Why JFK Terminal One P3 deal was upsized by $1 billion

The P3 centerpiece of plans to revitalize New York’s John F. Kennedy International Airport was very well received last week in the municipal bond market.

The tax-exempt deal for the New Terminal One project was upsized by $1 billion to $2.5 billion when the deal was priced Tuesday through the New York Transportation Development Corp.

The market found a lot to be excited about: the largest public-private partnership project in the U.S. also has a visible brand, a low investment-grade rating and a track record in the muni market.

The green bonds, tax-exempt but subject to the alternative minimum tax, will fund the first phase of the New Terminal One project and refinance loans from the project’s private partners. 

The deal, which will close on the 27th, employed BofA Securities and Loop Capital Markets as co-bookrunners and Barclays as co-senior manager. Katten Muchin Rosenman and D. Seaton and Associates were co-bond counsels. Some of the maturities were insured by Assured Guaranty Municipal. 

The firm Kestrel provided an external verification that the deal qualified as green bonds.

The financial sponsors were Ferrovial — which is also in charge of construction for the project — JLC, Ullico and Carlyle. 

The deal was rated BBB-minus by Fitch Ratings, Baa3 by Moody’s Ratings and BBB-minus by Kroll Bond Rating Agency.

“Obviously this was a substantial investment, so the construction risk is pretty significant,” KBRA Senior Director Adeeti Amin said. “We got pretty comfortable with the construction package that was put in place.”

The NTO partners planned to offer $1.5 billion, but upsized the deal to $2.5 billion by the time pricing ended. The deal’s ratings — investment grade, but still lower than most of the airport sector —  are responsible for much of its popularity, according to Patrick Luby, senior municipal strategist at CreditSights. 

“The lower rating with the higher yield might get more investors who had been underweighing airports or they had some other airport positions called away,” Luby said. “A lot of folks, ourselves included, are expecting a robust case of issuance in the sector. So if you miss the Burbank deal, or you miss St. Louis, you’re likely to see another A or AA airport deal in the not-too-distant future. There’s not a lot of large BBB-ish [bonds] that you’re going to get a chance at.”

The deal’s size boosted its profile, Luby said. Low investment grade airport deals are usually fairly small, so this was a rare chance to get a lot of triple-B airport bonds at once. 

Uninsured bonds priced to yield between 4.07% for the 2037 maturity with a 5.25% coupon and 4.84% for the 2060 maturity, which carried a 5% coupon, according to information posted on the Municipal Securities Rulemaking Board’s EMMA website.

The timing was also ideal, Luby said. Two weeks before the deal there was a surge in volume; then a quiet week thanks to the Federal Open Market Committee meeting; the week the deal priced had little competition because it was interrupted by Juneteenth. 

The NTO project is a public-private partnership involving airport owner Port Authority of New York and New Jersey, private investors and several European construction companies like Ferrovial; the European companies are expected to have helpful expertise because P3s are more common abroad. The project is following in the footsteps of the P3 redevelopment of the Port Authority’s LaGuardia Airport, which likely helped boost the deal’s profile and credibility.

“There’s a lot of occasions when market participants talk about P3s, but there’s not a lot of high profile financings where the P3s have really worked well,” Luby said. 

“I will say, so far, construction is on schedule,” Amin said. “So in that case, we’re not following the LaGuardia template, which is positive.”

The airport sector has been performing well lately, with enplanements nationally returning to 2019 levels. JFK had 31.3 million passengers in 2023 according to the deal’s roadshow, slightly lower than pre-pandemic levels. 

New Terminal One also had the advantage of being fresh in the market’s memory. The project priced $2 billion of bonds in late November, Luby said. That deal had a similar structure, rating, green designation and insurance coverage, and was upsized by $500 million.

“It was probably fresh in the minds of a lot of analysts, a lot of portfolio managers,” Luby said. “Being able to get an add-on position on a credit that you may already have exposure to, that makes the investment decision a bit easier.”

NTO’s funding strategy, as it told The Bond Buyer in 2022, was to take out $6.63 billion in five-year bank loans and $2.3 billion in equity, then replace those loans with public debt when market conditions seem most favorable. 

Phase A of the Terminal One project is 40% done, and is expected to be completed and open to customers in June 2026, according to the roadshow for the deal. Phase A is two-thirds of the total project, and the remaining phases are planned to finish in 2030. 

Construction must accommodate operations that take place at the existing Terminal 1; the full New Terminal One project will also cover the footprint of Terminal 2, which closed last year, and the old Terminal 3, which was demolished in 2013.

The New Terminal One project represents half the cost of what airport owner, the Port Authority of New York and New Jersey, says will be a $19 billion transformation of the airport.

Also underway is a $4.2 billion project to build a new Terminal 6, which will cover the footprint of the historic Terminal 6 that was demolished in 2011, as well as the soon-to-be-demolished Terminal 7.

The Terminal 6 financing won The Bond Buyer award for Deal of the Year in the P3 category in 2023.

They join projects for upgrades at Terminal 8 and Terminal 4, and a $1.25 billion revamp of the airport’s roadways and ground transportation set up, as part of what the Port Authority calls “a transformative” $19 billion rebuild of the airport.

Public-private partnerships have several benefits, according to Leonard Jones, head of public finance for Blaylock Van, which was an underwriter for this deal and the 2023 deal.

“Public private partnerships are newer in the US, but they have been around a lot longer outside of the US. A lot of the investors are not so new to public private partnerships, they’ve seen them for several years globally,” Jones said. “These are big global firms that tend to invest those amounts of money, and so it’s not new to them, and there’s been some learning from previous public private partnerships.”