Wayne County Airport Authority (MI)
Airport Revenue Bonds2018A & Rfdg C (Non-AMT)2018B & Rfdg D (AMT)
October 30, 2018
The Series 2018 spreads to MMD were up to 15 bps and 10 bps tighter for the non-AMT and AMT bonds, respectively, as compared to the Authority’s September 2017 transaction
Pricing: October 30, 2018
Closing: November 14, 2018
Ratings: A2/A/A (Moody’s/S&P/Fitch)
Purpose. Proceeds from Series 2018A (Non-AMT) and Series 2018B (AMT) Bonds were used to pay all or portions of the costs of acquiring, constructing and installing the Series 2018 Projects. Proceeds from the 2018C (Non-AMT) and Series 2018D (AMT) Refunding Bonds were used to refund all or a portion of the Authority’s 2008A Bonds. In addition, the proceeds of the Series 2018 Bonds were used to make a deposit to the Bond Reserve Account, pay capitalized interest on portions of the Series 2018A and Series 2018B Bonds, and pay costs of issuance.
Credit. The Series 2018 Bonds are secured by a statutory lien on net revenues and will be secured equally and on a parity basis as to Net Revenues with all outstanding Senior Lien Bonds and any Additional Bonds.
Market Conditions. Throughout the month of October, volatility continued to increase in both fixed income and equities due to trade and protectionism concerns and market’s view of the Fed continuing with additional rate hikes. Redemptions and bid-lists continued to be elevated, but higher rates allowed for continued tax-loss swapping in addition to increased customer buying. Primary issuance reached about $6.8 billion for negotiated transactions, and approximately $700 million for competitive transactions. There was a soft tone in the market on the day of pricing, with MMD cuts across the entire curve. Some deals that were scheduled during the same pricing week were either pulled out of the market , transaction size was decreased or yields were raised substantially during repricing.
Marketing. SCS developed a slides-only investor presentation which was viewed by 44 different investors; 14 of these investors submitted orders. Leading up to pricing, SCS worked closely with the financial advisors to structure the bonds across four separate AMT and Non-AMT series meeting both the Authority’s tax law requirements while meeting investor appetite. In addition, SCS evaluated the effectiveness of bond insurance as well the use of alternative couponing on an option adjusted basis to broaden the investor demand.
Structuring. SCS developed a comprehensive excel-based new money and refunding transaction model utilizing the WhatsBest linear model to optimize the financing structure. This structure incorporated the Authority’s common debt service reserve fund calculations, multi-project layered capitalized interest requirement and weighted average maturity requirement between AMT and non-AMT projects. This modeling expertise allowed to quickly adjust to changing market conditions on a moment’s notice.
Pricing Results. SCS ultimately received over $590 million in priority orders from 37 different institutional investors.
As a result of the syndicate’s strong pre-marketing effort and aggressive pricing strategy, the bonds were 2.5x oversubscribed and spreads were reduced by as much as 7 bps at repricing;
in spite of a weaker market tone the day of pricing and investor pushback on the long-dated Non-AMT bonds, SCS was able to maintain the AMT to Non-AMT spread throughout the curve;
the Series 2018 C&D Bonds generated net present value savings of over $11.7 million (12.6% of refunded bonds); and
the spreads to MMD on the Series 2018 Bonds were tighter by up to 15 bps for the non-AMT bonds and up to 10 bps for the AMT bonds, compared to the Authority’s transaction priced in September 2017