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Wednesday, Feb 28, 2024

Airport Authority Aims Low With Latest Bond Offering

The board of directors for the agency that manages Lindbergh Field gave its top finance officer a big goal to hit when it issues some $440 million in revenue bonds this week.

“The board has challenged me to get that same interest rate again,” said Vernon Evans, chief financial officer for the San Diego County Regional Airport Authority.

In 2010, when the authority issued $573 million in bonds for the same project, Evans looked like a financial whiz with the debt meriting a paltry 4.38 percent fixed interest over 30 years. At the time, it was one of the lowest interest rates for any airport bond issue.

This year, it’s still a generally low rate environment. Given the airport’s high credit rating and its relative fiscal health, Evans just may have a shot. But he says he’ll be happy if the price is under 5 percent.

Tony Cherin, professor emeritus finance at San Diego State University, said although revenue bonds carry more risk than general obligation bonds, the fact is those revenues are being generated mainly from part of the ticket sales that every passenger pays.

“Everybody who flies in and out of Lindbergh Field will be paying a slight increase in their ticket (cost) in order to meet the payments on these bonds,” Cherin said.

A Good Risk?

As for risk, the credit ratings on the local airport are probably higher than that for many cities in the state or certain districts, he said.

The funds being borrowed this time are tabbed for finishing the Green Build project, as well as some other capital improvements at Lindbergh.

The Green Build involves the construction of 10 new gates at Terminal 2, or the westernmost passenger terminal; a new dual roadway to more efficiently manage traffic to and from the airport; a new expanded concessions area; and doubling the security checkpoints at the terminal to 12.

The project is nearing completion and should be finished by August, and is also under budget. According to Fitch Ratings, which assigned this week’s bonds an A+ rating, the estimated cost will be $820 million, down from the $865 million estimate in a prior review.

Those estimates don’t include financing costs which are about $135 million. Including those costs, the overall bill for the Green Build project was originally tabbed at $1 billion.

Including the new bonds, the airport authority has an outstanding debt of $1.038 billion, Evans said.

The bond sale was scheduled for Jan. 16 and 17 with the first day aimed at smaller, retail and individual investors, and the following day for institutional investors. The minimum purchase for the smaller investors hasn’t been set yet but could be about $10,000, Evans said.

Although airport officials have touted the positive economic impacts from the Green Build project, the changeover to a new concessions program recently resulted in layoffs of hundreds of workers.

According to the state’s early warning job loss notification listing, HMS Host Services, the airport’s master concessionaire, sent notice to 436 employees of possible layoffs as of Nov. 30 when its contract expired.

Replacing HMS Host today are five master concessionaires including Host that oversee 87 outlets throughout the airport.

HMS Host didn’t provide a count of how many workers were actually laid off, but Nyle Marmion, the airport’s manager of its concessions program, said there are 38 laid off workers in a pool that are looking for employers.

A worker retention policy approved by the authority in advance of the concession restructuring requires new concession businesses taking over an existing outlet to retain workers for a minimum of 90 days.

Marmion said seven permanent concession outlets have been completed as of last week. By May, an additional 20 should be open, and by August, 60 more should open.

‘Transition Mode’

“We’re in a transition mode now, and many of the stores are using kiosks to serve customers while construction is going on,” Marmion said.

The airport’s concessions improvement program, estimated to cost $42 million, will expand the number of concessions from 55 to 87, and result in some 1,200 jobs, although the great majority of those positions are part-time, Marmion said.

As to the Green Build update, a canopy made of the same type of sail fabric that covers the San Diego Convention Center was installed late last month over parts of the dual roadway. The project is now about 75 percent completed, said airport spokeswoman Katie Jones.


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