San Francisco airport receives Moody's upgrade ahead of debt sale

Improving liquidity and traffic were cited for a recent Moody’s Ratings upgrade at San Francisco International Airport, where travelers were pictured in May.

Bloomberg News

Moody’s Ratings upgraded San Francisco International Airport’s revenue bonds to Aa3 from A1 ahead of its plans to issue $969 million in debt.

The outlook was moved to stable from positive at the new rating.

“The upgrade reflects a significant improvement in liquidity, which we expect will be sustained going forward,” Moses Kopmar, a Moody’s vice president and senior analyst, said in Thursday’s ratings report.

SFO’s enplanement recovery has reached 97% post-pandemic and international traffic has surpassed pre-pandemic levels achieved in 2019, Kopmar said.

The rating was assigned to $880 million Series 2025D, alternative minimum tax revenue bonds and $60 million Series 2025E, non-AMT/governmental purpose bonds, expected to price Dec. 1, according to a filing posted on the Municipal Securities Rulemaking Board’s EMMA website. The preliminary offering statement is expected to be released this week, the filing said.

A syndicate consisting of J.P. Morgan Securities LLC, Barclays Capital Inc., BofA Securities, Inc., Goldman Sachs & Co. LLC, Samuel A. Ramirez & Co., Inc., and RBC Capital Markets, LLC are the underwriters.

Moody’s also upgraded the airport’s subordinate commercial paper notes and bank bond rating to A1 from A2.

“Achieving our highest-ever rating from Moody’s is the ultimate validation of SFO’s financial strategy and long-term planning,” said SFO Director Mike Nakornkhet in a statement. “This milestone enables us to continue our investment in a world-class airport experience that is second to none.”

SFO, a major gateway to Europe and Asia, is the largest airport in the Bay Area and the second busiest in California, after Los Angeles International Airport, said Moody’s.

“Enplanement growth is supported by a strong local economy, which includes robust investment by technology companies and emergence of the artificial intelligence sector,” Kopmar said.

The upgrade “also reflects continued progress on de-risking the airport’s sizable $12.5 billion capital plan, with committed pricing for 70% of the Terminal 3 West project anticipated in the next several months,” he said.

“While the Bay Area market continues to lag the nation in traffic performance, SFO has outperformed regional competitors and has a service offering tilted toward premium travelers that we expect to drive growth in the high-end segment going forward,” he said.

“The size, wealth and trajectory of the economy mitigates the airport’s projected high costs and leverage and supports the higher Aa3 rating,” Kopmar said.

Though the airport’s leverage will increase significantly, Kopmar said the cost per enplanement will remain competitive to other international gateway airports, who are also undertaking large capital programs.

The airport anticipates $8.5 billion of additional debt issuance over the next 10 years to fund its capital improvement plan.

S&P Global Ratings assigned an AA-minus to the proposed revenue bonds and affirmed an AA-minus long term rating and stable outlook last week. Fitch Ratings hasn’t released a report on the new issue, but affirmed an A-plus rating on the airport’s $8.9 billion in revenue bond debt and a stable outlook in January.