Template revised September 22, 2016.
COMMISSION
AGENDA MEMORANDUM
Item No.
6c
ACTION ITEM
Date of Meeting
June 27, 2017
DATE: June 15, 2017
TO: David Soike, Interim Executive Director
FROM: Elizabeth Morrison, Director, Corporate Finance
SUBJECT: Resolution No. 3735 – issuance and sale of intermediate lien revenue and refunding
bonds in the aggregate principal amount of not to exceed $800,000,000
ACTION REQUESTED
Request First Reading of Resolution No. 3735: A Resolution of the Port Commission of the Port
of Seattle authorizing the issuance and sale of intermediate lien revenue and refunding bonds
in one or more series in the aggregate principal amount of not to exceed $800,000,000, for the
purpose of financing or refinancing capital improvements to aviation facilities and for the
purpose of refunding certain outstanding revenue bonds of the Port; setting forth certain bond
terms and covenants; and delegating authority to approve final terms and conditions and the
sale of the bonds.
EXECUTIVE SUMMARY
Commission authorization is requested to issue intermediate lien revenue and refunding bonds
(the “Bonds”) in an amount estimated not to exceed $800,000,000 (including a reserve fund
deposit, capitalized interest and cost of issuance) to fund the costs of capital improvements at
the Airport (Exhibit A) and to refund up to $276,155,000 outstanding first lien revenue bonds,
Series 2009A and B-1 for debt service savings.
JUSTIFICATION
As part of the Port’s debt management program, the Port monitors opportunities to reduce
debt service. In 2009, the Port issued First Lien Revenue bonds to fund the Consolidated Rent-
A-Car facility (CONRAC) at the Airport; the 2009A and B-1 bonds are callable on May 1, 2019.
Current low interest rates and anticipation of rising interest rates provide a favorable refunding
opportunity. The estimated present value savings of refunding approximately $276 million is
currently $40 million. The B-1 bonds that mature on May 1, 2019 are not being refunded, nor
are the B-2 bonds which are non-callable; the B-2 bonds have a final maturity in 2031. Debt
service on the 2009 bonds (and the 2017 refunding Bonds) is paid from the Customer Facility
Charge (CFC) assessed on rental car customers at the Airport; the lower debt service that
results from the refunding is expected to delay the need for an increase in the CFC.
COMMISSION AGENDA – Action Item No. 6c Page 2 of 5
Meeting Date: June 27, 2017
Template revised September 22, 2016.
In addition, the Bonds will include funding for an estimated $420 million in Airport project
costs. The Bonds will fund a portion of several major projects; cash, grants, passenger facility
charges and existing and future bond proceeds will also provide funding for these projects. The
major projects include the International Arrivals Facility, North Satellite Improvements,
Alternative Utility Facility, Concourse D Hardstand Holdroom, Interim Baggage System Program
and Baggage Makeup Space; a list of projects currently identified for 2017 Bond funding is
provided in Exhibit A. If project spending is delayed, Bond proceeds may be redirected to other
projects within the limits established by the tax code; use of any bond proceeds is identified in
project authorization requests and no bond proceeds can actually be spent on any projects
without the appropriate project authorization.
The total Bond amount will also include proceeds sufficient to pay cost of issuance, fund the
required debt service reserve and pay a portion of the interest on the Bonds during
construction (capitalized interest) as appropriate.
DETAILS
The Bonds are being issued pursuant to the Intermediate Lien Master Resolution No. 3540 and
this Resolution No. 3735. The Bonds will be issued in multiple series based on the tax status of
the projects to be funded or refunded. Two series will be established for the refunding bonds.
One of these will be issued as governmental bonds exempt from all federal income tax (non-
AMT) and used to refund the 2009A bonds which funded roadways associated with the
CONRAC. The other will be issued as taxable bonds in order to refund the 2009B-1 taxable
bonds that funded the majority of the CONRAC construction; rental car facilities are not eligible
for tax-exempt financing.
One or two additional series will be issued as private activity bonds exempt from regular federal
income tax, but subject to the Alternative Minimum Tax (AMT) and will be used to fund a total
of approximately $420 million of Airport project spending; these projects do not quality as
governmental purpose bonds. Most of the projects have long asset lives appropriate for long-
term bonds. Approximately $100 million of the projects have shorter asset lives and therefore
may be funded withe bonds that have a shorter final maturity, currently estimated to be ten
years. The potential use of a fourth series with a shorter term to final maturity provides three
benefits. First, the life of the bonds and the associated airline fee to pay debt service are tied to
the facility life. Second, the interest rate on shorter-term bonds is lower than on longer term
bonds. Third, the regulatory compliance for this series ends after final maturity in
approximately ten-years. To comply with tax code regulations, the shorter-term bonds will be
sold separately, approximately two weeks after the sale of the other three series. While the
two sale approach is required for the compliance benefit, the other benefits may be achieved
even with a common sales date and it is important to retain flexibility to sell the bonds on the
same date if market conditions favor a combined sale. Resolution No. 3735 provides for this
flexibility.
