Item No. 10a_supp_______
Meeting Date: June 23, 2026

Subordinate Lien Revenue Bonds
Series 2026A and 2026B
June 23, 2026

1

Introduction of Resolution No. 3851
• Sale & Issuance of Subordinate Lien Revenue Bonds, Series 2026A&B
• Bonds to be issued in two forms, both utilizing variable interest rates:
1. Variable Rate Demand Bonds: $225 million
•

Tax-exempt (AMT); Interest rates reset daily

2. Direct Bank Loan $120 million
•

Taxable; Interest rates reset weekly

• Commission recently approved a refresh of the Port's Subordinate Lien
- Refresh in April was done to facilitate the expected addition of new variable rate debt
- Variable rate debt provides certain benefits reviewed in April
2

Background Information - Variable Rate Debt
• The Port's primary funding source of capital projects is revenue bonds
• Over 95% of the Port's current revenue bond debt has fixed interest rates
• Port staff has been looking for opportunities to increase variable rate debt exposure,
but with historically low fixed interest rates over the past decade, it made sense to lock
those in
• As long-term fixed interest rates have started to increase it provides a potential
opportunity to increase variable rate debt

3

Variable Rate Debt Can Lower the Port's Cost of Capital
• Variable interest rates reset frequently
(i.e. daily or weekly)
- Target short end of yield curve
• Variable rate debt priced to SIFMA +
spread
• Short-term municipal rates on average
are lower than long-term rates
Average Historical Rates
2000-2025
SIFMA

MMD

1.48%

3.54%

- SIFMA: Securities Industry and Financial Market Association Index of
municipal short-term rates
- MMD: Municipal Market Data index of long-term rates
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Other Benefits
Asset-Liability
Management
• Reduce interest
rate risk by
hedging interest
expense and
interest earnings
Flexible Structure
• Some variable rate
products provide
for flexible
principal payments

Rates in the Port's investment portfolio move
similarly to rates on variable rate debt

5

Rate Volatility is a Risk
• The Port retains interest
rate risk, but manages that
by off-setting variable rates
on its investment portfolio

6

2026A Subordinate Lien Bonds: VRDBs
Product: Variable rate demand bonds (VRDBs)
Tax Status: Tax-Exempt, subject to AMT
Amount: $225 million
Purpose: Funding for airport capital projects
Additional Details:
• Provide partial funding of Airport CIP, as outlined in the Draft Plan of Finance
• VRDBs supported by a direct pay letter of credit from Bank of America
- Competitively bid
• VRDBs are a common variable rate product; the Port has utilized them previously
• Investors of bonds are effectively purchasing the banks' credit rather than the Port's
- They have banks' guarantee of payment
• Interest rates are set based on market supply and demand
- Minimum rate necessary to remarket the Bonds in the public market (market clearing)
- Initially contain a daily interest rate reset

7

VRDBs: Benefits and Risks
Benefits:

Risks & Mitigation:

• Historically lower rates

• Remarketing Risks

- On average lower compared to fixed rate

• Flexible repayment terms

- Port can adjust principal payments in times of
need
- Port paused principal payments during the
pandemic to preserve cash and reduce charges
to airlines

• Asset-Liability Management

- Reduce organizational interest rate risk
- Hedge interest expense and interest earnings

- Problems with capital markets or with the bank's credit
can reduce investor demand
- This can result in higher rates
- The Port experienced this during the 2008 credit crisis
- Failed remarketing requires letter of credit bank to pay
investors; Port must repay bank following a 6-month
liquidity period

• Port downgrade risk - increases cost of LOC
Mitigation:

• Negotiated agreements with the banks to minimize the
increase in rates and to provide time to cure the
underlying problem
• Diversify bank and variable rate product exposure
8

2026B Subordinate Lien Bonds: Direct Bank Loan
Product: Bank Loan
Tax Status: Taxable
Amount: $120 million
Purpose: Refinance outstanding commercial paper
Additional Details:
•
•

Competitively bid bank loan from Wells Fargo
Commercial paper was used to fund acquisition of SeaTac Office Center in February 2025

•

Bank loan proceeds used to pay off outstanding commercial paper
- After refinancing, the $250M active commercial paper facility will be available for CIP funding

•
•

Interest rates reset weekly based on a standard market index plus a spread
Bank loan term of 5 years
•

Can be renewed with Wells Fargo, replaced with a new variable rate product or refinanced with fixed rate
bonds at the end of this term
9

Direct Bank Loan: Benefits and Risks
Benefits: consistent with VRDBs:

Risks & Mitigation

• Low rates
• Flexible repayment terms
• Asset-Liability Management

• Refinancing/Renewal risk
• Port downgrade/default risk

Additional Benefits of Bank Loan:
• Bank loan executed in private market - results
in faster loan execution and lower costs
compared to public markets
• Fewer regulatory/compliance requirements
• No remarketing risk, unlike VRDBs
• Further diversifies Port's debt portfolio

Mitigation:
• Manage loan and letter of credit expiry
• Prudent financial management
• Diversify bank and variable rate product
exposure

10

Resolution No. 3851
• Pursuant to new Subordinate Lien Master
Resolution adopted in April 2026

• Delegation Limits:

- Maximum Par Amount: $400 million
- Bond sale must occur by July 14, 2027
- Exceeding limits requires further authorization

• Resolution No. 3851:

- Provides the details for this specific series of
bonds
- Delegates to Executive Director the authority to
approve the sale of Bonds, within parameters in
Resolution

•

Provides funding for

-

Bond issuance costs

• Variable Rate Demand Bonds will be
underwritten by Goldman Sachs
• Loan directly placed with Wells Fargo does
not require an underwriter
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Next Steps
• Adoption of Resolution 3851: July 14
• Bond closing tentatively scheduled for:
- Bank Loan with Wells Fargo: Week of August 10th
- Variable Rate Demand Bonds: Week of August 17th or 24th

12

Appendix - Fund Airport Capital Investments
Anticipated project funding includes:
•
•
•
•

S Concourse Evolution
Continuation of Baggage Handling System
Optimization and Airfield Pavement Replacement
Industrial Waste Treatment Plant Program
North Main Terminal SEA Gateway Project & Other
airport projects

Flexibility to redirect bond proceeds to other
Airport capital projects, subject to meeting project
eligibility requirements (federal tax)
Actual spending on projects is subject to
appropriate authorization

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