REPORT TO THE FINANCE COMMITTEE

PRE-SOLICITATION TERMS FOR

UNDERWRITING SERVICES FROM THE METROPOLITAN WASHINGTON AIRPORTS

AUTHORITY’S UNDERWRITING POOL

September 2019

Purpose To obtain the Finance Committee’s concurrence with the issuance of a solicitation to the firms in the Metropolitan Washington Airports Authority’s (Airports Authority) Underwriting Pool to establish underwriting syndicates for potential upcoming bond transactions.

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Background

• The Board has reserved to itself the selection of underwriters in accordance with Resolution No. 01-20.

• Pursuant to Resolution No. 19-4, in January 2019, the Board selected the following 15 investment banking firms to form an Underwriting Pool for a term of at least three years.

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Investment Banking Firms in the Underwriting Pool Bank of America Merrill Lynch Morgan Stanley & Co.

Barclays Capital Inc. Raymond James Citigroup Global Markets Inc. RBC Capital Markets

Estrada Hinojosa & Company, Inc. Samuel A. Ramirez & Co. Goldman Sachs & Co. Siebert Cisneros Shank & Co.

Jefferies UBS Financial Services Inc. J.P. Morgan Securities Wells Fargo Securities Loop Capital Markets

Background continued

• The Airports Authority has approximately $417 million of Series 2010A, 2010B and 2010F-1 Airport System Revenue Bonds callable on October 1, 2020 and potential new money needs to fund the ongoing Aviation Capital Construction Program.

• The Airports Authority has $518 million of outstanding swaps which provide an interest rate hedge for Airport System Revenue variable rate bonds.

• The Dulles Corridor Enterprise has a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan with $1.18 billion outstanding and $94.5 million in undrawn authorization and $421.8 million of Dulles Toll Road Revenue (DTR) Bonds with the earliest call date of April 1, 2022.

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• Staff and Financial Advisors have been monitoring financial market conditions which have been very favorable for issuers, with long-term tax-exempt and taxable interest rates decreasing significantly throughout 2019, and with credit spreads, Alternative Minimum Tax and forward delivery penalties also at very tight levels.

• Current market conditions may provide the Airports Authority with opportunities to achieve the following:

• Forward refunding of the Series 2010 Airport System Revenue Bonds to lock in favorable interest rates ahead of the usual June pricing or a current refunding in June or later;

• Refunding a portion of Airport System Revenue variable rate bonds and termination of associated swaps at minimal or no cost to de-risk a portion of the debt portfolio; and

• Refinancing the DTR TIFIA Loan (and potentially other bonds) and restructuring annual debt service to potentially minimize the magnitude of future toll rate increases.

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Discussion

Discussion continued

• Further, there may be opportunities to pre-fund Aviation Enterprise new money needs and to advance refund certain bonds callable after 2020 on a taxable basis.

• The opportunities also could potentially allow the Airports Authority to lower financing risks including:

• Potential interest rate and credit spread increases that may occur over the next year;

• Renewal risks associated with Letter of Credit (LoC) and index floater providers; and

• Ongoing counterparty and credit risks associated with LoC providers and swap counterparties.

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Discussion continued • In order to optimize the Airports Authority’s ability and flexibility to take

advantage of these potential opportunities provided by favorable market conditions prior to the end of 2019 or as early as possible in 2020, staff and Financial Advisors recommend issuing a Request for Proposals (RFP) to establish syndicates, including roles, to the investment banking firms in the Airports Authority’s Underwriting Pool.

• Up to three syndicates could be recommended for approval:

• One or two Aviation Enterprise syndicates for refunding, swap unwind, and new money opportunities; and

• DTR syndicate for TIFIA (and potential other bonds) Refunding and Restructuring.

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Discussion continued • The Airports Authority would reserve the right to determine the ultimate number

of syndicates and the size of each.

• Proposals will be evaluated using the following technical evaluation criteria: 1. Utility and soundness of financing recommendations that are in the best

interest of the Airports Authority: a. as applicable to the Aviation Enterprise; and b. as applicable to the Dulles Corridor Enterprise.

2. Recent and relevant experience applicable to each potential transaction.

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Date Tasks

September 18, 2019 Present Pre-solicitation Paper and Issue RFP to the Underwriting Pool

October 3, 2019 Proposals Due

October 16, 2019 Recommend Underwriting Syndicates and Roles to the Finance Committee and Request Board Approval

• Proposed Schedule

Discussion continued

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Recommendation

Staff requests that the Finance Committee concur with the issuance of a solicitation to the firms in the Airports Authority’s existing Underwriting Pool to establish syndicates for potential upcoming bond transactions.

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REPORT TO THE FINANCE COMMITTEE

PRE-SOLICTATION TERMS FOR UNDERWRITING SERVICES FROM THE METROPOLITAN WASHINGTON AIRPORTS AUTHORITY’S

UNDERWRITING POOL

SEPTEMBER 2019

PURPOSE To obtain the Finance Committee’s concurrence with the issuance of a solicitation to the firms in the Metropolitan Washington Airports Authority’s (Airports Authority) existing Underwriting Pool to establish syndicates for potential upcoming bond transactions. BACKGROUND The Board of Directors (Board) has reserved to itself the authority to select underwriters under the Revised General Delegations and Reservations of Authority, Board Resolution No. 01-20, adopted November 8, 2001. In Resolution No. 19-4, dated January 16, 2019, the Board selected the following 15 investment banking firms to form an Underwriting Pool for a term of at least three years.

