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DFW Airport plans to issue billions in bonds for improvements, possibly including a sixth terminal

For Wall Street bankers and investors prospecting for municipal-bond deals at a conference in Texas, Michael Phemister promised them a gusher.

The vice president for treasury management at DFW International Airport said he's planning to sell between $10 billion and $11 billion in bonds over the next five to seven years to add capacity to an airport that serves one of the fastest-growing areas of the nation.

"Our airfield is in pretty good shape, but we're out of gates again," Phemister said at a bond buyer conference in Dallas.

DFW will join a surge of U.S. airports that have issued debt this year. In an arms race to expand and improve terminals, bonds issued by airports are up more than 30 percent this year to $13.7 billion. Issuing airports include those in Denver, New York, Los Angeles, San Francisco and Salt Lake City.

The increase stands in contrast to the rest of the municipal bond market, where debt sales dropped this year after interest rates rose and the federal tax overhaul pulled subsidies from a key type of refinancing.

Half of the DFW Airport bonds will be for airfield and terminal improvements, with the rest going to refinance existing debt, Phemister said. The first refinancing issue is tentatively planned for next summer to retire $1.3 billion of higher-cost debt. The airport has the option to call about $5.2 billion through 2023. Phemister also said a large portion of the debt was going to be subject to federal income taxes, instead of tax-exempt or alternative-minimum-tax bonds.

"The difference in yields between AMT and taxable we believe to be marginal, and they're just going to get tighter," he said.

Any bond sales by DFW Airport must be approved by the airport's board of directors and the city councils of Dallas and Fort Worth. The bonds would ultimately be repaid by airlines through terminal leases and landing fees.

The airport completed a multibillion-dollar renovation of three of its terminals in 2017 and is now working on rebuilding one of its major runways. New end-around taxiways are planned to help reduce congestion on the airfield, and airport officials say roads, bridges and other infrastructure will also need to be updated in coming years.

By issuing bonds as taxable securities, the airport hopes to draw interest from international buyers, who are looking abroad for high-grade bonds because debt yields across much of Europe and Asia are well below those in the United States. Foreign investment in municipal debt has been increasing, giving overseas buyers a small but growing segment of the market.

Phemister said he met with over 25 investors during a two-week trip to court foreign buyers in Europe and Asia, making stops in London, Paris, Seoul and Taipei "to talk to them about the U.S. airport credit and how we have never defaulted." The airport aims to get about 20 percent in international participation in the first issue of taxable bonds.

A 10-year capital plan is being negotiated with the carriers, including American Airlines, which has its home base at DFW Airport, according to 2017 financial statements. Proposed projects include a new $2.5 billion terminal and $1.5 billion for airfield improvements. DFW has five terminals now.

"Before any of that takes place, we have to reach an agreement with our airline partners on a new use agreement which will help us define what the big capital projects would be," airport spokesman Casey Norton said. "The potential of a future Terminal F is part of those discussions."

The airport is also considering a multibillion-dollar sale of short-term debt to help finance its operations.

"One billion dollars will get you noticed," Phemister said of such commercial paper sales. "We hope to bring $1 billion deals once a year over the next four to five years."

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