REPORT FOR THE FINANCE COMMITTEE …...Recommendation to Approve the Proposed Resolution Authorizing Direct Purchase of Bonds, Substitution of Letter of Credit and Conversion of Bonds

M E T R O P O L I T A N W A S H I N G T O N A I R P O R T S A U T H O R I T Y

REPORT FOR THE FINANCE COMMITTEE

Recommendation to Approve the Proposed Resolution Authorizing Direct Purchase of Bonds, Substitution of Letter of Credit and Conversion of

Bonds for the Airport System Revenue Variable Rate Bonds, Series 2010C, 2003D-1, and 2011A

September 2015


Background

The Airports Authority currently has $156 million of outstanding variable rate bonds with bank facilities that expire in 2015 that must be replaced and $270 million of variable rate bonds that expire in 2016 that may be replaced early without penalty for potential cost savings to the Airports Authority:

• Series 2010C Bonds (AMT and Non-AMT) of $156 million secured by a Barclays Letter of Credit expiring in September 2015 with current rate of 72% of LIBOR-Index plus 70 bps

• Series 2003D-1 Bonds (AMT) of $60 million held by Banc of America as Indexed Floaters expiring in December 2016 with current rate of 72% of LIBOR-Index plus 70 bps

• Series 2011A Bonds (AMT) of $210 million held by Wells Fargo as Indexed Floaters expiring in September 2016 with current rate of 72% of LIBOR-Index plus 82 bps


At the May meeting, the Committee concurred with a bank facility solicitation that was sent to over 40 financial institutions with the following evaluation criteria:• Proposed fees, credit quality, plus trading value if applicable• Costs to terminate the facility• Willingness to accept the Airports Authority’s covenants and indemnification• Proposed downgrade pricing• Proposed term out provisions

At the July meeting, the Committee received an informational report:• 17 proposals were received (from 12 banks) which included 11 Letter of

Credit bids and six Indexed Floaters bids • The Technical Evaluation Committee (TEC) had identified the best three

proposals based on technically acceptable lowest price procurement method • Negotiation of final documents would be undertaken with the three firms

Background (cont’d)


Discussion (cont’d)

The Finance staff, Financial Advisors and Bond Counsel have successfully negotiated all terms and documents with Wells Fargo, RBC and SMBC banks and their bank counsel and recommend the following bank facility replacements:

Proposed Provider Product Amount Costs (bps)* Bonds Term Annual

SavingsSumitomo Mitsui

Banking Corp (SMBC)

Letter of Credit

$156.265 M 34** 2010C 5 years $0.51M

Wells Fargo Indexed Floaters

$59.75 M 31.5* 2003D1 3 years $0.23M

Royal Bank ofCanada (RBC)

Letter of Credit

$210.135 M 27** 2011A 3 years $0.94M

*This is a fixed spread to the 72 percent of Libor Index. **In addition, there is 6 bps fee for the Remarketing Agent.


Discussion (cont’d)

Summary of transaction documents included in Committee Materials

Transaction Documents Included in Committee Materials

Series2010 C

Series2003 D-1

Series2011 A

Amendment to Indenture of Trust

No. 1 to theThirty-seventhSupplemental

No. 1 to the 2nd Amendedand Restated SixteenthSupplemental

No. 1 to the Fortieth Supplemental

Reimbursement Agreement With SMBC N/A With RBC

Fee Agreement With SMBC N/A With RBC

Remarketing Agreement With Barclay’s Capital Inc.

N/A With RBC

Reoffering Circular Related to Series2010C

NA Related to Series 2011A

Continuing Covenant Agreement

N/A With Wells Fargo Bank, N.A.

N/A


Recommendation

The Finance Committee approve and recommend to the Board of Directors the adoption of the proposed Resolution that will authorize:

• The mandatory tender of the Series 2010C Bonds and substitution of the Barclays Bank PLC Letter of Credit (LOC) with the Sumitomo Mitsui Banking Corporation (SMBC) LOC for the entire Series 2010C Bonds,

• The mandatory tender of the Series 2003D-1 Bonds held by Banc of America Preferred Funding Corporation and direct sale of the Series 2003D-1 Bonds to Wells Fargo Municipal Capital Strategies, LLC,

• The mandatory tender of the Series 2011A Bonds held by Wells Fargo Bank, N.A., and conversion of the Series 2011A Bonds from a direct purchase Indexed Floater to variable rate bonds secured by a Royal Bank of Canada (RBC) LOC, and

• Approval of substantially complete transaction documents.


