MWAA goes to market
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The Metropolitan Washington Airports Authority heads to market on Thursday by offering $714.4 million of airport system revenue and refunding bonds series 2025A in a deal that may showcase uncertain times in the greater Washington region.
“I would think the deal will come cheap to the market,” said John Mousseau, vice-chairman & CIO at Cumberland Advisors.
“Among the positives, the ratings are AA3/AA- and exempt in both D.C. and Virginia, so that is always a source of demand. On top of that is the overall economic backdrop as airline traffic is down, airlines are cutting back on some routes and in particular the D.C. Metro area is feeling the effects of the DOGE cutbacks.”
Despite the skepticism from some market observers, the issuer is confident about a strong showing.
“Our transaction is anchored by credit ratings of AA-, AA-, and Aa3, from Fitch, S&P Global, and Moody’s Ratings, respectively, all with a stable outlook, and as a known and frequent issuer, we expect strong demand for our bonds,” said Crystal L. Nosal, media relations for MWAA
“This transaction has a new money component of approximately $481 million and a refunding of approximately $233 million,”
The new money will be used to finance an ongoing multi-billion-dollar capital construction program, that helps tie the two airports together while leveraging a new fifteen-year agreement with the airlines.
The negotiated sale of the tax-exempt bonds is subject to the Alternative Minimum Tax with RBC Capital Markets serving as the senior manager of the deal. Jeffries, J.P. Morgan, Morgan Stanley, Ramirez & Co. Wells Fargo Securities, and American Veterans Group are the co-managers.
The municipal advisor is Frasca & Associates LLC, the bond counsel is Squire Patton Boggs.
Proceeds of the bonds will be used to pay a portion of capital costs at the two airports including any reimbursements and capitalized interest.
Proceeds will also be used for refunding the authority’s outstanding airport system revenue and refunding bonds series 2015B AMT and series 2015C non-AMT.
Some of the proceeds will fund a deposit to the Common Reserve Account in the Debt Reserve Fund to satisfy the debt service reserve requirement for the series 2025A bonds and pay the costs of issuing the 2025As.
Moody’s was the first rating agency to pass muster on the latest MWWA offering while also addressing what’s on the runway.
“Today’s rating action recognizes MWAA’s strong historical and forecasted liquidity levels, along with management’s proven track record of prudently executing the capital plan and maintaining a healthy capital structure and debt service coverage,” said Moody’s.
Moody’s also notes that between 2025 and 2028, MWAA plans to issue approximately $5.5 billion of new debt, which will result in adjusted debt per origin and destination enplanement peaking to around $400 in 2028 which is a significant increase from the $223 recorded in 2024.
“Due to higher debt service needs, net revenue debt service cover ratio as calculated by us will decline to around 1.3x over the next five years compared to 1.63x in 2024,” said Moody’s.
Fitch cited the issuer’s long-term Airline Use and Lease agreements that links the two airports together as a system while keeping patron airline under their wings as a strong point.
“MWAA’s new, long-term AUL runs through 2039 with a continued hybrid compensatory model, providing an overall favorable airport system cost recovery approach with provisions to allow for a sharing of net remaining revenues between airports, if necessary,” said Fitch
“The current agreement also preserves an extraordinary coverage protection feature to ensure cashflow sufficiency and introduces a dynamic annual debt service coverage target, which enhances airline funded debt service coverage up to 40%, from 25%, if necessary to achieve at least 1.4x debt service coverage ratio.”
S&P followed suit while noting that a flooding risk at Reagan appears to be neutralized. “We analyzed physical climate risks and consider MWAA to be somewhat exposed to coastal flooding and storm surges for the coastal areas the airports serve, particularly at DCA,” said S&P.
“Management has developed a sustainability plan focused on reducing fossil fuel use through electrification of its transport fleet, improving efficiencies, reducing waste, building a culture of sustainability in its administration, and promoting the use of public transportation.”
“These have resulted in LEED certifiable structures, hardening assets against potential environmental physical risks, maintenance of insurance against risks, and the development of a 100-megawatt solar array.”
MWAA includes Ronald Reagan National Airport, Washington Dulles International Airport and the Dulles Toll Road, which helped fund the Metrorail’s Silver Line extension to the Dulles airport.
The authority is governed by a 17-member board of directors made up of 7 representatives from Virginia, 3 from Maryland, 4 from Washington D.C. and 3 presidential appointees
Their Aviation Liquidity Fund as of December 31, 2024, extends out to 1,006 days.
Debt Service Coverage in 2024 is 3.16x and as compared to 2.77x in 2023.
Although overall enplanements are currently up for the two airports, projections point to a .2% drop at Reagan National. The Federal Aviation Administration has a long-standing conditional waiver of minimum slot usage requirement at Reagan National, LaGuardia and JFK that runs until Oct. 25.
Operations at Reagan also remain under a microscope since a fatal crash between an Army helicopter and an American Airlines passenger jet Jan. 29.
The trend at Dulles, which is now being served by the Metrorail’s Silver line rail service, points up 1.1% according to projections.
Most of the upcoming capital construction costs are happening at Dulles with $8.26 billion as compared to Regan National at $3.05 billion. Financing the ongoing construction is expected to come from future planned bond sales.
The projects include a $65 million parking structure, $240 million in road improvements and $535 million in terminal redevelopment at Reagan.
Dulles is slated for completing a $898.2 million Tier 2 Concourse East project in 2026 with an anticipated $235.8 million being grant funded.
About 63% of MWAA’s operating revenue comes from non-airline sources including concessions with the bulk generated by parking fees.
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