The Handbook of Municipal Bonds

CASE STUDY 14

Aruba Airport Authority Airport Revenue Bonds

William E. Oliver Senior Vice President Director, Municipal Research AllianceBernstein

 

 

 

The Aruba Airport Authority (the Authority) was one of the earliest examples of a foreign infrastructure project being financed in the U.S. taxable bond market. The bonds were structured along the lines of a traditional general airport revenue bond, relying heavily on legal provisions to enforce fixed price construction contracts and bondholder covenants. However, the Authority has faced significant challenges in implementing its airport expansion program from the start and has been constantly struggling with a wide range of issues, some unique to the Authority and other more symptomatic of airport operations globally. Difficulties began with the design and construction of the airport expansion program, and continued with the implementation of key bondholder covenants, political interference from the Government of Aruba, post-9/11 airline bankruptcy and rate covenant violations. Through it all, the Authority board and management responded well to the challenges, often helped by the active role played by investors and the bondholder’s trustee. This case study will examine many of the things that can go wrong with airport revenue bonds and how management and bondholders respond to these challenges.

Aruba is a tiny island nation covering 73 square miles in the southern Caribbean, located 19 miles north of Venezuela. Historically, Aruba ...