Template revised September 22, 2016.
COMMISSION
AGENDA MEMORANDUM
Item No.
8c
ACTION ITEM
Date of Meeting
May 28, 2019
DATE: May 10, 2019
TO: Stephen Metruck, Executive Director
FROM: Elizabeth Morrison, Director, Corporate Finance
SUBJECT: Resolution No. 3758 – issuance and sale of intermediate lien revenue bonds in the
aggregate principal amount of not to exceed $550,000,000
ACTION REQUESTED
Request introduction of Resolution No. 3758: A resolution of the Port of Seattle Commission
authorizing the issuance and sale of intermediate lien revenue bonds in one or more series in
the aggregate principal amount of not to exceed $550,000,000 for the purpose of financing or
refinancing capital improvements to aviation facilities; 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 fixed rate intermediate lien revenue bonds (the
“Bonds”) in the principal amount of not to exceed $550,000,000 (including a reserve fund
deposit, capitalized interest and cost of issuance) to fund the costs of capital improvements at
the Airport (Exhibit A).
JUSTIFICATION
The 2019-2023 Draft Plan of Finance for the Airport, presented to the Commission November
13, 2018, forecasted future revenue bond funding of $1.50 billion of Airport capital projects.
Approximately $480 million of that bond funding need is projected to be met in 2019 by the
issuance of the Bonds. The Bonds will be secured by all net operating revenues of the Port after
the payment of First Lien Revenue Bond obligations. The actual debt service (principal and
interest) payments will be made from Airport net revenues. Debt service payments will be
included in the airlines rates and charges per SLOA IV as appropriate. The cost per enplaned
passenger forecast presented in the 2019 budget included this debt service.
The major projects that will receive funding from the Bonds include the International Arrivals
Facility, North Satellite Improvements, Checked Baggage System Recapitalization/Optimization,
and South Satellite Infrastructure HVAC improvements; a complete list of programs and projects
currently identified for 2019 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;
COMMISSION AGENDA – Action Item No. 8c Page 2 of 6
Meeting Date: May 28, 2019
Template revised September 22, 2016.
the use of any Bond proceeds is identified in project authorization requests and no Bond
proceeds may be spent on any projects without the appropriate project authorization.
The total Bond amount will also include proceeds sufficient to pay costs of issuance, to fund the
required debt service reserve and to pay a portion of the interest on the Bonds during
construction (capitalized interest) as appropriate.
The Port’s debt management program takes a conservative approach of issuing primarily fixed
rate bonds. This approach allows for predictable debt service payments, but interest rates are
based on higher long-term rates. To help reduce debt service costs, the Port also issues a
modest amount of variable rate debt – targeting no more than 25% of the Port’s total debt.
Currently, the Port has approximately 9% of its debt in a variable rate mode. Although variable
rates fluctuate during the term of the debt, the total interest cost over the term of the debt
should be expected to be lower than the total interest cost of fixed rate long-term debt and, for
Airport bonds, lower costs are passed on to the airlines. Current long-term fixed rates continue
to remain favorable, and as such staff is not recommending the use of variable rate debt in this
transaction. Moreover, variable rate bonds are backed by a bank issued letter of credit and
there are limitations on the amount a bank is willing to support, and that amount would be
insufficient to fund current needs. Staff does expect, however, that future bond issues,
potentially as early as 2020, may include all or a portion of variable rate bonds.
The Port's debt management program also continuously monitors opportunities to refund
existing debt to reduce debt service costs. At this time, the Port is not recommending any
refundings, but anticipates that bonds callable next year may provide an opportunity.
DETAILS
The Bonds are being issued pursuant to the Intermediate Lien Master Resolution No. 3540 and
this Resolution No. 3758. The Bonds are expected to be issued in a single series of private
activity bonds exempt from regular federal income tax, but subject to the Alternative Minimum
Tax (AMT), to the extent applicable, or as taxable bonds if taxable interest rates are favorable.
Resolution No. 3758 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 Executive Director 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,
maximum interest rate 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:
COMMISSION AGENDA – Action Item No. 8c Page 3 of 6
Meeting Date: May 28, 2019
Template revised September 22, 2016.
Maximum size: $550,000,000
Maximum interest rate: 5.00%
Expiration of Delegation of Authority: December 31, 2019
Upon adoption, Resolution No. 3758 will authorize the Designated Port Representative (the
Executive Director or the Chief Financial Officer) to approve the Bond Purchase Contract and the
official statement, pay the costs 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 Goldman
Sachs & Co. LLC; Barclays Capital Inc.; BofA Merrill Lynch; Citigroup Global Markets Inc.; 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
Alternative 1 – Issue bonds for a larger amount of project spending.
Pros:
(1) Provides funding certainty for more project spending beyond 2020 and reduces the
potential need for a bond issue in 2020.
(2) Provides additional funding at current favorable interest rates.
Cons:
(1) The larger issue would fund spending associated with projects still in design. This
exposes the Port to the risk of holding unspent bond proceeds if construction
spending is delayed.
(2) There is no current expectation that interest rates will rise significantly in the short-
term.
This is not the recommended alternative.
Alternative 2 – Issue variable rate bonds in 2019.
Pros:
(1) Adds additional variable rate debt. The Port currently has about 9% of its debt in
variable form, at the low end of its target range.
(2) Variable rate interest costs tend to be lower on average over time and can reduce
interest costs.
Cons:
(1) Limitations on the amount of bank supported letter of credit would result in either an
insufficient amount of bonds or the need to enter into multiple transactions, adding
time and complexity to execution. Both the North Satellite program and the
International Arrivals facility program are spending quickly and potential limitations on
the amount of variable rate bonds could result in a funding shortfall in 2020.
(2) Reduces the amount of variable rate capacity for future years.
COMMISSION AGENDA – Action Item No. 8c Page 4 of 6
Meeting Date: May 28, 2019
Template revised September 22, 2016.
This is not the recommended alternative.
Alternative 3 – Issue fixed rate Intermediate Lien bonds in the amount needed to provide $480
million of project funding.
Pros:
(1) Provides sufficient funding for projects under contract.
(2) Takes advantage of current favorable long-term rates.
(3) Preserves variable rate capacity for a higher interest rate environment.
Cons:
(1) Leaves the Port at the low end of it variable rate debt target.
This is the recommended alternative.
COMMISSION AGENDA – Action Item No. 8c Page 5 of 6
Meeting Date: May 28, 2019
Template revised September 22, 2016.
ATTACHMENTS TO THIS REQUEST
Resolution No. 3758
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
November 13, 2018 – The Commission was briefed on the 2019-2023 Draft Plan of Finance
COMMISSION AGENDA – Action Item No. 8c Page 6 of 6
Meeting Date: May 28, 2019
Template revised September 22, 2016.
EXHIBIT A
North Satellite Renovation
International Arrivals Facility-IAF
Checked Bag Recap/Optimization
Restroom Upgrades Concourse B, C, D
N. Terminals Utilities Upgrade
South Satellite Infrastructure HVAC
