City of Phoenix Civic Improvement Corporation Junior Lien Airport - - PowerPoint PPT Presentation

Investor Presentation

November 2015

City of Phoenix Civic Improvement Corporation

Junior Lien Airport Revenue Bonds, Series 2015A (Non‐AMT) $98,545,000* Junior Lien Airport Revenue Refunding Bonds, Series 2015B (Non‐AMT) $19,350,000*

* Preliminary, Subject to Change.

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Disclaimer

This electronic Investor Presentation you are about to view is provided as of November 4, 2015 for a proposed offering by the City of Phoenix Civic Improvement Corporation (the “Corporation”) of its Junior Lien Airport Revenue Bonds, Series 2015A and Junior Lien Airport Revenue Refunding Bonds, Series 2015B (“the Bonds”). If you are viewing this presentation after November 4, 2015, there may have been events that occurred subsequent to such date that would have a material adverse effect on the financial information that is presented herein, and none of the Corporation, the City of Phoenix, or Citigroup as Representative of the Underwriters (the “Underwriters”), has undertaken any obligation to update this electronic presentation. All market prices, financial presentation prices, data and other information provided herein are not warranted as to completeness or accuracy and are subject to change without notice. This Investor Presentation is provided for your information and convenience only. Any investment decisions regarding the Bonds should

• nly be made after a careful review of the complete Preliminary Official Statement. By accessing this presentation, you agree not to

duplicate, copy, download, screen capture, electronically store or record this Investor Presentation, nor to produce, publish or distribute this Investor Presentation in any form whatsoever. This Investor Presentation does not constitute a recommendation or an offer or solicitation for the purchase or sale of any security or other financial instrument, including the Bonds, or to adopt any investment strategy. Any offer or solicitation with respect to the Bonds will be made solely by means of the Preliminary Official Statement and Official Statement, which describe the actual terms of such Bonds. In no event shall the Underwriters or the City be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction mentioned herein. Neither the City nor the Underwriters make any representations as to the legal, tax, credit or accounting treatment of any transactions mentioned herein, or any other effects such transactions may have on you and your affiliates or any other parties to such transactions and their respective affiliates. You should consult with your own advisors as to such matters and the consequences of the purchase and ownership of the Bonds. Nothing in these materials constitutes a commitment by the City, Underwriters or any of their affiliates to enter into any transaction. No assurance can be given that any transaction mentioned herein could in fact be executed. Past performance is not indicative of future returns, which will vary. Transactions involving the Bonds may not be suitable for all investors. You should consult with your own advisors as to the suitability of the Bonds for your particular circumstances. Clients should contact their salesperson at, and execute transactions through, an entity of the Underwriters or other syndicate member entity qualified in their home jurisdiction unless governing law permits otherwise.

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Presentation Participants

City of Phoenix Denise Olson, Acting Chief Financial Officer Jim Bennett, Aviation Director Jay DeWitt, Deputy Aviation Director Senior Manager: Citigroup Neal Attermann, Director

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Financing Summary

• $98,545,000* Junior Lien Airport Revenue Bonds, Series 2015A (Non‐AMT)
• $19,350,000* Junior Lien Airport Revenue Refunding Bonds, Series 2015B (Non‐AMT)

Purpose To refund outstanding Series 2014A‐1 and Series 2014A‐2 Commercial Paper used to Finance the Sky Train, to refund the 2034 maturity of the Series 2010A Bonds for present value savings, to make a deposit to the Junior Lien Parity Reserve Fund and the Series 2015B Junior Lien Bond Reserve Fund, and to pay the costs of issuance Structure* 2015A: July 1, 2016 – July 1, 2045 2015B: July 1, 2034 Tax Status Tax‐Exempt (Non‐AMT) Optional Redemption To Be Determined Security Secured by Designated Revenues subordinate to amounts owed with respect to any Senior Lien Obligations; additional security provided by an irrevocable commitment of the net proceeds of a passenger facility charge received in each Fiscal Year in an amount equal to 30% of Series 2015A Junior Bonds debt service and 100% of the Series 2015B Junior Bonds debt service in each Fiscal Year due on or before July 1, 2021 Pricing Date* November 17, 2015 Delivery Date* December 15, 2015 Confirmed Ratings Moody’s: A1 (Stable); Standard & Poor’s: A+ (Stable) Senior Manager Citigroup Co‐Managers Barclays, Mesirow Financial Inc., Cabrera Capital Markets LLC, Raymond James

*Preliminary, subject to change; when, as, and if issued.

