Aerostar Airport Holdings closed on the lease of Luis Muñoz Marín International Airport on 26 February, after the US Federal Aviation Administration (FAA) approved the operation of the Puerto Rican airport as a PPP. The FAA’s approval was the agency’s first under its pilot privatisation programme. Aerostar, a joint venture of Highstar Capital and Grupo Aeroportario del Sureste (ASUR), paid a $615 million upfront fee to the grantor, the Puerto Rico Public-Private Partnerships Authority (PRPPPA), for the 40-year concession.

Earlier in the month, on 13 February, Aerostar bookrunners Royal Bank of Canada and UBS priced a $350 million 22-year 4(2) private placement to fund the upfront concession payment. The bond has a coupon of 5.75%, slightly inside the indicative yield of 6% floated at launch and one of the tightest coupons for an airport issue. The issue is the largest piece of a $410 million financing that RBC and UBS are leading, which was expected to close as Project Finance went to press in mid-March. The financing also includes a three-year $50 million capital expenditure facility and a $10 million revolver due in 2015.

Luis Muñoz Marín is only the second airport in the US to be privatised – and the first of any importance. The first, Stewart International Airport, is a minor airport north of New York City and did not remain in private hands for very long. So the Luis Muñoz Marín deal involved educating investors about the US regulatory regime.

For Luis Muñoz Marín, RBC and UBS found that several potential bond buyers were already comfortable with the sector generally, as they had already bought into Australian and Latin American airport issues, and thus had appetite for new paper. It also helped that several of those investors are US-based. The Aerostar bond ultimately attracted about 15 institutional investors, which took tickets of between $20-30 million, mostly insurance companies as well as some US pension funds.

Moody’s Investors Service assigned the issue a rating of Baa3. The ratings agency estimated the issue’s base case debt service coverage ratio a minimum of 1.2x, and 1.3x using five- and ten-year averages.

Had the bond failed, the sponsors had a fall-back option of a $350 million bridge loan. During the bidding process for the concession, RBC and UBS promised Aerostar a $350 million bridge, or $175 million each, if they could not close a bond supporting the lease. Since close on the bond is a mere formality, Aerostar will fund the concession fee with sponsor bridge loans until the proceeds from the issue become available. Since Aerostar is not expected to draw on the bridge, it will expire unused.

Under the lease, Aerostar will benefit from a floor created by contractually obligated revenues from the US airlines that use Luis Muñoz Marín, though the concessionaire will not be able to recover dues owed by defaulting airlines. The concession features 15-year airline use agreements, under which airlines will pay a total of $62 million per year, with rises after five years linked to the consumer price index. Among airport concessions, these airline use agreements are distinctive; revenues for most such concessions are entirely dependent on passenger numbers, though Aerostar will also receive $36 million in passenger facility charges. Aerostar is nevertheless vulnerable to fluctuating revenue from retail and car rental services.

Besides the $615 million upfront concession fee, Aerostar plans to invest up to $240 million over the first three years of the lease to complete major maintenance projects, improve passenger flow, upgrade roadways and technological infrastructure, and reduce waiting times at security checkpoints.

Under the terms of the Aerostar joint venture, ASUR has the option to buy Highstar’s equity within three months of financial close. ASUR will also manage Luis Muñoz Marín, including the airport’s aeronautical services, retail activities, car rental services and parking and transportation services.

Luis Muñoz Marín is the largest commercial airport in Puerto Rico, handling 90% of passengers to the territory, and is the busiest in the Caribbean, dominating air travel to the continental US. It is located in Carolina, Puerto Rico, just 3km from the commonwealth’s capital, San Juan. Traffic levels should remain stable in the first few years of the concession, but Moody’s predicts weak demand growth at the airport. The agency projects passenger numbers from the mainland US to Puerto Rico to grow 2% under its base case. About 64% of all Luis Muñoz Marín passengers are expected to fly from the mainland US, making the airport highly dependent on the health of the wider US economy.

Aerostar plans to consolidate airport activities from five operating terminals to three, at least temporarily. Luis Muñoz Marín will remain a hub for JetBlue, a New York-based airline. The airport can process 10 million passengers annually, though it only handles 4.1 million. Aerostar also expects to relocate much of the airport’s retail services from in front of security checkpoints to beyond them, a position that typically helps boost sales.

Overall, few airports have entered the queue for the FAA programme, so few other deals are likely to follow – at least in the near term. The most obvious candidate is Midway Airport in Chicago, a major hub for Southwest Airlines, which already has preliminary FAA pilot programme approval. The city of Chicago received 16 submissions of qualification for the potential lease of Midway Airport in February. That list did not include either of the Aerostar sponsors, though a losing bidder on Luis Muñoz Marín, a consortium of Macquarie and Ferrovial, is among the Midway bidders. 

Aerostar Airport Holdings, LLC
STATUS
Priced 13 February 2013, with closing expected in
mid-March 2013
SIZE
$615 million
DESCRIPTION
40-year lease of Puerto Rico’s Luis Muñoz Marín Airport
SPONSOR
Highstar Capital and Grupo Aeroportario del Sureste (ASUR)
DEBT
$410 million, consisting of a $350 million bond in the 4(2) private market, a $50 million capital expenditure facility and a
$10 million revolver
EQUITY
$327 million
CO-PLACEMENT AGENTS
RBC Capital Markets and UBS
SPONSOR FINANCIAL ADVISERS
UBS (financial and strategic) and
RBC (financing)
GRANTOR FINANCIAL AND PROCUREMENT ADVISER
Credit Suisse
SPONSOR LEGAL ADVISERS
Cleary Gottlieb (financing and M&A);
Pillsbury (FAA);
Fiddler, Gonzalez & Rodriguez (local)
GRANTOR LEGAL ADVISER
Pietrantoni Méndez & Alvarez (local)
and Mayer Brown (US)
LENDER LEGAL ADVISER
Freshfields and Allen & Overy
AIRLINE LEGAL ADVISER
Morrison & Foerster
GRANTOR TECHNICAL ADVISER
LeighFisher
INSURANCE ADVISER
Marsh
TECHNICAL ADVISER
Arup
ENVIRONMENTAL ADVISER
ERM
FORECAST
Hatch Mott MacDonald