Ronald Reagan Washington National Airport Dulles Corridor Metrorail Project

Washington Dulles International AirportDulles Toll Road

REPORT TO THE FINANCE COMMITTEE

RECOMMENDATION TO APPROVE THE PROPOSED RESOLUTION AUTHORIZING DIRECT PURCHASE OF BONDS, SUBSTITUTION OF

LETTER OF CREDIT AND CONVERSION OF BONDS FOR THE AIRPORT SYSTEM REVENUE VARIABLE RATE BONDS,

SERIES 2010C, 2003D-1, AND 2011A

SEPTEMBER 2015

ACTION REQUESTED That the Finance Committee approve and recommend to the Board of Directors (Board) the adoption of the proposed Resolution that will authorize:

(1) the mandatory tender of the Series 2010C Bonds, conversion of the Series 2010C-1 Bonds to a weekly interest rate mode and substitution of the Barclays Bank PLC Letter of Credit (LOC) with the Sumitomo Mitsui Banking Corporation (SMBC) LOC for the entire Series 2010C Bonds,

(2) the mandatory tender of the Series 2003D-1 Bonds held by Banc of America Preferred Funding Corporation and direct sale of the Series 2003D-1 Bonds to Wells Fargo Municipal Capital Strategies, LLC,

(3) the mandatory tender of the Series 2011A Bonds held by Wells Fargo Bank, N.A., and conversion of the Series 2011A Bonds from a direct purchase Indexed Floaters to a weekly interest rate mode secured by a Royal Bank of Canada (RBC) LOC, and

(4) approving substantially complete transaction documents. BACKGROUND Currently, the Airports Authority has $883 million of bank facilities providing liquidity to the Airports Authority’s Variable Rate Demand Obligations and serving as direct variable rate loans. The Airports Authority has $156 million of outstanding variable rate bonds that are scheduled to expire in 2015 that need to be replaced or extended. Additionally, the Airports Authority has $270 million of bank facilities that expire in 2016 that may be replaced early and would not incur a penalty if terminated prior to their expiration date. The expiring facilities are as follows:

• Series 2010C Bonds (AMT and Non-AMT) of $156 million secured as a Barclays LOC expiring in September 2015 with current rate of 72 percent of LIBOR-Index plus 70 bps

• Series 2003D-1 Bonds (AMT) of $60 million held by Banc of America as Indexed Floaters expiring in December 2016 with current rate of 72 percent of LIBOR-Index plus 70 bps

• Series 2011A Bonds (AMT) of $210 million held by Wells Fargo as Indexed Floaters expiring in September 2016 with current rate of 72 percent of LIBOR-Index plus 82 bps.

Benefits of the proposed bank facilities replacements include:

1. Lower cost of capital compared to currently outstanding costs of 72 percent LIBOR-index plus 70 bps on Series 2010C and 2003D-1, and 72 percent LIBOR-index plus 82 bps on Series 2011A,

2. Extension of the bank facilities from 2015 and 2016 to 2018 and 2020, which allows for staggering of maturities of all currently outstanding variable rate facilities, and

3. Retaining Non-AMT (Alternative Minimum Tax) status of the Series 2010C2 Bonds.

On May 21, with the Finance Committee concurrence, the Airports Authority distributed a bank solicitation to over forty financial institutions to replace and renew up to approximately $426 million of existing bank facilities. The Airports Authority received proposals from twelve banks which included eleven letter of credit bids and six indexed floater bids. At the July meeting, the Financial Advisor and Finance staff provided a summary report of those proposals. Based on the technically acceptable lowest price procurement method and approved evaluation criteria, the Technical Evaluation Committee (TEC) identified the three best proposals by Wells Fargo, Royal Bank of Canada (RBC) and Sumitomo Mitsui Banking Corp (SMBC). DISCUSSION The Finance Staff, Financial Advisors and Bond Counsel have successfully negotiated with SMBC, Wells Fargo and RBC bankers and their bank counsel as well as remarketing agents to provide the following recommendations. Series 2010C Bonds It is recommended to accept the SMBC LOC proposal by having a mandatory tender of $156.3 million of Series 2010C Bonds secured with a Letter of Credit currently held by Barclays. The SMBC LOC offered a five-year term and will replace the current bank facility until 2020. The SMBC proposal includes reducing the index rate from current 72 percent LIBOR plus 70 bps to 72 percent LIBOR plus 34 bps, saving the Airports Authority approximately $0.51 million annually. In addition as part of the replacement transaction, based on the current market conditions, it is beneficial to switch the subseries 2010C-1 from the 2-day interest rate mode to weekly interest rate mode.

