10b. Memo - Introduction of 2021 Intermediate Lien Revenue Bonds
COMMISSION AGENDA MEMORANDUM Item No. 10b ACTION ITEM Date of Meeting April 27, 2021 DATE: April 9, 2021 TO: Stephen Metruck, Executive Director FROM: Elizabeth Morrison, Director, Corporate Finance Scott Bertram, Manager Corporate Financial Analysis SUBJECT: Resolution No. 3786 Issuance and Sale of Intermediate Lien Revenue and Refunding Bonds in the Aggregate Principal Amount of Not-to-Exceed $950,000.000 ACTION REQUESTED Request introduction of Resolution No. 3786: A Resolution of the Port Commission of the Port of Seattle authorizing the issuance and sale of Intermediate Lien revenue and refunding bonds in one or more series in the aggregate principal amount of not to exceed $950,000.000, for the purpose of financing or refinancing capital improvements to aviation facilities and for the purpose of refunding certain outstanding revenue bonds of the Port; setting forth certain bond terms and covenants; and delegating authority to approve final terms and conditions and the sale of the bonds. EXECUTIVE SUMMARY Commission authorization is requested to issue Intermediate Lien revenue and refunding bonds (the "Bonds") in an amount estimated not to exceed $950,000.000 (including a reserve fund deposit, capitalized interest and cost of issuance) to fund the costs of capital improvements at the Airport (Exhibit A) and to refund up to $233,395,000 outstanding Intermediate Lien revenue bonds, Series 2010B & C and $51,110,000 of Passenger Facility Charge revenue bonds, Series 2010A for debt service savings and refinance $20,805,000 commercial paper (CP) that refunded bonds due in 2021. JUSTIFICATION As part of the Port's debt management program, the Port monitors opportunities to reduce debt service. In 2010, the Port issued Intermediate Lien Revenue bonds to fund or to refund capital improvements at the Airport; the bonds are currently callable. Current low interest rates and anticipation of rising interest rates provide a favorable refunding opportunity. The estimated present value savings of refunding approximately $233.4 million of outstanding debt is currently $23.6 million. Also, in 2010, the Port issued Passenger Facility Charge (PFC) Revenue bonds to refund bonds issued in 1998 and secured solely by the receipt of PFC's. The 2010 PFC bonds are currently Template revised September 22, 2016. COMMISSION AGENDA Action Item No.10b Page 2 of 5 Meeting Date: April 27, 2021 callable. More typically, the Port uses PFC's to pay debt service on Intermediate Lien revenue bonds that funded PFC eligible projects. This usage provides greater flexibility on the use of PFC's and generally carry a lower interest rate. Therefore, staff recommends that the PFC Revenue bonds be refunded as Intermediate Lien revenue bonds. The estimated present value savings of refunding approximately $51.1 million is currently $1.9 million. In 2020, as part of the Port's efforts to manage revenue and cash reductions in response to the COVID-19 pandemic, the Port issued CP to refund Intermediate Lien revenue bonds, series 2010 B&C principal payments due in 2021. The CP can will be refinanced with Intermediate Lien bonds. In addition, the Bonds will include funding for an estimated $600 million in Airport project costs. The Bonds will fund a portion of the Airport capital improvement plan; cash, grants, passenger facility charges and existing and future bond proceeds will also provide funding. The major projects to be funded with this bond issuance include the final stages of International Arrivals Facility and North Satellite Renovation, continuation of Checked Baggage Optimization and airfield paving replacement, initial funding for terminal improvements such as C1 expansion and Checkpoint 1 relocation along with various other Airport improvements; a list of projects currently identified for 2021 Bond funding is provided in Exhibit A. If project spending is delayed, Bond proceeds may be redirected to other projects within the limits established by the tax code; use of any bond proceeds is identified in project authorization requests and no bond proceeds can actually be spent on any projects without the appropriate project authorization. The total Bond amount will also include proceeds sufficient to pay cost of issuance, fund the required debt service reserve and pay a portion of the interest on the Bonds during construction (capitalized interest) as appropriate. DETAILS The Bonds are being issued pursuant to the Intermediate Lien Master Resolution No. 3540 and this Resolution No. 3786. The Bonds will be issued in multiple series based on the tax status of the projects to be funded or refunded. Four series are anticipated. One series will be issued as governmental bonds exempt from all federal income tax (non- AMT) and used to refund the 2010A PFC bonds which funded a portion of the costs of the third runway; it also may fund costs of projects eligible for governmental bond funding. The