Terminal 6 is the second of the four JFK revitalisation projects to reach a revised close in light of the pandemic, with the first being the formerly Carlyle-led, now Ferrovial-backed New Terminal One project, which closed on $9.5 billion in June. Terminal 6’s revised agreement includes a new cost estimate of $4.2 billion by the Port Authority – $300 million more than what the entity estimated in early 2020.
The multibillion dollar undertaking is being led by the JFK Millennium Partners consortium, comprised of Vantage Airports (a subsidiary of fund manager Corsair Infrastructure Partners), American Triple I, RXR Realty and JetBlue. While the exact equity breakdown is unknown, Infrastructure Investor understands that ATI holds a 30 percent stake, JetBlue holds a 5 percent stake, and RXR Realty and Vantage Airports holds undisclosed stakes, Vantage with the largest of the group.
The capitalisation estimates from the consortium are different than those provided by the Port Authority, as JMP incorporates reserves for operating cashflows and reserves for interest expenses in its calculations. For this project, those two elements come out to about $500 million. Overall, the deal includes $1.3 billion of equity and $3.4 billion in bank debt, creating a total capitalisation of $4.735 billion for the project, according to Hari Rajan, head of infrastructure at Corsair Infrastructure Partners.
A recalibrated takeoff
Restructuring of the financing agreement began in August 2021. According to M Elizabeth Dubeck, partner with O’Melveny & Myers, the law firm that consulted on the Terminal 6 deal revision, the pandemic had, “a material effect on operational airport revenues, which were to be the source of funds to support [this project]… something that helped JMP close on a revised deal was the Port Authority’s renegotiation to extend the lease of the airport itself with the city [from expiration in 2050 to expiration in 2060]. That extension gave investors a longer timeline to recoup their investments”.
In early 2020, Vantage Airports had promised a construction kickoff in mid-2022 and the opening of the first new gates by 2025. Now, the first gates are expected in 2026, with project completion projected for 2028. Construction is expected to start after British Airways leaves Terminal 7 at the end of the month, according to Dubeck.
Rajan claims that this is the extent of the impact on construction. “There hasn’t been a significant change in the project perimeter… In fact, the only material change was actually an enhancement: creating additional lounge space in response to airline demand,” he said.
ATI’s co-founder and chief executive, David Cibrian, agreed: “From a design-build and terminal footprint standpoint, we came out very close to what we were always contemplating and what we originally envisioned. The small changes were based around what the airlines were looking for – lounge space, passenger experience, the roadway and traffic management at the terminal, for instance. There will be the same amount of gates and commercial space.”
Revising and restructuring
What, then, were the major financial structure changes? According to Dubeck, “additional focus on the size of the equity investment, the proportion of debt to equity” – which has decreased, though by how much is unclear – “and the bank-centric financing were the major changes to the financial arrangements”. There were also changes made to the revenue sharing arrangements between JMP and the Port Authority, though Dubeck declined to comment on what those the exact stipulations were.
Dubeck also clarified that a majority of the revising for the financial close was timeline-driven, with this lease extension being a driving force, and that the proportional share of equity between all financial backers has remained the same. Apart from JetBlue, all investors have increased their capital allocations to the project under the revised agreement.
The need for additional capital, according to Dubeck, were mainly due to macroeconomic factors – inflationary and interest rate pressures, supply chain issues and overall rising costs for financing and construction. Most of the inflationary pressures were handled through fixed-price construction contracts.
Interest rate volatility, however, impacted the type of debt used by the consortium. “Originally contemplated with a mix of tax-exempt bonds, taxable bonds and taxable term loans, the structure evolved to include over $3 billion in taxable term loans and $435 million in privately placed tax-exempt bonds with RBC Capital Markets,” law firm Squire Patton Boggs explained in a statement. The bank debt was provided by 12 commercial banks, according White & Case, which advised the lenders without disclosing their identities.
“We do expect there to be a refinancing, post substantial completion of construction, though we don’t know when that will happen for sure,” said Rajan. “In terms of bank versus bond, the bond markets have been a very reliable source of capital for projects like this and we will carefully look at and consider that route when refinancing the project, alongside bank-centric financing, too.”
“We’ll be mindful of the economic environment and will refinance when it’s opportune; we just need to see less volatility and more stability in debt capital markets,” Cibrian added.
No new terminal woes
JFK’s other revitalisation project, the New Terminal One, is nearly twice the size of the Terminal 6 project but has experienced far more issues, with initial consortium leader Carlyle substantially reducing its stake and a revised financing agreement featuring, amongst other things, a phased approach to construction.
Terminal 6, by contrast, will have a continuous buildout. While the facilities will open in two phases, the second phase is not contingent on any metrics from the first phase, Dubeck explained. Unlike with NTO, if things go south during the first phase of construction, the overall number of gates to be built will not be impacted.
Rajan believes that JMP was able to conserve the scope of the project due to the operational capabilities of Corsair. “This is not the type of transaction that should be pursued by a standalone financial sponsor.” he said. “It is very complex, and there are a lot of operational elements and design-build elements to it. For us, we believe we have been successful due to our airport platform, Vantage. The capital and the operations expertise came from the same place in our case, and we think that this integrated model is a more resilient model than the bifurcated capital-operations model.”
This extends even to minority investors. According to Cibrian, ATI’s team includes individuals who worked for over a decade on the management of the entirety of London Heathrow Airport. “This pedigree and experience puts us in a unique position as an investor”, he said.
The remaining two JFK revitalisation projects – Terminal 4 and Terminal 8 – are led by financial backers with operational wings, Royal Schiphol Group and AECOM respectively.