Series 2003D-1 Bonds It is recommended to accept the proposal by Wells Fargo to purchase the Series 2003D-1 Bonds by having a mandatory tender of $59.8 million for the Series 2003D-1 Bonds currently held by Banc of America Preferred Funding Corporation and expiring in 2016. Wells Fargo has offered a three-year term with an expiration of 2018 and index rate of 72 percent LIBOR plus 31.5 bps. Compared to the current index rate of 72 percent LIBOR plus 70 bps, the new Wells Fargo Indexed Floaters will result in approximately $0.23 million annual savings to the Airports Authority. Series 2011A Bonds It is recommended to accept the LOC proposal by RBC by having a mandatory tender of $210.1 million of Series 2011A Bonds currently held as Indexed Floaters by Wells Fargo and expiring in 2016. The proposal by RBC offered a three-year LOC term with an expiration of 2018 and index rate of 72 percent LIBOR plus 27 bps compared to the current index rate of 72 percent LIBOR plus 82 bps, resulting in approximately $0.94 million annual savings. In addition, the Series 2011A Bonds will be switched to a weekly interest rate mode.

DRAFT DOCUMENTS Bond Counsel has concluded a detailed legal review of the terms outlined in the proposals. The documents listed below will be executed in connection with the three transactions: Series 2010C:

1. Amendment No. 1 to the Thirty-seventh Supplemental Indenture of Trust 2. Reimbursement Agreement between MWAA and SMBC 3. Fee Agreement 4. Remarketing Agreement between MWAA and Barclays Capital Inc. 5. Reoffering Circular related to the Series 2010C Bonds

Series 2003D-1: 1. Amendment No. 1 to the Second Amended and Restated Sixteenth Supplemental

Indenture of Trust 2. Continuing Covenant Agreement between MWAA and Wells Fargo Bank, N.A.

Series 2011A:

1. Amendment No. 1 to the Fortieth Supplemental Indenture of Trust 2. Reimbursement Agreement between MWAA and RBC 3. Fee Agreement 4. Remarketing Agreement between MWAA and RBC 5. Reoffering Circular related to the Series 2011A Bonds

SCHEDULE The schedule anticipates executing the Series 2010C Bonds on September 22, 2015 and the Series 2003D-1 Bonds and Series 2011A on October 1, 2015. RECOMMENDATION That the Finance Committee approve and recommend to the Board approval of the proposed Resolution authorizing the Direct Purchase of Bonds and Letter of Credits for the Airports System Revenue Variable Rate Bonds, Series 2010C, 2003D-1, and 2011A and also approve substantially final bond documents.

Prepared by: Office of Finance

September 2015

PROPOSED RESOLUTION

Authorizing Direct Purchase of Bonds, Substitution of Letter of Credit and Conversion of Bonds for

Airport System Revenue Variable Rate Bonds, Series 2003D-1, Airport System Revenue Variable Rate Refunding Bonds, Series 2010C and Airport System Revenue and Refunding Variable Rate Bonds, Series 2011A

WHEREAS, The Airports Authority issued its Airport System Revenue Variable Rate Bonds, Series 2003D-1 (the “Series 2003D Bonds”) under the Amended and Restated Master Indenture of Trust, dated as of September 1, 2001, as amended (the “Master Indenture”), as supplemented by a Sixteenth Supplemental Indenture of Trust, which to date has been amended and restated by the Second Amended and Restated Sixteenth Supplemental Indenture of Trust (the “Sixteenth Supplemental”) between the Airports Authority and the Trustee, and the Series 2003D Bonds bear interest at a rate based on the LIBOR Index Rate Mode in the manner described in the Sixteenth Supplemental, for a period that extends to December 16, 2016;

WHEREAS, Banc of America Preferred Funding Corporation (“Banc of America”) directly purchased the Series 2003D Bonds and the Airports Authority desires to convert the Series 2003D Bonds to a new LIBOR Index Rate Mode by having the Series 2003D Bonds tendered for mandatory purchase by Banc of America as a result of such mode change and selling the Series 2003D Bonds to Wells Fargo Municipal Capital Strategies, LLC (“Wells Fargo”), as direct purchaser;

WHEREAS, The Airports Authority issued its Airport System Revenue Variable Rate Refunding Bonds, Series 2010C, consisting of the Subseries 2010C-1 Bonds and the Subseries 2010C-2 Bonds (the “Series 2010C Bonds”) under the Master Indenture, as supplemented by a Thirty-seventh Supplemental Indenture of Trust (the “Thirty-seventh Supplemental”) between the Airports Authority and the Trustee, and the Subseries 2010C-1 Bonds bear interest at the Two Day Rate and the Subseries 2010C-2 Bonds bear interest at the Weekly Rate;

