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October 19, 2018  

Bill Sparks Talk of Airport-Receivable Bonds

Securitization could help finance the privatization of airports across the U.S.

A bill signed into law on Oct. 5 by President Trump that reauthorizes funding for the Federal Aviation Administration includes a component that opens every airport in the country to partial privatization. Previously, only 10 airports were eligible.

The idea is to bring in private-sector capital for improvements and new construction. The businesses that might pursue such investments, in turn, are talking about raising the capital needed to buy their stakes by securitizing a mix of receivables from the facilities — including landing and terminal fees paid by carriers.

The potential deal volume could be massive. “To the extent you want to finance a private investment in the airport, you can do it with a securitized structure,” one attorney said. “Given the previous limitations of just a few airports, getting rid of those limits is a psychological political statement and everyone has taken notice.”

At the moment, discussions surrounding the deals’ structures are in the conceptual stages, another lawyer said. He described the possible transactions as highly customized, perhaps pooling together cashflows tied to several projects into single multi-tranche offerings.

The Trump Administration is pushing airport privatization as part of a broader plan that calls for $1.5 trillion of new infrastructure spending over 10 years. With the proposed outlays meeting resistance from other Republicans, meanwhile, White House officials apparently are increasingly looking to private-sector partners for the needed capital.

To that end, there also is talk of offerings tied to bridges, tunnels and highways.

Another possibility would be for a government entity, say the Port Authority of New York and New Jersey, to set up a special-purpose company that would securitize tolls from bridges and tunnels, and use the proceeds to improve the three airports it controls. Such an approach would resemble the one taken by Hong Kong Link, a limited-liability company formed in 2004 by the Hong Kong government that issued $770 million of bonds backed by bridge and tunnel tolls. Likewise, an entity called Lima Metro Line 2 raised $1.2 billion in 2015 to fund the construction of a subway line, with the bonds underpinned by payments from the government of Peru to the contractor building the project.

While numerous project-finance securitizations have taken place outside the U.S. — complemented by a large volume of loans with securitization-like structures — the deals have been rare in the States. The only rated asset-backed bond offerings to take place in the U.S. lately were two issues totaling $800 million in 2017, both from natural-gas company Freeport LNG.