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Cohesive Management Structure

• The City of Phoenix owns and operates Phoenix Sky Harbor International

Airport and two general aviation airports, Phoenix‐Goodyear Airport and Phoenix‐Deer Valley Airport (the “Airport”)

• The Airport is operated as a self‐supporting enterprise through the

Aviation Department

• The Phoenix City Council adopts ordinances establishing rates and charges

to be paid by tenants and users of the Airports

• The City Manager, appointed by the City Council, is responsible for all City

Departments, including the Aviation Department

• The City’s Finance Department oversees the issuance of debt for the

Aviation Department and performs certain accounting, financing, treasury and related functions for the Airport Management continues to refine and monitor its plan of finance for the Airport to maintain stable Aa3/AA‐ Senior Lien and A1/A+ Junior Lien Ratings

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The Airport Serves a Vibrant Urban Area

• Phoenix is the 6th most

populous City in the U.S.

• Since 1990, the population

has grown by 55%

• Biotech, healthcare and higher

education are key growth sectors for jobs and investments

• Top tier convention and

tourism destination

• MSA’s employment growth

exceeds State and Nation

• MSA’s unemployment rate

remains below State and Nation

Employment 2000 2007 2014 U.S.

Jobs (‘000s)

132,019 137,936 139,042

CAGR

0.6% 0.1% 0.4% Arizona

Jobs (‘000s)

2,243 2,679 2,568

CAGR

2.6% ‐0.6% 1.0% MSA

Jobs (‘000s)

1,578 1,918 1,853

CAGR

2.8% ‐0.5% 1.2%

0% 2% 4% 6% 8% 10% 12% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Unemployment

USA ARIZONA MSA

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The Employment Base in Phoenix is Large and Diverse

#1 in the Nation for Entrepreneurial Activity, 2012 (Kauffman Foundation) #5 Fastest Growing Tech Market, 2014 (Fortune Magazine) Major Employers in Phoenix

• Banner Health – Health Care
• Apollo Group – Education
• Honeywell – Technology
• Intel – Technology
• American Express – Financial
• Dignity Healthcare – Health Care
• American Airlines – Airline
• Wells Fargo – Financial
• Charles Schwab – Financial
• Mayo Clinic – Health Care
• Freeport McMoRan – Mining

Source: Phoenix Business Journal, 2014‐15 Book of Lists.

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The Airport’s Key Credit Strengths

• The Airport has a virtual monopoly position in a strong diversified MSA –

approximately 60% of traffic is origin and destination

• PHX Sky Harbor is an important airport for two major carriers: American

and Southwest

• Traffic at the Airport is growing by 5.0% thus far in CY 2015 (January

through August)

• The Airport continues providing strong financial performance and

management is committed to maintaining exemplary financial metrics

• The Airport is run by an experienced, collaborative Aviation and City

Finance management team

• Series A fixes out Commercial Paper used to finance a portion of the Sky

Train and Series B refunds for savings the 2034 maturity of the Series 2010A Bonds

• The future plan of finance for the overall CIP, including the primary project

Terminal 3 (T3), is demand‐driven, affordable and modular

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• Geographic location of Phoenix results in a high reliance on airline travel
• Tucson – a small hub located 110 miles to the southeast
• Phoenix‐Mesa Gateway Airport – located 30 miles southeast with only 11 average daily

departures

Road miles from the Airport to: Las Vegas 292 Los Angeles 371 Albuquerque 477 Salt Lake City 656 Denver 809 Dallas / Fort Worth 1,056

The Airport is of Unique Importance to the Phoenix MSA

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Overview of PHX Sky Harbor Airport