WHEREAS, Payment of the Series 2010C Bonds is secured by a direct-pay letter of credit (the “Barclays LOC”) issued by Barclays Bank PLC (“Barclays”) that expires by its terms on September 23, 2015, and the Airports Authority desires to substitute the Barclays LOC with a direct-pay letter of credit (the “Sumitomo LOC”) provided by Sumitomo Mitsui Banking Corporation, acting through its New York Branch (“Sumitomo”), and, in conjunction therewith the

Airports Authority desires to convert the Subseries 2010C-1 Bonds from the Two Day Mode to the Weekly Mode;

WHEREAS, The Airports Authority issued its Airport System Revenue and Refunding Variable Rate Bonds, Series 2011A, consisting of the Subseries 2011A-1 Bonds, the Subseries 2011A-2 Bonds and the Subseries 2011A-3 Bonds (the “Series 2011A Bonds”) under the Master Indenture, as supplemented by a Fortieth Supplemental Indenture of Trust (the “Fortieth Supplemental”) between the Airports Authority and the Trustee, and the Series 2011A Bonds bear interest at a rate based on the LIBOR Index Rate Mode in the manner described in the Fortieth Supplemental, for a period that extends to September 21, 2016;

WHEREAS, Wells Fargo Bank, National Association, PNC Bank, National Association, and Union Bank, N.A. (the “Series 2011A Holders”) directly purchased the Series 2011A Bonds and the Airports Authority desires to convert the Series 2011A Bonds from the LIBOR Index Rate Mode to the Weekly Mode by having the Series 2011A Bonds tendered for mandatory purchase by the Series 2011A Holders as a result of such mode change;

WHEREAS, Upon conversion to the Weekly Mode, the Series 2011A Bonds will be secured by a direct-pay letter of credit (the “RBC LOC”) provided by Royal Bank of Canada (“RBC”), acting through its branch located at 200 Vesey Street, New York, New York; and

WHEREAS, There has been presented to the Board of Directors the form of the documents described below that the Airports Authority proposes to execute in connection with (i) the mandatory tender of the Series 2003D Bonds and direct sale of the Series 2003D Bonds to Wells Fargo, (ii) the mandatory tender of the Series 2010C Bonds, conversion of the Series 2010C-1 Bonds to the Weekly Mode and substitution of the Barclays LOC with the Sumitomo LOC for the Series 2010C Bonds, and (iii) the mandatory tender of the Series 2011A Bonds, and conversion of the Series 2011A Bonds to the Weekly Mode secured by the RBC LOC, copies of which documents shall be filed in the records of the Airports Authority:

(a) Amendment No. 1 to the Second Amended and Restated Sixteenth Supplemental Indenture of Trust (the “Amendment to the Sixteenth Supplemental”), between the Airports Authority and the Trustee, relating to the Series 2003D Bonds; and

(b) the Continuing Covenants Agreement relating to the Series 2003D Bonds between the Airports Authority and Wells Fargo (the “Wells Fargo Continuing Covenants Agreement”); and

(c) Amendment No. 1 to the Thirty-seventh Supplemental Indenture of Trust (the “Amendment to the Thirty-seventh Supplemental”), between the Airports Authority and the Trustee, relating to the Series 2010C Bonds; and

(d) the Reimbursement Agreement relating to the Sumitomo LOC between the Airports Authority and Sumitomo (the “Sumitomo Reimbursement Agreement”), including the irrevocable, direct-pay letter of credit attached as Appendix I to the Sumitomo Reimbursement Agreement; and

(e) the Fee Agreement relating to the Sumitomo LOC between the Airports Authority and Sumitomo (the “Sumitomo Fee Agreement”); and

(f) the Remarketing Agreement relating to the Series 2010C Bonds between the Airports Authority and Barclays Capital Inc. (the “Barclays Remarketing Agreement”); and

(g) the Reoffering Circular relating to the Series 2010C Bonds (the “Series 2010C Reoffering Circular”); and

(h) Amendment No. 1 to the Fortieth Supplemental Indenture of Trust (the “Amendment to the Fortieth Supplemental”), between the Airports Authority and the Trustee, relating to the Series 2011A Bonds; and

