Southwest Airlines 2009 Annual Report Download - page 45

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prices. While the Company’s credit rating remains “investment grade,” as defined, the lower rating will likely
result in a slight increase in its borrowing costs on a prospective basis. Moody’s also downgraded the Company’s
rating from “Baa1” to “Baa3” and also lowered the ratings of the Company’s PTCs and EETCs. The downgrade
of the Company’s senior unsecured debt rating was based on Moody’s expectation of continuing weak
fundamentals of the domestic airline sector. The downgrade of the Company’s ratings on its PTCs and EETCs
reflects the reduction in the Company’s underlying credit quality, and with respect to the PTCs the elevated loan
to value ratios resulting from the older vintage 737-300 aircraft that are pledged as collateral for these
transactions.
During 2008, the City of Dallas approved the Love Field Modernization Program (LFMP), a project to
reconstruct Dallas Love Field (Airport) with modern, convenient air travel facilities. Pursuant to a Program
Development Agreement (PDA) with the City of Dallas, the Company is managing this project, and major
construction is expected to commence during the first half of 2010, with completion scheduled for the second
half of 2014. Although subject to change, at the current time the project is expected to include the renovation of
the Airport airline terminals and complete replacement of gate facilities with a new 20-gate facility, including
infrastructure, systems and equipment, aircraft parking apron, fueling system, roadways and terminal curbside,
baggage handling systems, passenger loading bridges and support systems, and other supporting infrastructure.
Although several aspects of the project have not yet been agreed upon or finalized, the PDA contemplates
that, at the Company’s request, the Love Field Airport Modernization Corporation (or LFAMC, a “local
government corporation” under Texas law formed by the City of Dallas) would issue tax-exempt facility revenue
bonds (LFMP Bonds), the proceeds of which would be used: (1) to finance a significant portion of the ongoing
costs of the LFMP; and (2) to reimburse the Company for up to $75 million in early LFMP expenditures made
from April 25, 2008, through the date of issuance of the LFMP Bonds (such expenditures and reimbursement
were authorized pursuant to a June 25, 2008 Inducement Resolution approved by the Dallas City Council). The
PDA provides for flexibility regarding the funding of the LFMP, and the parties to the PDA are not locked in to
the aforementioned preliminary funding plan. Repayment of the LFMP bonds would be through the “Facilities
Payments” described below. Reimbursement of the Company for its payment of Facilities Payments would be
made through recurring ground rents, fees, and other revenues collected at the Airport. It is also anticipated that
the Company would guarantee principal, premium (if any), and interest on the bonds.
Prior to any issuance of the LFMP Bonds by the LFAMC, the PDA further contemplates that the Company
would enter into two separate funding agreements: (1) a “Facilities Agreement” pursuant to which the Company
would be obligated to make debt service payments on the principal and interest amounts associated with the
LFMP Bonds (Facilities Payments) that are issued, less other sources of funds the City of Dallas may apply to the
repayment of the LFMP Bonds (including but not limited to Passenger Facility Charges collected from
passengers originating from the Airport); and (2) a “Revenue Credit Agreement” pursuant to which the City of
Dallas would reimburse the Company for the Facilities Payments made by the Company.
A majority of the monies transferred from the City of Dallas to the Company under the Revenue Credit
Agreement are expected to originate from a reimbursement account created in the “Use and Lease Agreement”
that has been executed between the City of Dallas and the Company (a 20-year agreement providing for, among
other things, the Company’s lease of space at the airport from the City of Dallas). The remainder of such monies
is expected to originate from (1) use and lease agreements with other airlines, (2) various concession agreements,
and (3) other airport miscellaneous revenues.
The Company’s liquidity could be impacted by the LFMP to the extent there is not a successful bond
issuance, or there is a timing difference between the Company’s payment of the Facilities Payments pursuant to
the Facilities Agreement and the transfer of monies back to the Company pursuant to the Revenue Credit
Agreement; however, the Company does not currently anticipate the occurrence of these items. The LFMP is not
expected to have a significant impact on the Company’s capital resources or financial position.
In 2007, the Company’s Board of Directors authorized two separate programs for the repurchase of up to a
total of $800 million of the Company’s Common Stock — $300 million authorized in March 2007, and $500
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