Dallas Fort-Worth International Airport (TX)
Joint Revenue Refunding Bonds, Series 2020A (NON-AMT)
July 14, 2020
The Series 2020A transaction represented the first major airport issuance and the largest airport deal to price since the start of the COVID-19 crisis and set benchmark spreads for the municipal airport market
The Series 2020A Bonds were issued on July 14, 2020 to current refund DFW’s Series 2012B Bonds and a portion of the Series 2012G Bonds for debt service savings. Moody’s, Fitch and Kroll affirmed ratings of A1, A+ and AA, respectively. S&P’s rating was downgrade to A from A+ due to concerns relating to the COVID-19 pandemic. Serial bonds in 2023-2035 structured to produce enhanced savings in 2020-2022 while keeping the average life of the refunding bonds lower than that of the refunded bonds.
The airport sector has been under pressure since March due to a significant drop in enplanements as a result of COVID-19. Prior to the Series 2020A Bonds, only $177 million of general airport revenue bonds (GARBs) were sold in the primary market, with limited trading activity in the secondary market for airport bonds. In the days leading up to pricing, the municipal and Treasury markets were mostly stable; however, the equity markets continued to see significant volatility tied to evolving COVID-19 news. In Texas in particular, coronavirus cases were increasing sharply leading into pricing, which weighed on the minds of investors.
Given the large expected new issue calendar for the week of July 13th which totaled approximately $14 billion, SWS recommended pre-marketing the transaction on Monday (July 13) and pricing on Tuesday morning (July 14) in order to get in the market ahead of most of the larger deals. The firm not only utilized the investor roadshow with audio which was viewed by 79 different investors, 46% of which ultimately submitted orders, but also conducted one-on-one calls for 9 investors with DFW management, 4 of which placed over $210 million in orders for DFW’s 2020A Bonds. SWS also evaluated the use of alternative call options, couponing and effectiveness of bond insurance. The Bonds were ultimately priced with a 10-year par call without insurance and with 4% coupons in 2034 and 2035 to attract the widest net of investors. For pre-marketing, SWS recommended tightening spreads by 2-7 bps in 2026 and longer compared to the consensus levels derived from the syndicate’s price views. Given the stable tone in the muni market and positive investor feedback gathered by SWS during the pre-marketing period, SWS recommended further tightening spreads by 2-5 bps in all maturities for preliminary pricing vs. pre-marketing levels.
The syndicate had generated over $3.3 billion in priority orders from 86 investors (8.4x oversubscription) – 48 of whom did not previously report DFW holdings. At re-pricing, SWS tightened spreads an additional 4-15 bps and retained $3 billion of orders. Final pricing spreads were lower by up to 25 bps compared to the syndicate’s consensus levels. DFW generated over $132 million in PV savings (27% of refunded par) and achieved a low all-in TIC of 1.91% on the refunding (average life of 10.2 years). Generated savings of $7.7 million in 2020, $15.8 million in 2021, and $20.2 million in 2022 to help DFW mitigate costs related to COVID-19.