Susquehanna Area Regional Airport Authority
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REQUEST FOR PROPOSALS to Purchase Direct Purchase Bonds of the SUSQUEHANNA AREA REGIONAL AIRPORT AUTHORITY Due Date: May 10, 2017 Due Time: 2:00 P.M. EST SUSQUEHANNA AREA REGIONAL AIRPORT AUTHORITY REQUEST FOR PROPOSALS TO PURCHASE DIRECT PURCHASE BONDS I. INTRODUCTION A. Objectives Susquehanna Area Regional Airport Authority (the “Authority”) is issuing this request for proposals (the “RFP”) to identify the institution or institutions that can purchase directly from the Authority one or more series of the Authority’s fixed rate bonds (the “Direct Purchase Bonds”) on the most favorable overall terms in an aggregate principal amount sufficient to refund its Airport System Revenue Bonds, Series 2008A (AMT) (“2008A Bonds”). The financing will be a tax-exempt direct placement with the bank or banks selected and the Authority will not prepare a Preliminary Official Statement or other type of disclosure document. The Direct Purchase Bonds will be issued to (i) refinance approximately $43.5 million of the Authority’s 2008A Bonds and (ii) pay issuance costs related to the transaction. As noted above, the 2008A Bonds are subject to the alternative minimum tax (“AMT”). The Direct Purchase Bonds that refund the 2008A Bonds will also be subject to the AMT. The Authority may also, at its discretion, opt to use other available funds to decrease the size of its borrowing. B. The Susquehanna Area Regional Airport Authority The Authority is a joint municipality created in 1997 under the Pennsylvania Municipality Authorities Act. The Authority owns and operates the following four airports (“the Airport System”): 1. Harrisburg International Airport (“HIA”) - primarily located in Lower Swatara Township, Dauphin County, Pennsylvania 2. Capital City Airport – located in Fairview Township, York County, Pennsylvania 3. Franklin County Regional Airport - located near Chambersburg, Pennsylvania 4. Gettysburg Regional Airport – located near Gettysburg, Pennsylvania 2 HIA is the primary commercial service airport serving South Central Pennsylvania and the City of Harrisburg, Pennsylvania, the State Capital of Pennsylvania. HIA is located on 800 acres approximately 12 miles southeast of downtown Harrisburg. HIA’s primary air trade area includes the eight counties of Adams, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Perry, and York and has a total population of 1.9 million. The primary air trade area includes the cities of Lancaster and York, as well as the tourist destinations of Hershey and Gettysburg. A total of 607,324 passengers were enplaned at HIA in 2016. Scheduled commercial airline service is currently provided by American, Delta, United, Allegiant, and Air Canada. In 2016, American accounted for approximately 40 percent of total enplanements at HIA, followed by Delta and United with 2016 market shares of approximately 27 percent and 21 percent, respectively. Additional passenger service is provided by a number of charter operators. Cargo activity at HIA includes daily operations by FedEx and UPS. Capital City Airport, Franklin County Regional Airport, and Gettysburg Regional Airport primarily serve general aviation activity. Additional information on HIA and the Authority is available on the Authority’s website www.flyhia.com. The Authority’s continuing disclosure filings are available at www.emma.msrb.org. Provided with this RFP is the Authority’s Management Discussion and Analysis (Unaudited) section which will be included in SARAA’s financial statements for the period ending December 31, 2016 and 2015. The entire Independent Auditor’s Report and Financial Statements are expected to be posted to the Authority’s website on April 26, 2017. Potential proposers will thus have an opportunity to review the updated financial statements prior to submitting proposals. The Authority is currently rated by Moody’s Investors Service (Moody’s), Fitch Ratings (Fitch), and Kroll Bond Rating Agency (Kroll). The Authority’s most recent rating report, issued by Kroll on April 6, 2017, is provided with this RFP. The most recently released Moody’s rating report for the Authority was issued on December 13, 2016 and S&P’s most recent report was issued on August 3, 2016. C. Overview of the Authority’s Outstanding Debt The Authority currently has $147,710,000 of senior lien general airport revenue bonds (“GARBs”) outstanding. The Authority’s previously outstanding 2012C subordinate bonds were paid off upon final maturity on January 1, 2017; therefore, there are no subordinate bonds of the Authority outstanding. The key terms of the Authority’s outstanding bonds are summarized in the table below: 3 Summary of the