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Bond questions could slow Charlotte airport vote

RALEIGH With a vote looming soon in the North Carolina Senate on a controversial bill to seize control of Charlotte’s airport, questions continue to surface on what impact a change in ownership would have on the airport’s bonds and credit rating.

Bond rating agencies told the Observer this week that an inefficiently run authority could hurt Charlotte Douglas International Airport’s bond rating and increase the costs of future borrowing.

State Sen. Bob Rucho said Tuesday night that he’ll likely delay Wednesday’s scheduled Senate vote, possibly until next week. Rucho, a Matthews Republican and the bill’s primary sponsor, is seeking legal advice regarding the airport’s outstanding bond debt.

Questions first arose last week over how $800 million in bonds backed by the city could be transferred to a new entity, which has no taxing authority to raise money.

The city’s bond counsel, Parker Poe law firm, has warned about the impact on those who hold the bonds if the takeover goes through. Bondholders, the firm said, would have to approve of the transfer of airport control. Tracking down the many bondholders, they cautioned, would be difficult and expensive.

The state treasurer’s office also is studying the issue, but said Tuesday that it needs the state attorney general to approve of an outside firm to provide a legal opinion. A treasurer’s office spokesperson said it could be later this month before a bond counsel’s opinion would be ready.

On Monday, the Charlotte City Council approved spending as much as $150,000 to study the pluses and minuses of an airport authority.

Mayor Anthony Foxx and other city officials have criticized switching control of the airport to a 13-member, state-created body. The city, which has run the airport since 1935, contends it has flourished under city oversight.

“The entanglement that Charlotte has with the airport is much more complicated than I think the legislature might appreciate,” said Michael Barnes, a Democrat on City Council. “What they’re doing is putting the progress of the airport at risk by threatening the bond status and threatening the bondholders with their efforts.”

Last week, Rucho yanked the bill from the Senate’s calendar as questions about the bonds began surfacing.

If an airport’s bonds have a lower rating, it could make it tough to borrow money for capital projects, a fact not lost on Sen. Dan Clodfelter, a Mecklenburg Democrat.

“The stronger your credit rating, the cheaper the debt,” he said.

How would it work?

National experts on bonds told the Observer that the transfer of airport control is not unusual.

Such situations have occurred in other cities and states, they said. Under one scenario, new bonds could be issued to settle the debt with existing bondholders, the experts said. An airport authority could then issue its own bonds to fund airport construction.

Parker Poe has said that any bonds that cannot currently be redeemed would require placing money into escrow to pay off bonds in later years.

“That’s extra costs that you wouldn’t have to pay if you weren’t doing that,” said Greg Gaskins, the city’s chief financial officer. “That would hurt the airport.”

Officials with agencies that rate the city’s airport revenue bonds, which are backed by fees charged to airlines, say it doesn’t matter who manages an airport when it comes to rating bonds.

More important, the officials say, is how an authority – or a city – runs the airport.

“At the end of the day, we’re all about the credit risk,” said David Jacobson, a spokesman for Moody’s Investors Service. “It would depend (on) what sort of things were in place to make sure that bondholders still got paid on time.”

Moody’s airport analyst Kurt Krummenacker said the makeup of an authority can play a big role in how it functions. If “political winds” interfere with how an authority runs and grows an airport, bond ratings could take a hit, Krummenacker said.

“The credit strength comes from how the governance is set up and how the governance relates to how well the airport is able to operate as a revenue-generating enterprise,” he said.

Jacobson said Moody’s has given Charlotte’s airport revenue bonds an Aa3 rating and a “stable” outlook. Aa3 is the agency’s fourth-highest rating, he said.

“Because the airline is such a big hub, the airport benefits from connecting traffic,” he said.

‘Superior characteristics’

Fitch Ratings has given Charlotte’s airport revenue bonds an A-plus rating and a “stable” outlook, said Seth Lehman, a Fitch senior director. Fitch rates roughly 80 U.S. airports, and many fall into the “A” category, which indicates strong ability to pay down debt in a timely manner, he said.

A-plus, he said, means an airport has “superior characteristics.”

Lehman said Charlotte Douglas’ rating is based, in part, on its high volume of connecting air traffic. Also, he said, the airport’s “financial metrics are very strong” and it does not have much debt relative to its size.

Lehman said an authority might allow the airport to “act more like a business,” rather than having it be “locked in” by city or county rules. Another upside to an authority, he said, is it might make it easier to hire employees and issue construction contracts.

Transparency at risk

But Carl DeMaio, a former Republican member of the San Diego City Council has words of caution for Charlotte.

DeMaio said that since control of San Diego International Airport was transferred from the Port of San Diego to an authority in 2003, ethical concerns have been raised. The authority’s board members have been accused of taking lavish trips, he said.

“There have been questions of transparency,” he said, adding that authority members have claimed airport fees aren’t taxpayer dollars.

“The idea that this is not public money… well, who the hell’s money is it? Some of these boards tend to get full of themselves after a period of time.”

Under Rucho’s bill, the Charlotte authority would include two members appointed by the city of Charlotte; six appointed by boards of commissioners in Mecklenburg, Cabarrus, Gaston, Iredell, Lincoln and Union counties; and one each appointed by the governor, the House speaker, and Senate president. Those 11 members would then pick two at-large members.

Krummenacker has heard all the talk about forming a Charlotte airport authority. Rating agencies, he said, are concerned with one thing.

“What’s important is how it’s being managed, not necessarily who is doing the managing,” he said.

Roberts: 704-358-5248
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