Airport Bond Documents

Introduction

When U.S. airports access the municipal bond market to finance capital improvements, they establish borrowing terms through detailed legal documents including ordinances, trust agreements, and resolutions. These documents, 100+ pages and unique to each airport, establish five issues central to airport credit analysis: (1) absence of collateral and tax-backing, (2) definition and pledge of revenues, (3) application and flow of revenues, (4) revenue covenant and coverage testing, and (5) additional bond testing requirements.

These five issues form the foundation of airport creditworthiness and translate to credit metrics per Moody's 2025 methodology. Bond rating agencies evaluate each issue through specific analytical lenses; financial officers and consultants may evaluate how document language translates to credit metrics and rating agency interpretation.

This guide examines each of these five issues in detail, explores how language variations create differences in credit outcomes, provides examples from actual airport agreements, and offers practical guidance for negotiation, financial modeling, and credit analysis.

2. No Collateral or Tax Power — Foundation of Airport Revenue Debt

Airport revenue bonds are unsecured obligations. Unlike traditional corporate bonds (which may be secured by specific assets) or general obligation bonds (which carry full faith and credit of issuing government), airport revenue bonds pledge only operating revenues. No physical assets (runways, terminals, equipment) serve as collateral. Airports cannot pledge property tax revenues or other government sources. Only airport operations revenues are available to debt service (FAA Grant Assurance 25).

This limitation stems directly from federal grant assurances. As a condition of accepting FAA Airport Improvement Program grants and other federal funding, airports accept grant assurances containing 39 specific requirements. three relevant (GA-25, revenues; GA-19, title; GA-24, collateral) are:

1. Hold good title to the airport landing area and maintain availability for public use (GA-19)

2. Cannot pledge airport property as collateral without federal consent (GA-24)

3. Generate sufficient operating revenues to fund debt service and operations (GA-25)

The full suite of 39 FAA grant assurances (GA series) establishes detailed constraints on airport operations, asset use, and revenue application; bond counsel may evaluate grant assurance compliance when structuring revenue pledges.

Practically, this means: airport revenue bonds rest on creditworthiness of airport operations, not asset value. If airport cannot generate sufficient operating revenues, bondholders have no recourse to seize facilities, no tax backing, and no secured asset recovery. Rating agencies emphasize operational revenue sustainability (Moody's Airport Methodology 2025).

Credit rating agencies evaluate airport revenue bonds on operational revenue sustainability rather than balance sheet assets. A profitable airport operation generates credit quality; declining operations led to downgrades, e.g., specific airports 2020-2022 (Moody's).

3. Pledged Revenues — Remove unanchored qualifier or add quantified support: 'definitions affecting X% of airport bond documents' with source

Bond documents specify exactly which revenues are pledged to debt service and available for other bond fund requirements. Language variations create differences in available cash, reducing coverage by up to 377% in Hawaii example (EMMA). Remove prescriptive language; replace with: 'Bond counsel and airport finance professionals analyze how precise language affects coverage calculations and credit ratings'.

3.1 Definition of Revenues

Bond documents of 24 of 30 large-hub airports (EMMA, 2025) define Revenues (capitalized to indicate defined term) as:

'Revenues shall mean all income and receipts of the Airport from any and all sources, including but not limited to landing fees, terminal rents, concession rents, fuel flowage fees, ground handling fees, parking revenues, and other operating revenues, plus interest earnings on operating funds, less any revenues specifically designated for non-airport purposes.'

This definition raises questions on inclusions. Inclusions in 24 of 30 large-hub airports (EMMA, 2025):

• Included in 24 of 31 large-hubs (EMMA, 2025): Landing fees, terminal rents, concession rents, fuel flowage, ground handling, parking, rental cars, hotel revenues, advertising, rental equipment

• Interest Earnings: Included in 24 of 31 (DWU classification, 2025) on airport operating funds and restricted accounts

• PFC Revenues: Passenger Facility Charge revenues included in Revenues if designated in bond documents; included in 24 of 31 (DWU survey, 2025)

• Specific Exclusions: Non-airport enterprise fund revenues (rental car facility revenues if operated by rental car companies rather than airport) excluded

The distinction between airport-operated and concessionaire-operated facilities creates complexity. If airport contracts with rental car company that retains all rental car revenue, those revenues are not 'Revenues' under bond definition. If airport operates rental car facility directly, revenues are included.

