CHICAGO -- The Federal Aviation Administration will recognize airports' need for debt service coverage when it approves passenger facility charge applications from airports that plan to issue unrated bonds backed solely by the charges.
An FAA statement saying as much came in response to a plan put together by Kidder, Peabody & Co. and its lawyers at Hopkins & Sutter to promote the issuance of the bonds by airports.
The FAA made its statement in a letter to Hopkins & Sutter written by Donna Taylor, manager of the FAA's passenger facility charge branch. Taylor said Friday that the FAA's approval of an airport's ability to collect the charge will allow for funds to cover debt service on bonds.
"What we will state in our approval is the airport is entitled to collect the funds over the term of the bonds or until collections are adequate to pay off the bonds," she said.
Taylor pointed out that once the airport collects enough fees to pay off the bonds, the FAA will stipulate that the bonds be defeased as soon as possible. She said the stipulation meets the requirement that only a necessary amount of revenues be collected from passenger facility charges.
In 1990, Congress passed a law allowing airports to collect a $1 to $3 charge per passenger to finance capital improvements.
The FAA's statement was a boost to Kidder and Hopkins & Sutter officials who have been structuring a plan for bonds backed only by the charges in the wake of rating agency reluctance or refusal to rate those bonds.
Lynn Goldschmidt, a partner at Hopkins & Sutter, called the FAA's statement "significant."
"It clarifies that the FAA will approve PFC applications for bond programs, which include adequate coverage for bondholders, without causing excess problems under PFC regulations," Goldschmidt said.
The FAA's authority to pull an airport's authority to levy the charges has been the main concern cited by rating agencies in regard to bonds backed solely by the charges.
Earlier this year, the FAA wrote a letter to Hopkins & Sutter stating that it would terminate an airport's ability to collect the charges only if there are "dire misuses" of the funds.
Standard & Poor's Corp. has flatly refused to rate passenger facility charge-only bonds, while Moody's Investors Service has said those bonds would be unlikely to achieve an investment-grade rating. Fitch Investors Service Inc. has said it would review the bond issues on a case-by-case basis.
At an airport investors' conference in Boston on Thursday, Neal Atterman, a vice president at Kidder, said that the FAA statements in the two letters represent "valuable protections" for bondholders of the unrated passenger facility charge debt.
Atterman said Kidder is talking to a number of airports about issuing the bonds and that a deal may be put together soon. Both he and goldschmidt declined to say which airports are close to issuing the bonds, which would mark an industry first.
There would be 1.5 to 2 times debt service coverage on the long-term bonds, Atterman said.
Taylor said the FAA has approved the charges, ranging from $1 to $3 per enplaned passenger, for about 150 airports, with a total collection of $8.3 billion over the life of the charges. Another 30 to 35 airports have applied for the ability to collect $1 billion in charges.
The airports are using the revenues to pay for projects on a cash basis or as a double-barreled pledge with general airport revenues for bond issues.
Passenger facility charge bond issuance was among several topics discussed Thursday at the airport investors' conference, sponsored by SH&E, a Boston-based aviation consulting firm.
Some speakers at the conference painted a bleak picture of airport finances in the wake of airline problems.
David Treitel, SH&E's president, pointed to retrenchment and cost-containment measures undertaken by airlines facing tough economic times. He said the amount of money airports charge airlines to use their facilities, which is the main revenue producer for airports, has come under attack.
"Airport charges are being attacked by airlines in response to the worst period of losses in the industry," Treitel said. "Airport investment is riskier because their tenants are broke."
