Airports in Denver and Texas eye big bond sales in 2025

To accommodate rising passenger volume, Denver International Airport extended its capital improvement program through 2035 and is one of the major airports in the U.S. Southwest gearing up to issue bonds this year. 

“We took a step back and realized that as the airport continues to grow and see record passenger growth, that we needed to expand our CIP to meet our Vision 100, which is to get to 100 million annual passengers by 2032 and that’s a conservative estimate,” said Michael Biel, who will become the airport’s chief financial officer starting Jan. 12.

After meeting with stakeholders, including airlines, the $2.9 billion CIP for 2023-27 was extended last year to 2035 at an additional cost of $9.9 billion, he added.

A $500 million revolving note with Truist Bank is being tapped for interim financing ahead of more than $1 billion of general airport revenue bonds that are anticipated to be sold in 2025’s second half, according to Biel, who is the airport’s current deputy CFO.

He is replacing Mike Nakornkhet, who is joining the San Francisco International Airport as its director.

Denver’s airport, which was North America’s third busiest with a record 77.8 million passengers in 2023, is expected to have ended 2024 with as much as 82 million passengers, Biel said.

The city and county of Denver last sold bonds for the airport in 2023 with a $586.8 million subordinate revenue bond issue.

Ahead of that deal, Fitch Ratings revised the outlook on the airport’s AA-minus senior and A-plus subordinate bond ratings to positive from stable and said an upgrade is likely within the next couple of years “should clarity into DEN’s future capital needs beyond the current (capital improvement program) result in metrics at least consistent with present levels.”

The airport has always taken a very fiscally conservative forecasting approach where actual numbers exceed projections, Biel said.

“We’re anticipating the same thing as we continue to execute on this capital program as well, taking that very conservative financial forecasting approach with the anticipation that will exceed those numbers,” he said. “We’re hopeful and optimistic that it could lead to a possible upgrade.” 

In 2022, the airport received one-notch rating upgrades to Aa3 and A1 from Moody’s Ratings and to AA-minus and A-plus from S&P Global Ratings.    

As of March, the airport had $4 billion of fixed-rate senior and $3.2 billion of subordinate bonds outstanding with 40% of the debt scheduled to mature over the next 10 years.

Denver International Airport will reach its 30th anniversary of operations Feb. 28.

Today’s facility, with double-A ratings and steady traffic growth, has come a long way since its rocky debut, after more than a year of delays and amid a Securities and Exchange Commission probe that came to nothing. 

The airport, where United Airlines and Southwest Airlines are the major carriers, has already added 39 gates and is in the completion phase for its Great Hall project in the Jeppesen Terminal.

Biel said the airport is not giving up on public-private partnerships despite terminating a deal with Great Hall Partners, LLC, in 2019 at a cost of $183.6 million funded mostly from airport bonds. 

“It’s definitely something we want to keep in our toolbox as an option, but we want to make sure if it’s utilized, it’s utilized for the best potential that it can be,” he said. 

An “after-action” report in 2022 concluded the Great Hall project would have been better off with traditional design-bid-build or construction manager/general contractor approaches instead of the design-build-finance-operate-maintain P3 that commenced in August 2017.  

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Moody’s, which in December gave the U.S. airport sector a stable outlook, pointed to an expected ramp up in debt issuance in 2025.

“With a need to fund upgrades (partly to accommodate larger aircraft) and lower interest rates, most airports whose debt we rate will increase issuance for capital projects,” Moody’s said. “However, increased issuance will not weaken most airports’ credit quality, buttressed by robust liquidity and an ability to recover debt service costs through hikes in airline rates and charges.”

Fitch assigned a neutral outlook for airports in 2025, citing expected “mild” traffic growth and noting the sector may be pressured by growing capital budgets, particularly if leverage metrics rise.

“Airports with more flexibility in (capital expenditure) timing and significant non-debt funding sources can offset these pressures,” the rating agency said. “However, heightened project execution risk remains from increased (capital expenditure) activities.”

Fitch put “aircraft supply/delivery that can impact systemwide capacity” on a “what to watch” list.

Southwest Airlines announced service cuts last year, citing “significant challenges” due to aircraft delivery delays from Boeing, which came under federal scrutiny after one of its 737 Max 9 jets lost a door plug while in flight.

Major Texas airports, including Dallas Fort Worth International Airport, North America’s second busiest, are readying big bond sales for this year.

In December, the DFW Board of Directors authorized $3 billion of bonds pending approval of the debt by the two cities, according to airport CFO Chris Poinsatte. The airport plans to sell about $1.5 billion of bonds in two or three transactions in May and June, he added. 

DFW’s CIP, which includes construction of a sixth terminal and expansions of terminals A and C, has a projected price tag of $8.6 billion through fiscal 2029.

A $723.5 million  DFW August bond sale was selected as the Southwest region winner in The Bond Buyer’s 2024 Deal of the Year Awards.

Houston expects to be back in the municipal market after selling $1.1 billion of special facilities revenue bonds backed by junk-rated United Airlines in November to expand and update George Bush Intercontinental Airport’s Terminal B. 

Mayor John Whitmore’s press office has said further sales of that type of debt are likely in the second or third quarter, when the city would begin issuing debt to fund its $624 million share of the project via general airport revenue bonds after completion of a feasibility study. 

Austin will start issuing bonds this year to help finance an estimated $4 billion airport expansion program to accommodate record-breaking passenger growth.

An estimated $500 million bond deal is on tap for late 2025, while the city council is scheduled this month to take up interim financing via a note purchase agreement with Wells Fargo for a three-year term, according to an Austin-Bergstrom International Airport spokesperson.

The city last sold airport system revenue bonds in 2022 with a $416 million deal.