• Three terminals – 84 gates in Terminal 4,

111 gates overall

• Three parallel runways:
• 8/26 – 11,490 feet
• 7L/25R – 10,300 feet
• 7R/25C – 7,800 feet
• Sky Train connects regional light rail

system to the Airport’s largest parking areas and Terminals 3 & 4, with a walkway to Terminal 2

• 26,300 public parking spaces
• Consolidated Rental Car Facility near the

Airport

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• 16 airlines provide scheduled non‐stop service to 78 domestic destinations
• Five airlines provide scheduled non‐stop service to 14 international destinations

The Airport Provides Non‐Stop Service to 92 Destinations

Domestic Destinations International Destinations

Sources: City of Phoenix & LeighFisher

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Positive Historical Traffic Patterns

62% 62% 60% 60% 58% 59% 59% 59% 59% 38% 38% 40% 40% 42% 41% 41% 41% 41% ‐ 5,000 10,000 15,000 20,000 25,000 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015*

Annual Enplanements

O&D Connecting

(‘000s)

Source: City of Phoenix Aviation Department * FY 2015 estimated O&D and connecting split

• The Airport’s 2010‐2015 compound annual growth rate (CAGR) is a healthy 2.4%
• O&D passengers average about 60% during the period shown below

Origination & Destination (O&D) 20,763 19,097 18,912 19,681 20,278 20,236 20,519 21,489 20,668

13 FY 2015 Airline Market Share

Delta United Alaska 1.7% Frontier 1.3% Others 2.7%

Southwest 31.4%

Westjet 1.0% Connecting 41.1%

O&D Resident 26.7% O&D Visitor 32.2%

FY 2015 Enplaned Passengers

58.9% Total

A Stronger Airport: Two Primary Carriers Provide Competition

• American Airlines is the world’s largest airline and the largest carrier at the Airport
• Over the past 15 years, Southwest passengers at the Airport have increased an

average of 2.5% per year

• 14 of top 15 destinations from the Airport are served by more than one carrier

Source: City of Phoenix Aviation Department

American Airlines 51.1%

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Solid Historical Financial Results

Financial Operations

($‘000s)

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015*

Total Revenues $305,359 $310,649 $319,790 $343,550 $354,221 Total Expenditures $196,260 $202,720 $214,469 $224,563 $226,165 Net Revenues Available for Debt Service $109,099 $107,929 $105,321 $118,987 $128,056

Total Senior Lien Debt Service 53,540 57,819 51,639 50,030 48,732

Senior Lien Bond Coverage 2.04x 1.87x 2.04x 2.38x 2.63x

Total Aggregate Debt Service 54,877 59,423 53,243 51,634 50,336

Total Senior and Junior Lien Debt Service 1.99x 1.82x 1.98x 2.30x 2.54x

*Estimated

• FY 2015 revenues increased 3.1% primarily due to increased landing fees and ground

transportation revenues

• FY 2015 operating expenses were relatively stable, up 0.7%, due to cost control focus
• FY 2015’s net revenues increased by 7.6%
• Aggregate Debt Service Coverage increased from 2.30x in FY 2014 to 2.54x in FY 2015
• Management remains very focused on operations and capital cost controls in FY 2016

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FY 2016‐2021 Capital Improvement Program: Modular & Prudent

• 61% of CIP is related to the modular demand‐driven terminal improvements

Group/Category FY 2016‐2021

Major Capital Projects (in ‘000s) Terminal 3 Modernization $ 510,363 Terminal 4 International Facility Improvements $ 24,727 Other Capital Projects $ 346,790

Total – All Projects 2016‐2021 $ 881,880

Sources: City of Phoenix & LeighFisher *Includes $80 million of contingency for FY 2021 projects

Grants 10% PFC Pay‐go 20% Airport Improvement Fund (Cash) 25% Future Bonds 45%

• Well balanced funding sources

mitigate cost structure impact

• Compensatory rate setting

methodology results in strong cash funding of CIP

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Reasonable Financial Forecast

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

ENPLANED PASSENGERS (‘000s) 21,800 22,100 22,400 22,700 23,000 23,300 Cost Per Enplaned Passenger (CPE) $5.82 $5.90 $6.57 $7.02 $7.09 $7.22 Debt Service Coverage Ratios Per Bond Documents Senior Lien Obligations 2.36x 2.38x 2.01x 2.14x 1.89x 1.85x Junior Lien Obligations 14.59x 11.10x 10.78x 12.20x 11.15x 11.02x Aggregate Debt Service Coverage Ratios Senior and Junior Lien Obligations 2.16x 2.12x 1.84x 1.96x 1.75x 1.72x

Source: City of Phoenix Aviation Department and LeighFisher.