second series will be issued as private activity bonds exempt from all federal income tax. This is a special tax status that was temporarily allowed by the American Recovery and Reinvestment Act (ARRA) bill of 2009 in the wake of the financial crisis and was used to issue the 2010B bonds; this series may only be used to refund those bonds. The third series will be issued as private activity bonds exempt from regular income tax but subject to the Alternative Minimum Tax (AMT). This is the most common type of taxexempt bond that the Port issues because it allows the Port to lease facilities to airport and seaport tenants. This series will be used to refund the 2010C bonds and to provide funding for airport investments. Template revised September 22, 2016. COMMISSION AGENDA Action Item No.10b Page 3 of 5 Meeting Date: April 27, 2021 Finally, there may be a series of bonds the interest on which is subject to federal income taxation. This series will be used for investments that are not eligible for tax-exempt bond funding or would otherwise benefit from greater flexibility of not needing to comply with tax-exempt bond restrictions. The table summarizes the refunding candidates by tax status. Refunding Candidates (1) Total Principal ($) Tax Status PFC Revenue Bonds, Series 2010A 51,110,000 Governmental (Non-AMT) Intermediate Lien Revenue Bonds, Series 184,995,000 Private Activity (Non-AMT) 2010B Intermediate Lien Revenue Bonds, Series 48,400,000 Private Activity (AMT) 2010C Commercial Paper 20,805,000 TBD TOTAL 305,310,000 (1) Most or all of these bonds are expected to be refunded for savings Resolution No. 3786 is similar in all material respects to other Intermediate Lien Series Resolutions and provides for a contribution to the common debt service reserve fund that provides security for all Intermediate Lien bonds. The Resolution delegates to the Port's Chief Executive Officer the authority to approve interest rates, maturity dates, redemption rights, interest payment dates, and principal maturities for the Bonds (these are generally set at the time of pricing and dictated by market conditions at that time). Commission parameters that limit the delegation are a maximum bond size, maximum interest rate and expiration date for the delegated authority. If the Bonds cannot be sold within these parameters, further Commission action would be required. The recommended delegation parameters are: Maximum size: $950,000.000 Maximum interest rate: Tax-exempt series: 4% Taxable series: 5% Expiration of Delegation of Authority: six months Upon adoption, Resolution No. 3786 will authorize the Designated Port Representative (the Executive Director or the Chief Financial Officer) to approve the Bond Purchase Contract, the official statement, escrow agreement, if any, pay the cost of issuance and take other action appropriate for the prompt execution and delivery of the Bonds. The Bonds will be sold through negotiated sale to Barclays Capital Inc.; BofA Merrill Lynch; J.P. Morgan Securities LLC; Morgan Stanley and Co. LLC.; and two small firms, Drexel Hamilton, and Siebert Williams Shank. Piper Template revised September 22, 2016. COMMISSION AGENDA Action Item No.10b Page 4 of 5 Meeting Date: April 27, 2021 Sandler is serving as Financial Advisor, K&L Gates LLP is serving as bond counsel and Pacifica Law Group is serving as disclosure counsel on the transaction. ATTACHMENTS TO THIS REQUEST (1) Draft Resolution No. 3786 (2) Presentation PREVIOUS COMMISSION ACTIONS OR BRIEFINGS October 27, 2020 The Commission was briefed on the Draft Plan of Finance Template revised September 22, 2016. COMMISSION AGENDA Action Item No.10b Page 5 of 5 Meeting Date: April 27, 2021 EXHIBIT A Checked Bag Recap/Optimization 2021-25 AFLD Pavement and support Infrastructure NS NSAT Renovation NSTS Lobbies Parking Revenue Infrastructure Restroom Upgrades Conc B, C, D GSE Electrical Charging Stations Perimeter Intrusion Detect Systems N. Terminals Utilities Upgrade Parking Garage Elevators Modernization Air Cargo Rd Safety Improvements International Arrivals Fac-IAF Electric Utility Supervisory Control Data Acquisition (SCADA) Fire Pump Replacement Remote Aircraft Deicing Concourse C New Power Center Employee Services Center Emergency Backup Water Supply Passenger Loading Bridget Renew & Replace Phase 2 Main Terminal Space Conversion Highline School Insulation Checkpoint 1 Relocation Main Terminal Low Voltage System Upgrade C1 Building Floor Expansion Upgrades STS Train Control Passenger Loading Bridge Renew and Replacement Building Controls Upgrade 2018 Widen Arrivals Roadway Air Cargo 4 Maintenance Upgrade N. Main Terminal Re-development Concourse A Expansion Concourse A Duty Free Conc C Low Volt. Sys. Upgrade Port Shared-Lounge Conc A Parking Garage Low Volt. Sys Concourse D Electrical Upgrade Conc B Low Volt. Sys. Upgrade IWTP Improvements IWTP Controls Conversion Template revised September 22, 2016.
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