacts and Issues Estimated opening CFC: $6.75 7.25 Advantages Certainty of debt service over 30 years Disadvantages Uses First Lien capacity for long term Negative carry on full amount of debt No flexibility to restructure or take advantage of future market opportunities 16 Process & Schedule Process Staff plans to begin documentation for a bond sale and for the bank lines Commission approval required for Each line of credit two readings of each resolution Issuance of bonds two readings of the bond resolution Project restart Staff will provide updates on recommended approach to bond market prior to request for approval Schedule March Commission briefing, begin document preparation April/May Update Commission, seek approval for bonds issuance, bank line, establish Commission parameters May/June initiate sale process for bonds based on Commission parameters June/July receive proceeds and re-start project 17
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