The Branson Airport has new life as bondholders of nearly $114 million in revenue bonds have extended a forbearance and funding agreement struck in April 2011.
In filings submitted July 23 to the Municipal Securities Rulemaking Board, bond trustee UMB Bank extended the airport’s bond repayment plan through June 30 despite the airport’s failure to meet strict performance benchmarks tied to revenues and passengers. The move marks the second time in nine months the agreement has been modified to downgrade expectations on the airport’s performance.
After a first modification of the agreement was granted in December, enplanements during the first three months of 2012 stilled missed projections by more than 1,000 passengers each month, according to MSRB filings.
In February, enplanements were 65.8 percent of budget, which is below the bondholder’s 70 percent requirement for projections and could have triggered a foreclosure by the bondholders. According to its income statements, the airport reported first-quarter assets of $1.2 million against liabilities of $10.6 million. Branson Airport, known in the industry as BKG, has lost more than $30 million since 2010.
Michael Hynes, a Branson-based aviation management consultant who has followed the progress of Branson Airport since before it opened in 2009, suspects bondholders are banking on a January announcement by Southwest Airlines (NYSE: LUV) that it would bring operations to BKG.
“(Branson Airport) failed to meet the initial requirements under the amendment and the renewal date was June 30,” Hynes said, suggesting Branson officials likely met with the trustee before the renewal date to discuss Plan B. “The bondholders have no interest in running the airport, and as long as investors are willing to put money up to keep the thing running, the bondholders have said, ‘Let’s sit and watch.’”
The newly inked agreement requires the airport to meet benchmarks tied to enplanement and revenue projections through the first half of 2013, ranging from 3,338 boarding passengers in February to 22,083 in June 2013 and operating revenues as high as $741,035 next month and down to $239,859 in March.
The original agreement was struck after a default occurred in January 2011 tied to a debt service payment. BKG leaned on cash reserves for debt payments in 2011, and the airport will need to replenish its reserve account to the tune of $1 million before the agreement can be extended beyond June 30, 2013, according to a summary of the amended agreement.
MSRB lists no notice of the Branson Airport missing its most recent debt service payment that was due on or around July 1.
Though the private airport has struggled to get off the ground, Branson Airport Executive Director Jeff Bourk said the future is bright for BKG, citing a recent bump in passenger volumes. Through the first quarter, enplanements are up roughly 15 percent compared to the first three months of 2011. Second-quarter performance results are expected to be posted to the MSRB by the end of August.
Bourk declined to discuss the airport’s financials, citing the private company’s policy, but he said the amendment illustrates that bondholders and investors believe in the airport’s future.
“We have very supportive bondholders and equity investors. We now have a contract with Southwest Airlines, and enplanements continue to grow,” Bourk said. “With this, they have the ability to grow even faster.”
Southwest announced in January it would transition AirTran Airways service to Southwest routes at Branson Airport following its $1 billion purchase of the Orlando, Fla.-based discount carrier in May 2011. Last month, Southwest said it would be flying out of Branson by mid-2013.
The commitment by Southwest appears to have made an impression on bondholders and investors, as there is now more leeway in the airport’s performance projections. Previously, the airport had to meet at least 70 percent of its revenue and passenger projections, but now it only has to meet 25 percent of its revenue budget and 50 percent of its enplanement and seats-per-day estimates. Missing such performance targets would lead to a termination event causing bondholders to take over airport operations.
According to the budgeted projections, seats-per-day during the contract period range from a low of 172 in January to 1,006 in June. Hynes said the seats-per-day estimates represent a set number of available seats rather than the number of paying customers.
Calls and e-mails to UMB Senior Vice President Brian Krippner and bond trustee attorney William Kannel of San Diego, Calif.-based Mintz Levin Cohn Ferris Glovsky and Popeo PC were not returned by press time.
According to the MSRB filing, UMB was buoyed in its decision to amend the forbearance and funding agreement by a group of bondholders who comprise a majority interest in the bonds. The filing said the airport sought the amendment and extension asserting its agreement with Southwest Airlines would allow it to increase revenues and enplanements by improving the mix of nonstop destinations and, ultimately, the airport’s bottom line.
After reviewing projections for the extension period and BKG’s commitment to “obtain funds if necessary to support the continued operation of the airport over that time,” UMB officials met with an informal committee of bondholders that collectively hold roughly 83 percent of the principal amount of the outstanding bonds, according to the agreement.
Hynes maintains that the airport’s future will be turbulent until cash flow improves. The airport’s net loss for the first quarter was more than $4.6 million, which followed a more than $17.2 million loss for 2011. BKG also finished the first quarter with three days worth of cash on hand, with $138,312, according to MSRB filings. Its cash on hand, which refers to the amount it would take to operate the airport for a single day, is well below the most recent national average of 489 days, according to credit tracker Moody’s.
Private investors of the Branson Airport will have to demonstrate its commitment to BKG’s future in the form of cold, hard cash, according to Hynes.
He said investors should need to pony up as much as $60 million during the next seven years to keep the airport afloat.
One of the new requirements of the agreement is that investors need to come up with as much money as is necessary to pay its bills, and BKG must not let a trailing three-month average of its bills to exceed $1.3 million. In recent quarters, accounts payable have been around $2 million, and Hynes said he believes the bondholders want to make sure the airport has a good relationship with its vendors should the property and operations fall into their laps.
“The airport income and the pay-for-performance funds from the city of Branson, plus what the investors put in, has to equal the operating expense,” Hynes said. “That locks them into some firm numbers.”
The airport has had a pay-for-performance agreement in place with the city of Branson since 2006 that requires the city to pay BKG fees based on its number of enplaned passengers. City officials have previously raised objections regarding the support, but the airport did receive a payment June 29 from the city for more than $361,000, according to a summary of the amended forbearance agreement.
“It seems common sense, but those guys haven’t been paying the bills with accounts payable of $2 million. The bondholders are saying, ‘You’re playing games here and taking advantage of suppliers and putting it in jeopardy if (we) end up taking it over,’” Hynes said.
Dame Chiropractic LLC emerged as the new name of Harshman Chiropractic Clinic LLC with the purchase of the business; Leo Kim added a second venture, Keikeu LLC, to 14 Mill Market; and Mercy Springfield Communities opened its second primary care clinic in Ozark.