• Airport consultant report forecasts enplanement growth of 1.4% in 2016 and 1.3% per

year thereafter

• Consultant report assumes bond issuance of $223 million in FY 2018 and $256 million

in FY 2020

• CPE tops out at $7.22 with aggregate coverage no lower than 1.72x

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Downside Scenario – Contingency Planning Financial Forecast

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

ENPLANED PASSENGERS (‘000s) 21,800 20,800 18,600 18,900 19,200 19,500 Cost Per Enplaned Passenger (CPE) $ 5.82 $ 6.27 $ 7.84 $ 8.33 $ 8.23 $ 8.24 Debt Service Coverage Ratios Per Bond Documents Senior Lien Obligations 2.36x 2.26x 1.72x 1.85x 1.71x 1.72x Junior Lien Obligations 14.59x 10.08x 7.73x 9.09x 8.33x 8.34x Aggregate Debt Service Coverage Ratios Senior and Junior Lien Obligations 2.16x 2.01x 1.58x 1.69x 1.58x 1.59x

Source: City of Phoenix Aviation Department and LeighFisher.

• Downside traffic scenario results in increased airline rates and charges – assumes

significant declines in connecting passengers

• CPE still remains well below similarly situated airports (industry medians for large

hubs)

• Senior lien and aggregate debt service coverage remains within management’s

financial targets, due to prudent operational cuts/closures, and modular CIP development

• No competitive airline response assumed

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THE PHOENIX WAY – Management Maintains Strong Financial Targets

• FY 2015 – Management exceeded all financial targets
• Financial Planning includes pro forma modeling of downside scenarios

Financial Targets & Management Policies Debt Service Coverage Targets: Senior Lien: 1.75‐2.00x Aggregate (PFC Offset): 1.50x PFC Leveraging 65%‐75% of Annual Collections Utilize Junior Lien for PFC Leveraging Days Cash on Hand: 475 Days Maintain Competitive CPE, with Increases Targeted to Maintain Metrics and Develop Facilities

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Aggregate Debt Service Schedule

• The Airport’s debt policy supports a conservative debt profile with appropriate financial

metrics

• $1.156 billion in Airport Revenue Bonds outstanding
• $497 million of Senior Lien Obligations
• $659 million of Junior Lien Obligations
• 100% Fixed‐Rate Debt
• Capacity for planned future T3 debt
• Principal Amortization: 42% payout in 10 years and 60% in 15 years

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Schedule

• Pricing: November 17, 2015
• Closing: December 15, 2015

Preliminary Financing Timeline*

November 2015 December 2015

S M T W T F S S M T W T F S 1 2 3 4 5 6 7 1 2 3 4 5 8 9 10 11 12 13 14 6 7 8 9 10 11 12 15 16 17 18 19 20 21 13 14 15 16 17 18 19 22 23 24 25 26 27 28 20 21 22 23 24 25 26 29 30 27 28 29 30 31

*Preliminary, subject to change

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Contacts for Further Information

Issuer

Denise Olson, Acting Chief Financial Officer denise.olson@phoenix.gov | (602) 262–7166 Kathleen Gitkin, City Treasurer kathleen.gitkin@phoenix.gov | (602) 495‐0732 Senior Manager Neal Attermann, Director neal.attermann@citi.com | (212) 723‐5646

Financial Advisor

Ken Cushine, Principal kcushine@frascallc.com | (212) 355‐4050

For the Series 2015A&B Preliminary Official Statement, please visit: https://www.sendd.com/~webdrop/netdistro/59237_020_CityOfPhoenix_POS_bmk.pdf For the City of Phoenix’s CAFR and PHX’s Annual Financial Report, please visit: www.phoenix.gov/finance/investor