Sacramento airport returns to market to fund growth plans

The Sacramento County, California, Airport System plans to come to market with $478 million of revenue bonds Tuesday into a packed primary calendar that includes two other airport bond sales.

Chris Wimsatt, Sacramento International Airport’s deputy director of finance, isn’t worried about competition from the other airport deals, because the debt will not be subject to the alternative minimum tax and the state has many high-net-worth investors looking for the tax break offered through California tax-exempt bonds.

Lead manager Wells Fargo Securities will price the $478.3 million in senior revenue bonds with maturities ranging from 2028 to 2054, according to an online investor presentation.

BofA Securities, Piper Sandler & Co. and Ramirez & Co, Inc. are co-managers. PFM is municipal advisor. Orrick, Herrington & Sutcliffe is bond counsel.

The bonds received an A2 rating from Moody’s Investors Service and an A-plus rating from S&P. Both assign stable outlooks.

As for pricing, Wimsatt said it was hard to predict how the Fed’s plan to lower rates could affect the market.

He added, however, that with the deal coming six days after the Fed’s announcement — which lowered rates by 50 bps — he expects the reaction will be baked into the market by then.

The airport expansion is being driven by growth in enplanements. The total enplaned passengers are forecast to increase from 6.6 million in fiscal year 2024 to 7.8 million in fiscal year 2030.

The airport for California’s capital city —and a service area that sprawls from the Napa Valley to Lake Tahoe and the Sierra Nevada mountains — faces challenges generated by growth in the city and region.

The airport, in its investor presentation, talks up growing biotech and tech sectors that are diversifying the local economy, though the top nine employers are all in government and healthcare, followed by Intel in 10th place.

The airport’s passenger traffic has more than recovered from the COVID-19 pandemic, with 6.4 million enplanements in fiscal 2023 breaking the airport’s fiscal 2019 record, according to the investor presentation.

Sacramento airport also has not issued new money bonds in more than 12 years, the last time it crafted a major infrastructure plan. In the intervening years, Wimsatt said the airport has mainly paid for projects by using cash on hand.

The deal represents the first issuance planned to help fund the $1.3 billion capital program. The financing package for the capital program will include a mix of federal grants and loans, cash financing and a bridge loan from Wells Fargo.

The bonds pricing Tuesday represent the first tranche of debt expected to be issued for the project, with future bond sales planned for next year and the year after, Wimsatt said.

The airport has $736.2 million aggregate principal outstanding, including $520.7 million with a senior lien and $215.5 million subordinate lien, according to the investor presentation. The bonds are 100% fixed-rate and include no derivatives.

Moody’s said its A2 rating reflects a “solid financial profile that has had historically sound debt service coverage and liquidity, supported by continued growth in enplanements and airline agreements that provide financial stability.”

To limit the amount of revenue bond debt the county will need to issue, airport leaders are working to construct a financing package that taps federal grants and the low-interest loans offered by the U.S. Department of Transportation’s Transportation Infrastructure Finance and Innovation Act program.

The airport also hopes to receive $30 million in funding from the federal infrastructure act implemented by the Biden Administration.

The $38 million TIFIA loan the airport has applied for looks likely to be the first issued for an airport since the Biden administration expanded the program to include airports.

While TIFIA loans have been available for intermodal transit for more than decade, the federal infrastructure bill expanded the uses to airports.

Additionally, the Sacramento airport falls under the federal government’s rural area category by census tract, enabling it to qualify for loans that are half that of traditional TIFIA loans.

The bonds will pay the costs of capital improvements at the airport, provide for a deposit to the senior debt service reserve fund, pay a portion of the interest to accrue on the Series 2024 senior bonds and pay certain costs of issuance of the Series 2024 senior bonds.

The SMForward Project grew out of the airport’s master plan updated in 2015.

The new project will move car rentals closer to the airport’s two terminals, will add six to eight gates for airlines, construct a $140 million passenger walkway to supplement the people mover linking Terminal B with its concourse, and build a 5,500-space parking garage.

Wimsatt — a member of the 2023 class of Bond Buyer Rising Stars — also put in a plug for tax-exempt bonds with the muni exemption expected to come under fire when Congress takes up tax legislation in 2025.

“Many projects would not be possible without the existence of tax exempt muni bonds,” Wimsatt said. “I hope when policymakers consider changes during the renewal of the 2017 tax bill — that they remember the importance of tax-exempt bonds for financing vital airport infrastructure.”