THE Commonwealth Ports Authority has notified a Bank of Guam representative that CPA will redeem a $6 million revenue bond.
On June 28, 2024, CPA Executive Director Leo Tudela sent a notice of intent to U.S. Bank Vice President Ashraf Almurdaah, the representative of BOG designated as the trustee under a 1998 airport bond agreement.
Tudela sent the notification 10 days after the CPA board unanimously voted to authorize an expenditure of Tinian airport divert funds in the amount of $8 million from an investment account to fund the redemption of the 1998 revenue bond.
“As soon as reasonably possible, CPA shall deposit an amount into the optional redemption fund sufficient to pay the entire redemption price of the whole of the airport’s 1998 senior bonds, including monies sufficient to pay the premium, if any,” Tudela told Almurdaah.
According to the report of CPA board member Dolores Kiyoshi, who chairs the board’s financial affairs committee, the redemption of the revenue bond will take effect on Sept. 15, 2024.
During a board meeting on Friday, CPA Chair Jose C. Ayuyu asked Kiyoshi to get together with Tudela and CPA’s finance team in executing the board’s decision to redeem the revenue bond, saying, “we need to meet on that one and see how it’s going to be done.”
Ayuyu also suggested to the board, “we make sure that we are very careful on how to liquidate the bond — I think we need some guidance from legal counsel to make sure we do the right thing.”
The tax-exempt airport revenue bond was issued on March 26, 1998 in the amount of $20 million, at a 6.25% interest rate payable on March 15 and Sept. 15 of each year, commencing in September 1998 and ending in the year 2028.
According to an audit report of Ernst & Young, the 1998 bond was partially used to refund an outstanding $8.25 million in 1987 tax-exempt bonds. The bond refunding consolidated the existing bonds with a new bond to finance various airport projects and to reduce the total future debt service payments through lower interest rates.
Under the bond indenture agreement with the Bank of Guam, CPA is required to maintain a debt service ratio of 1.25 or risk being placed under receivership.
In September 2023, CPA’s airport consultant, Ricondo & Associates, told the previous board that the debt service ratio requirement would not be met unless additional revenue was generated or expenditures were reduced. The consultancy firm suggested that additional revenue could be generated by increasing the parking fee, suspending the air carrier incentive program and implementing austerity measures.
In October 2023, the CPA board increased the parking fee to $5 from $2 per hour and suspended the discount program, resulting in the increase of the airport terminal rental rate to $34.92 from $19.49, and the landing fee to $15.25 from $8.01 at the Francisco C. Ada/Saipan International Airport.
The previous CPA board said these measures would prevent a receivership.
On March 22, 2024, the new board voted to give airlines a 50% discount on airport rates. Last month, the board adopted an emergency regulation to exempt airlines from paying terminal rental rates, and re-implement the rates that were in place prior to Oct. 1, 2023.
Last week, Tudela asked Gov. Arnold I. Palacios for written assurances that the remaining balance of the airline rate invoices for the period of October 2023 to May 2024 totaling $965,468.80 “would be paid for by the Commonwealth government, not CPA.” The amount, Tudela said, reflects the difference between the increased 2024 airline rates and the rates prior to Oct. 1, 2023.