(i) the Reimbursement Agreement relating to the RBC LOC between the Airports Authority and RBC (the “RBC Reimbursement Agreement”), including the irrevocable, direct-pay letter of credit attached as Appendix I to the RBC Reimbursement Agreement; and

(j) the Fee Agreement relating to the RBC LOC between the Airports Authority and RBC (the “RBC Fee Agreement”); and

(k) the Remarketing Agreement relating to the Series 2011A Bonds between the Airports Authority and RBC Capital Markets LLC (the “RBC Remarketing Agreement”); and

(l) the Reoffering Circular relating to the Series 2011A Bonds (the “Series 2011A Reoffering Circular”); and now, therefore, be it

RESOLVED, That the Amendment to the Sixteenth Supplemental, the Wells Fargo Continuing Covenants Agreement, the Amendment to the Thirty-seventh Supplemental, the Sumitomo Reimbursement Agreement, the Sumitomo Fee Agreement, the Barclays Remarketing Agreement, the Series 2010C Reoffering Circular, the Amendment to the Fortieth Supplemental, the RBC Reimbursement Agreement, the RBC Fee Agreement, the RBC Remarketing

Agreement and the Series 2011A Reoffering Circular shall be and hereby are approved in substantially the form submitted to the Board of Directors at this meeting, with such completions, omissions, insertions and changes necessary to reflect the transactions to be accomplished by such documents or as otherwise may be approved by the persons executing them, their execution to constitute conclusive evidence of the Board of Directors’ approval of such completions, omissions, insertions and changes;

2. That the Series 2003D Bonds shall be tendered for mandatory purchase by Banc of America and that Wells Fargo shall become the direct purchaser of the Series 2003D Bonds pursuant to, and for the term provided in, the Wells Fargo Continuing Covenants Agreement, and such Series 2003D Bonds shall bear interest in the LIBOR Index Rate Mode in the manner provided in the Sixteenth Supplemental as amended by the Amendment to the Sixteenth Supplemental;

3. That the Series 2010C Bonds shall be tendered for mandatory purchase and that Sumitomo shall be the provider of the Sumitomo LOC pursuant to, and for the term provided in, the Sumitomo Reimbursement Agreement, and such Series 2010C Bonds shall bear interest in the Weekly Mode in the manner provided in the Thirty-seventh Supplemental as amended by the Amendment to the Thirty-seventh Supplemental;

4. That the Series 2011A Bonds shall be tendered for mandatory purchase and that RBC shall be the provider of the RBC LOC pursuant to, and for the term provided in, the RBC Reimbursement Agreement, and such Series 2011A Bonds shall bear interest in the Weekly Mode in the manner provided in the Fortieth Supplemental as amended by the Amendment to the Fortieth Supplemental;

5. That the Chairman and the Vice Chairman of the Board of Directors are each authorized to execute the Amendment to the Sixteenth Supplemental, the Wells Fargo Continuing Covenants Agreement, the Amendment to the Thirty-seventh Supplemental, the Sumitomo Reimbursement Agreement, the Sumitomo Fee Agreement, the Barclays Remarketing Agreement, the Series 2010C Reoffering Circular, the Amendment to the Fortieth Supplemental, the RBC Reimbursement Agreement, the RBC Fee Agreement, the RBC Remarketing Agreement and the Series 2011A Reoffering Circular, and any other document, and to take any further action that the Chairman or Vice Chairman determines to be necessary or desirable to complete any of the transactions addressed and authorized by this Resolution;

6. That the Secretary, Interim Secretary or Assistant Secretary is authorized and directed to affix the Seal of the Airports Authority on any

document executed pursuant to paragraph 5 of this Resolution, and to attest the same;

7. That the President and Chief Executive Officer and the Vice President for Finance and Chief Financial Officer are each authorized and directed to execute, deliver and file, as applicable, a tax certificate and all other required notices, certificates and instruments with respect to the actions addressed and authorized by this Resolution, including any necessary Internal Revenue Service Form 8038 or 8038-G, on behalf of the Airports Authority and to take any further action as the officers may consider necessary or desirable in connection with such actions;

8. That all other acts of the Chairman and the Vice Chairman of the Board of Directors, the President and Chief Executive Officer and the Vice President for Finance and Chief Financial Officer, whether before or after the adoption of this Resolution, that are in conformity with the purposes and intent of this Resolution are hereby approved, ratified and confirmed; and

9. That any authorization provided in this Resolution to execute a document shall include authorization to deliver the document to the other parties thereto.

For consideration by the Finance Committee and Board of Directors on September 16, 2015 NOTE: Recorded vote is required