Construction progress on Terminal 6 at John F. Kennedy International Airport in July.
JFK Millennium Partners
P3’s renovation of New York’s John F. Kennedy International Airport has received new approval from the municipal bond market.
The New York Transit Development Corporation has increased the value of special facilities revenue bonds for the JFK Airport Terminal 6 Redevelopment Project to $1.9 billion.
The deal is part of the airport’s $19 billion redevelopment program, which also includes the $2.5 billion sale of the new Terminal 1 project in June.
The first tranche of the T6 transaction, Series 2024A, consisted of $1.84 billion in green bonds. Some of that tranche was uninsured and some was secured by surety bonds. The remaining $100 million of Series 2024B consists of insured convertible note enhancement notes.
As demand exceeded subscriptions, the trading team added nearly $500 million in insured and uninsured bonds to the first tranche, pushing the deal value to nearly $2 billion.
Goldman Sachs and Siebert Williams Shank acted as joint book-running managers, with 11 other people acting as co-managers. Backstrom McCarley and Berry & Frasca & Associates were co-local counsel, and Squire Patton Boggs and Hardwick LLP were co-counsel.
The transaction received an underlying rating of Baa3 from Moody’s Ratings and an underlying rating of BBB- from S&P Global Ratings. The green designation was provided by Kestrel Verifiers. Assured Wrap bonds are rated AA by S&P, A1 by Moody’s, and AA-plus by Kroll Bond Ratings.
The terminal is being built through a public-private partnership, with Vantage Group joining teams from RXR, American Triple I, and public partner Port Authority of New York and New Jersey.
The project broke ground in early 2023.
Howard Cure, director of municipal bond research at Evercore Wealth Management, said ongoing construction projects often carry considerable risk, as do the natural fluctuations in international air travel, but JFK’s reputation is a major concern for investors. He said that it seems to be reducing the
“Typically, you would be concerned about construction risks. You’re dealing with an operational airport, so you need to coordinate the delivery of construction materials and minimize disruption,” Cure said. “However, the JFK and LaGuardia projects have proven that these contractors can deliver projects largely on time and on budget. I think it gives a sense of security.”
The Port Authority also leveraged public-private partnerships to redevelop LaGuardia Airport, transforming the once condemned terminal into a destination of choice for many passengers.
“Another problem is the high airfare to sign,” Cure said of JFK. “But international travel is quite lucrative for airlines, so we can make sure we cover that. … Costs here are higher, but compared to the new Terminal 1, it’s competitive.”
Investors concerned about the instability of air travel may feel more comfortable about this airport than many others. In an investor presentation, he said JFK Airport is “the largest international gateway in the United States” and “generates more than 50% more international air passengers than the second largest international gateway.”
JetBlue, which operates from adjacent Terminal 5, is the airline sponsor of the project. International airlines Lufthansa, Cathay Pacific Airways and Aer Lingus were announced as tenants.
The first five-gate stage of the new Terminal 6 is scheduled to open in the first quarter of 2026, according to an official statement.
The second phase of the project will add five more gates and will begin after the first phase is completed and the existing Terminal 7 is demolished. It is scheduled to open in 2028.
“Construction is progressing well, with 85% of design packages submitted, 74% approved, and 85% of hard costs under contract,” said Jennifer Janzen, communications director at JFK Millennium Partners. said. “Vantage Group, the project manager, also brings extensive experience in completing LaGuardia Airport’s Terminal B on time and on budget.”
Cure also pointed out that the project also has strong reserves in case something goes wrong.
Janzen said JFK Millennium Partners plans to “fully fund $100 million in liquidity reserves and set aside $135 million in additional reserves and a 12-month debt service reserve.” ”.
A rendering shows the completed Terminal 6 at New York’s John F. Kennedy International Airport.
JFK Millennium Partners
Even if the size and name recognition of the project were not enough to make it stand out in the market, the deal had another unique feature. The second tranche of the notes has a “convertible zero” financing structure. To the trading team’s knowledge, these are the first convertible notes issued for a U.S. airport and the first AMT convertible notes issued in over 20 years.
“Convertible notes help diversify the offering to investors and enhance credit quality by improving coverage and free cash flow during the initial ramp-up period after construction is complete,” Janzen said. .
The bonds will repay $3.44 billion in non-municipal debt assumed by JFK Millennium Partners at the beginning of the project. Both partners plan to repay the remaining debt in 2028, subject to market conditions, and the decision to increase the size of this agreement means that the next issuance will be slightly smaller.
The project’s private partners provided $1.3 billion in capital.
The project is approximately 1.2 million square feet and consists of 10 aircraft gates.
The terminal will include integrated immigration facilities, post-security connections to Terminal 5, airline lounges, concourses, concession areas, baggage handling systems, escalators, and arrival and departure roads.
The construction plan emphasizes the integration of new technologies to reduce airline operating costs and improve customer experience.
Terminal 6 shares many similarities with Terminal 1, JFK’s other high-profile terminal project.
These projects have nearly parallel construction schedules and P3 structures. Developers of the new Terminal One also turned to the municipal market for $4.5 billion in financing.
The first phase of construction for both is scheduled to be completed in 2026, but Janzen said building Terminal 6 will be easier.
As a result, the organization signed revenue plans with a higher percentage of airlines compared to the New Terminal 1 project.
