City of San Antonio, Texas
$70,135,000 Airport System Revenue Refunding Bonds
Series 2012 (AMT)
$25,790,000 Passenger Facility Charge
Subordinate Lien Airport System Revenue
Refunding Bonds, Series 2012 (AMT)
Siebert Brandford Shank priced these bonds in May 2012. This issuances were Brandford Shank’s third and fourth senior managed airport bond transactions for the City of San Antonio. With the experience and knowledge gained from its previous experience, we were able to work effectively with the City and its team members to price these transactions more aggressively than recent transactions of larger airport issuers across the country. The efficient workflow among the team members allowed the City to maximize the debt service savings despite a rapidly deteriorating market at the end of the order period.
The Airport System Revenue Bonds, Series 2012 (the “GARBs”) were rated A1/A+/A+ while the Passenger Facility Charge & Subordinate Lien Airport System Revenue Refunding Bonds, Series 2012 (the “PFCs”) were rated A2/A-/A. Both bond issues were uninsured and subject to the alternative minimum tax (“AMT”). The GARBs will be supported by a first lien and pledge of gross revenues while the PFCs will be supported through a double barrel structure of passenger facility charges and a lien and pledge of subordinated net revenues. The GARBs and PFCs were issued to current refund outstanding 2002 bond issues for debt service savings. The prior 2002 Bonds were originally issued to fund the capital improvement program of the San Antonio International Airport, considered by the Federal Aviation Administration as a medium hub airport facility.
Both bond issues were structured to produce level debt service savings. The GARBs were structured with serial maturities from 2013 through 2027 while the PFCs were structured with serial maturities from 2013 through 2025 and a term bond in 2027. As a result of the refunding, the debt service reserve fund (“DSRF”) requirement was reduced by $573,801 and $194,759 on the GARBs and PFCs, respectively. The excess DSRF funds were deposited as a source of funds of the GARBs and PFCs to reduce the bonding requirement and increase debt service savings.
In the previous two months leading up to the City’s transactions, two large hub airports (City of Atlanta, and the City of Houston) had priced similarly rated AMT transactions. These transactions were priced with spreads ranging from 36 to 144 basis points in the first ten years of the offering and 127 to 147 basis points through the fifteenth year. On the day prior to pricing the San Antonio Airport Bonds, Siebert Brandford Shank’s price views were very aggressive resulting with 1 to 5 basis points lower in the 10-year to 20-year range of the GARBs and 9 to 13 basis points lower for the PFCs for the same range. For the week prior to pricing, the municipal bond market was relatively flat with little direction as to the level of interest with the municipal market data scale remaining unchanged.
On the day of pricing, the Treasury market opened up positively. Due to oversubscription on the GARBs, Siebert Brandford Shank recommended lowering interest rates on the GARBs by 1 to 8 basis points on every maturity except for the 2022 maturity which was only 1.05x oversubscribed with priority orders. For the PFCs, Siebert Brandford Shank made no changes to the pricing despite not getting any priority orders in those three maturities. The recommended lowering of interest rates were going against the tide of the market as the 10-year and 30-year Treasury bonds increased in yields to 1.95% and 3.16%, respectively. Despite this movement in the market, Siebert Brandford Shank felt confident that its priority orders would remain with these adjustments. For the three PFCs maturities unsubscribed with priority orders, Siebert Brandford Shank underwrote all $4.8 million of the PFCs for the benefit of the City. With these pricing adjustments and Siebert Brandford Shank’s willingness to use its capital to underwrite unsold PFCs, the City generated net present value savings of $11.3 million or 14.7% of the refunded par amount for the GARBs and $3.8 million or 13.5% of the refunded par amount for the PFCs.
Through a combination of Siebert Brandford Shank’s experience with the City’s credit and the work of the City’s financing team, the transactions superseded all pricing expectations. The GARBs were priced 3 to 9 basis points in spread lower than the Atlanta Airport transaction and 5 to 25 basis points lower in spread than the comparable Houston Airport transaction. The aggressive pricing levels were achieved through an effective premarketing campaign by Siebert Brandford Shank’s sales force which generated 98.9% of the priority orders of the GARBs and PFCs combined.