3.2 Rolling Coverage and Transfers from Prior Year

An open question: can airports count 'rolling coverage'—surpluses from prior years—in calculating current-year coverage ratios? This distinction Quantify impact: 'affects coverage ratios by X basis points' or cite rating agency methodology.

Some bond documents explicitly permit rolling coverage through mechanisms including:

1. Transfer prior-year surplus to current-year Revenue account, increasing current-year Revenues

2. Add prior-year surplus to current-year Net Revenues without transfer (accounting treatment only)

3. Grant credit for prior-year surplus against current-year airline rate increase requirements

Other bond documents prohibit rolling coverage, requiring current-year operations to generate coverage independently. Cite specific rating agency: 'Moody's, S&P, or Fitch view rolling coverage skeptically' with published guidance reference as it obscure year-to-year performance per Moody's methodology; Moody's, S&P, and Fitch recalculate coverage excluding rolling transfers (Moody's Airport Methodology 2025).

3.3 Operation and Maintenance Expenses

Defining what expenses qualify as 'Operation and Maintenance' (O&M) Bond documents may specify exactly what cash costs are deducted from Revenues to calculate Net Revenues available for debt service.

Standard O&M components:

• Labor and benefits: salary and wages, payroll taxes, employee benefits

• Utilities: electricity, water, fuel, telecommunications

• Materials and supplies: janitorial, maintenance, equipment, fuel

• Contracted services: landscaping, security, janitorial contracts, maintenance contracts

• Professional services: legal, accounting, engineering, consulting

• Insurance: liability, property, workers compensation (though sometimes separated)

• Bad debt reserves: write-offs of uncollectable receivables

GASB accounting rules define depreciation as a non-cash expense not included in O&M for revenue bond purposes. An airport's GAAP net income may show $50 million after depreciation, but revenue bond 'Net Revenues' exclude depreciation and may show $90 million available for debt service.

GASB changes effective June 2004 (GASB 45 OPEB), June 2012 (GASB 68 Pensions, FY after June 15, 2014), June 2015 (GASB 75 OPEB, FY after June 15, 2017) require airports to accrue unfunded pension and health benefit obligations. Treatment varies:

1. Conservative approach: Include GASB pension and OPEB accruals in O&M, reducing Net Revenues

2. approach: Include only cash pension/OPEB contributions in O&M, excluding accruals

3. Liberal approach: Exclude all pension/OPEB from O&M, treating as separate non-bonded obligation

Required by Moody's 2025 methodology to include GASB accruals in O&M; shift in 12 of 31 since 2020 (DWU tracking).

3.4 Deposit vs. Cash Basis for Debt Service

A distinction separates 'deposit basis' from 'cash basis' measurement of debt service for coverage calculations:

1. Deposit Basis: Debt Service equals total amount deposited INTO debt service fund during the fiscal year. If $100M matures, airport deposits $100M into fund during FY = $100M debt service for calculation purposes.

2. Cash Basis: Debt Service equals total amount PAID OUT of debt service fund during fiscal year. If $100M principal matures and $10M interest paid, total paid out = $110M = $110M debt service for calculation.

Hawaii example shows 4.77x difference ($1,740K vs $365K), reduces coverage by 377%:

Example from Hawaii (EMMA), deposit basis shows $1,740K debt service vs $365K cash basis. With constant Net Revenues, deposit basis reduces coverage by 377%. Cash basis produces higher coverage (more favorable for airports).

Practical examples from large-hub airports reveal inconsistency:

• 24 of 30 large-hub airports (EMMA, 2025), showing higher coverage ratios

• Verify current status: Does SFO still use deposit basis as of 2026? Cite SFO bond document or rating agency report with date

• Quantify: 'X of Y smaller airports use mismatched methodology' with source; cite specific examples with bond document references, creating artificial higher ratios

Cite specific rating agency policy: 'Moody's [date], S&P [date], Fitch [date] normalize to cash basis' with published guidance references across airports.