Authority’s Outstanding Debt Amount Tax Final Outstanding as Source of Series Status Maturity of 4/1/2017 Repayment Airport System 2008A AMT 1/1/2038 $43,535,000 Net Revenues and PFCs Airport System 2008B Taxable 1/1/2034 $1,280,000 Net Revenues and PFCs Airport System 2012A AMT 1/1/2027 $53,375,000 Net Revenues and PFCs Airport System 2012B Non-AMT 1/1/2033 $49,520,000 Net Revenues and PFCs D. Refunding of 2008A Bonds The Authority’s 2008A Bonds are outstanding in the par amount of $43,535,000, with annual maturities from January 1, 2034 to January 1, 2038. The 2008A Bonds are callable on or after January 1, 2018. Under tax law provisions, because the 2008A Bonds are private activity bonds (and thus subject to the AMT), they cannot be “advance” refunded. Rather, they may only be refunded on a tax-exempt basis not more than 90 days prior to their initial call date. To that end, the Authority is seeking a direct placement that will close on or after October 3, 2017. E. Amortization Schedule of the 2008A Bonds The proceeds of the Direct Purchase Bonds will refund the 2008A Bonds maturing on or after January 1, 2034 (i.e., all outstanding 2008A Bonds). The principal and interest payments on the 2008A Bonds to be refunded are shown in the table below. 4 Debt Service Schedule –2008A Bonds Year Total (ending 1/1) Principal Interest Debt Service 2018 $2,829,775 $2,829,775 2019 $2,829,775 $2,829,775 2020 $2,829,775 $2,829,775 2021 $2,829,775 $2,829,775 2022 $2,829,775 $2,829,775 2023 $2,829,775 $2,829,775 2024 $2,829,775 $2,829,775 2025 $2,829,775 $2,829,775 2026 $2,829,775 $2,829,775 2027 $2,829,775 $2,829,775 2028 $2,829,775 $2,829,775 2029 $2,829,775 $2,829,775 2030 $2,829,775 $2,829,775 2031 $2,829,775 $2,829,775 2032 $2,829,775 $2,829,775 2033 $2,829,775 $2,829,775 2034 $6,560,000 $2,829,775 $9,389,775 2035 $8,390,000 $2,403,375 $10,793,375 2036 $8,935,000 $1,858,025 $10,793,025 2037 $9,515,000 $1,277,250 $10,792,250 2038 $10,135,000 $658,775 $10,793,775 Total $43,535,000 $54,303,600 $97,838,600 The Authority anticipates that the principal repayment schedule for the Direct Purchase Bonds will be structured so that it produces approximately level annual savings compared to the total annual debt service on the 2008A Bonds shown in the table above. The Authority’s financial advisor calculates that, as of October 3, 2017, the average life of the 2008A Bonds will be 18.4 years. The Authority anticipates that the average life of the Direct Purchase Bonds will be approximately the same, or shorter. The table on the following page presents an estimated principal repayment schedule for the Direct Purchase Bonds assuming a $45 million total par amount and 4% interest rate. 5 Estimated Principal Repayment Schedule – Direct Purchase Bonds Year (ending 1/1) Principal 2018 2019 $120,000 2020 $125,000 2021 $125,000 2022 $130,000 2023 $140,000 2024 $145,000 2025 $150,000 2026 $155,000 2027 $160,000 2028 $170,000 2029 $175,000 2030 $180,000 2031 $190,000 2032 $195,000 2033 $205,000 2034 $6,770,000 2035 $8,445,000 2036 $8,785,000 2037 $9,135,000 2038 $9,500,000 Total $45,000,000 The actual principal repayment structure for the Direct Purchase Bonds will be dependent on the final interest rate. Banks should provide an amortization structure for the Direct Purchase Bonds based on their proposed rate. If the principal amount of the direct placement is reduced because the Authority elects to apply some of its funds to this transaction (as described in Part I(A) above), the annual principal payments will be reduced proportionally. F. Security and Source of Repayment for the Direct Purchase Bonds The Direct Purchase Bonds will be payable from and secured by a pledge of and lien on Net Revenues of the Airport System and certain funds and accounts held or set aside under the Master Trust Indenture. 6 The Direct Purchase Bonds will be issued on a parity basis with the Authority’s outstanding senior lien bonds which are summarized in Part C above (collectively, the “Bonds”) that will remain outstanding after the issuance of the Direct Purchase Bonds, in accordance with the terms of the Master Trust Indenture pursuant to which the outstanding Bonds were issued. The Direct Purchase Bonds will constitute “Additional Bonds” under the Master Trust Indenture. The Master Trust Indenture is included with this RFP. The Authority has covenanted in the Master Trust Indenture not to issue any Additional Bonds or other obligations with a pledge of or lien on Net Revenues prior or superior to the Bonds. SARAA has received approval from the Federal Aviation Administration (FAA) to impose and use a Passenger Facility Charge (PFC) of $4.50 per eligible enplaned passenger up to approximately $129 million in total collections.