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Exclusive-JFK Airport's massive overhaul takes winding route through debt markets

Published 12/06/2023, 11:03 AM
Updated 12/06/2023, 04:21 PM
© Reuters.

By Doyinsola Oladipo

NEW YORK (Reuters) -Municipal bond financing for U.S. airport construction is not unusual. But Wednesday's issuance of $2 billion in bonds for the new Terminal One at New York's John F. Kennedy International Airport was - because of the steps needed to get to this point.

Last year, a consortium called New Terminal One secured $9 billion in financing in an unusual private-public transaction that was part of a broader $15 billion overhaul of the airport.

The deal included a $6.5 billion bank loan, the largest ever committed for an airport terminal - and it took several years and two restructurings before the financing was even secured due to municipal bond market volatility and illiquidity.

U.S. airports need an estimated $151 billion for overdue renovations, and JFK, once considered one of the most dazzling airports, had become a poster child for chaotic, neglected U.S. airport infrastructure.

Some believe the unusual financing package could build momentum for public-private partnerships for U.S. airport terminal projects. However, JFK's position is unique because its position as the biggest airport in the United States' largest city by population made such a deal attractive for private investors.

"We haven't seen many more requests come in for these type of airport-related financings. Most of them that are done within the U.S. are done as municipal financing," said Andrew Giudici, head of project finance and infrastructure at rating agency KBRA.

New Terminal One, or NTO - a consortium of labor, operating, and financial partners at JFK - was able to secure $6.5 billion in bank loans, but the terminal's construction costs were meant to be divided between bank loans and municipal bonds. The deal had to be restructured two separate times due to volatility and illiquidity in the pandemic period in 2021 and again after Russia invaded Ukraine in February 2022.

"If we'd been reliant purely on a muni bond issue we wouldn't have been able to get to close, then the project gets delayed, the costs go up and the traveling public suffers," said Richard Hoskins, managing director on investment firm Carlyle’s Infrastructure team.

More than 62 million passengers flew through JFK's passenger terminals in 2019, generating $51 billion in sales. The route between JFK and Heathrow, London's biggest airport, is considered the most profitable airline route in the world. And while most airports see a downturn in traffic during economic difficulty, JFK is less affected in down times, and then bounces back more quickly, Carlyle said.

"There's really not another market that exists in the United States that is ripe for private investment like New York," said Annie Russo, chief political and congressional strategy officer at the Airports Council International–North America, an airports authority organization.

The $6.5 billion loan was financed by over 40 institutions led by financial sponsors Carlyle, Ferrovial SA, JLC Infrastructure, and Ullico.

The bond sale was oversubscribed by 7.7 times even after the group boosted the size of the transaction by $500 million to $2 billion due to demand. The consortium expects to continue refinancing through the municipal bond market.

PRIVATE INVESTMENT, PREMIUM COSTS

The risk for JFK with private investment is that the additional cost for repaying investors could raise expenses for air carriers, said Russo.

Airports focus on "cost per enplaned passenger" or CPE, which represents the average airline payment per passenger who flies. Airports aim to keep that figure low to make it more attractive for airlines to want to fly there.

In 2022, JFK's CPE was $32.67, the highest among the largest 30 U.S. airports, with nearby Newark Liberty and LaGuardia airports ranking second and fourth, respectively, according to Federal Aviation Administration data.

By contrast, Dallas Fort Worth International Airport, also one of the busiest American airports, is financing a $5 billion expansion, with 80% coming from traditional municipal bond debt, according to CEO Sean Donohue.

"Even with this $5 billion program, we are going be one of the most cost-efficient airports in the U.S. in terms of big major hubs," he said.

Dallas's CPE was $12.19 in 2022.

© Reuters. FILE PHOTO: American Airlines planes taxi on the tarmac as the skyline of New York City is seen in the background from the JFK International Airport in New York, U.S.,  November 8, 2021. REUTERS/Eduardo Munoz/File Photo

JFK's NTO bank financing gave sponsors time to sell bonds later, said Nanda Kamat, head of infrastructure at Mitsubishi UFJ Financial Group (NYSE:MUFG), one of the financial advisers on the bank deal.

Passengers hustling through JFK's cramped terminals don't likely know much about the complicated financing efforts. But the posters plastered amid construction gives them some idea of the goal; they read: "JFK can take you places. The 1990s will no longer be one of them."

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