Investment Banking Firms in the Underwriting Pool Bank of America Merrill Lynch Morgan Stanley & Co.

Barclays Capital Inc. Raymond James

Citigroup Global Markets Inc. RBC Capital Markets

Estrada Hinojosa & Company, Inc. Samuel A. Ramirez & Co.

Goldman Sachs & Co. Siebert Cisneros Shank & Co.

Jefferies UBS Financial Services

J.P. Morgan Securities Wells Fargo Securities

Loop Capital Markets

The Airports Authority has approximately $417 million of Series 2010A, 2010B and 2010F-1 Airport System Revenue Bonds callable on October 1, 2020, and potential new money needs to fund the ongoing Aviation Capital Construction Program. Further, the Airports Authority has $518 million of outstanding swaps which provide an interest rate hedge for Airport System Revenue variable rate bonds. In addition, the Dulles Corridor Enterprise has a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan with $1.18 billion outstanding principal and $94.5 million in undrawn authorization and $421.8 million of Dulles Toll Road Revenue (DTR) Bonds with the earliest call date of

April 1, 2022. These components of the Airports Authority’s debt portfolio present potential upcoming opportunities based on current market conditions as discussed below. DISCUSSION Current Market Conditions Staff and Financial Advisors have been monitoring financial market conditions. Long-term taxable and tax-exempt interest rates have decreased significantly throughout 2019 – 116 basis points since January 2, 2019. On a historical level, the current 30-year MMD is well below the 3-year and 10-year averages.

30-Year MMD Since 2010

30-Year MMD Since January 2019

Further, credit spreads and Alternative Minimum Tax and forward penalties also are at very tight levels, reflecting very favorable market conditions for issuers. The following table shows the results of a hypothetical current refunding and a forward delivery refunding of the Series 2010 Aviation Bonds with call dates on October 1, 2020 under current market conditions.

Hypothetical Current Refunding

Forward Delivery Refunding

Series Call Date

Refunded Par ($mm)

PV Savings ($mm)

PV Savings

(%)

PV Savings ($mm)

PV Savings

(%) 2010A 10/01/20 $287.1 $64.4 21.7% $52.2 18.2% 2010B 10/01/20 $97.8 $12.6 12.8% $10.7 10.9%

2010F-1 10/01/20 $31.9 $7.1 22.3% $6.0 18.8%

Total $416.8 $82.1 19.7% $68.9 16.5%

Current market conditions may provide the Airports Authority with opportunities to achieve the following:

• Forward refunding of the Series 2010 Airport System Revenue Bonds to lock in favorable interest rates ahead of the usual June pricing or a current refunding in June or later;

• Refunding a portion of Airport System Revenue variable rate bonds and termination of associated swaps at minimal or no cost to de-risk a portion of the debt portfolio; and

• Refinancing the DTR TIFIA Loan (and potentially other bonds) and restructuring annual debt service to potentially minimize the magnitude of future toll rate increases.

Further, there may be opportunities to pre-fund Aviation Enterprise new money needs and to advance refund certain bonds callable after 2020 on a taxable basis. The opportunities could potentially allow the Airports Authority to lower financing risks including:

• Potential interest rate and credit spread increases that may occur over the next year;

• Renewal risks associated with Letter of Credit (LoC) and index floater providers; and

• Ongoing counterparty and credit risks associated with LoC providers and swap counterparties.

Proposed Syndicate Selection Approach and Evaluation Criteria In order to optimize the Airports Authority’s ability and flexibility to take advantage of these potential opportunities provided by favorable market conditions prior to the end of 2019 or as early as possible in 2020, staff and Financial Advisors recommend issuing a Request for Proposals (RFP) to establish syndicates, including roles, to the investment banking firms in the Airports Authority’s Underwriting Pool. Up to three syndicates could be recommended for approval by the Finance Committee and Board at the October 2019 meeting:

• One or two Aviation Enterprise syndicates for refunding, swap unwind, and new money and other opportunities; and

• DTR syndicate for TIFIA (and potential other bonds) refunding and restructuring. Proposals will be evaluated using the following technical evaluation criteria:

1. Utility and soundness of financing recommendations that are in the best interest of the Airports Authority

a. as applicable to the Aviation Enterprise; and b. as applicable to the Dulles Corridor Enterprise.

2. Recent and relevant experience applicable to each potential transaction.

Schedule The proposed schedule is as follows:

Date Tasks

September 18, 2019 Present Pre-Solicitation Paper and Issue RFP to the Underwriting Pool

October 3, 2019 Proposals Due

October 16, 2019 Recommend Underwriting Syndicates and Roles to the Finance Committee and Request Board Approval

RECOMMENDATION Staff requests that the Finance Committee concur with the issuance of a solicitation to the firms in the Airports Authority’s existing Underwriting Pool to establish syndicates for potential upcoming bond transactions.

Prepared by: Office of Finance

September 2019