COMMISSION AGENDA – Action Item No. 6c Page 3 of 5
Meeting Date: June 27, 2017
Template revised September 22, 2016.
Resolution No. 3735 is similar in all material respects to other Intermediate Lien Series
Resolutions and provides for a contribution to the common debt service reserve fund that
provides security for all intermediate lien bonds.
The Resolution delegates to the Port’s Chief Executive Officer the authority to approve interest
rates, maturity dates, redemption rights, interest payment dates, and principal maturities for
the Bonds (these are generally set at the time of pricing and dictated by market conditions at
that time). Commission parameters that limit the delegation are a maximum bond size,
minimum savings rate for the refunding component, maximum interest rate for the new money
bonds and expiration date for the delegated authority. If the Bonds cannot be sold within these
parameters, further Commission action would be required. The recommended delegation
parameters are:
Maximum size: $800,000,000
Minimum debt service savings: 5.0%
Maximum interest rate: 5.25%
Expiration of Delegation of Authority: six months
Upon adoption, Resolution No. 3735 will authorize the Designated Port Representative (the
Chief Executive Officer or the Chief Financial Officer) to approve the Bond Purchase Contract,
the official statement, escrow agreement, pay the cost of issuance and take other action
appropriate for the prompt execution and delivery of the Bonds. The Bonds will be sold
through negotiated sale to Citigroup Global Markets Inc.; Morgan Stanley and Co. LLC.; Barclays
Capital Inc.; Goldman Sachs & Co. LLC; J.P. Morgan Securities LLC; Merrill Lynch, Pierce, Fenner
& Smith Incorporated and three small firms, Academy Securities, Inc; Backstrom McCarley Berry
& Co., LLC; and Williams Capital Group, Inc. Piper Jaffray is serving as Financial Advisor, K&L
Gates LLP is serving as bond counsel and Pacifica Law Group is serving as disclosure counsel on
the transaction.
ALTERNATIVES AND IMPLICATIONS CONSIDERED
The 2009 bonds are callable in 2019 and the Port could delay refunding those bonds rather
than refunding them now. Refunding the 2009 bonds now, requires investing the 2017 bond
proceeds at interests rates lower than the interest rate the Port pays on the refunding Bonds;
this reduces the amount of savings.
Alternative 1 – Delay refunding until 2019 when the bonds are callable.
Pros:
(1) Reduces the need to invest at a lower short-term interest rate.
Cons:
(1) Risks an increase in the long-term interest rates the Port pays on the refunding bonds
resulting in reduced savings or potentially the loss of the refunding opportunity
altogether.
COMMISSION AGENDA – Action Item No. 6c Page 4 of 5
Meeting Date: June 27, 2017
Template revised September 22, 2016.
This is not the recommended alternative.
Alternative 2 – Refund the 2009 bonds now. Prior to recommending a refunding in advance of
a call date, the Port analyses the savings percentage and the saving efficiency and reviews this
in the context of market environment. The Port’s target savings rate for a refunding in advance
of the call date is higher than for currently callable bonds; the 2009 bonds exceed that target.
Although there is inefficiency due to the need to invest the proceeds at a lower interest rate for
two years, the efficiency is generally high. A similar analysis was done in 2016 to determine if a
refunding was appropriate and the low efficiency resulted in a decision to wait. Finally, the Port
considers the interest rate environment. Rates have already begun to rise and the market
consensus is for continued rate increases making a refunding now, more likely to be
appropriate.
Pros:
(1) Lock in significant refunding savings.
(2) Avoid the risk of a rising rate environment.
Cons:
(1) Investing the proceeds until the call date at lower short-term rates produces less
savings than would be realized if the bonds were refunded on their call date, assuming
the same or lower interest rates on the call date compared to current rates.
This is the recommended alternative.
ATTACHMENTS TO THIS REQUEST
Draft Resolution No. 3735
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
June 13, 2017 – First Reading of Resolution No. 3735 was temporarily postponed
November 8, 2016 – The Commission was briefed on the Draft Plan of Finance
COMMISSION AGENDA – Action Item No. 6c Page 5 of 5
Meeting Date: June 27, 2017
Template revised September 22, 2016.
EXHIBIT A
Service Tunnel Renewal/Replace
Alternate Utility Facility
North Satellite Renovation
International Arrivals Facility (IAF)
Checked Bag Optimization
Concessions Infrastructure
Electric Utility SCADA
N. Terminals Utilities Upgrade
Concourse B Roof Replacement
Additional Baggage Makeup Space IAF
Concourse B Gate Reconfiguration
Wi-Fi Enhancement Project
Terminal-wide Voice Paging System
Parking System Replacement
Concourse A, B, C Carpet Replacement
Concourse D Hardstand Holdroom
Plow / Broom Snow Equipment
Satellite Transit System Cars Customer Experience
OPS Lan Core Switch Upgrade
Passenger Flow Image Analytics
Interim Baggage System Program
Holdroom Seating for Concourse B&C
Hardstand Equipment Purchase
