The Fairhope Airport Authority approved an $8.9 million bond issue this week with RBC Bank that will retire the debt on a bond issue from 2007 with Allied Irish Bank used to finance the purchase of 257 acres at the H.L. “Sonny” Callahan Airport.

Bob Young of the Montgomery-based Frazer Lanier Co., the city’s investment banking company, recommended the transaction at a June 28 meeting of the City Council, which is expected to approve its part of the bond issue on Monday.

The council’s action will result in an appropriation to the airport authority each year of an amount estimated to make payments on the interest on the debt and, starting in 2013, on the principal of the bond that will mature in 2020, according to bond documents.

“It’s well worth our while to do what in effect is a refinancing,” said Chuck Zunk, the airport authority’s chairman, at Tuesday’s meeting. “We will save in interest costs alone over $100,000 a year under this financing.”

The change in banks holding the bonds was motivated by concerns about the financial stability of Allied Irish Bank, particularly its real estate portfolio, which affected the rate of interest that the airport authority had to pay on the bonds underwritten by Frazer Lanier, Young said at the June council meeting.

The interest rate on the new bond issue is 1.35 percent over the fluctuating one-month London Interbank Offered Rate (LIBOR), which Zunk said was currently at .3 percent for a total interest rate of 1.7 percent.

Unlike the 2007 bond issue, which sold the bonds and charged a fee for doing so, the new bond issue will not be underwritten but instead be held by RBC, Zunk said.

“This is in essence a loan from RBC,” Rod Kanter, the airport authority’s bond counsel of the Birmingham-based Bradley Arant law firm explained at the meeting, noting that state law prevents an airport authority from borrowing money as opposed to issuing bonds to finance debt. Kanter handled the 2007 bond issue, Zunk said.

The city will be represented on the bond issue by Preston Bolt of the Mobile-based Hand Arendall law firm, according to airport authority records.

The new transaction will eliminate all fees to Allied Irish Bank, underwriting fees to Frazer Lanier, and trustee fees to Regions Bank, Zunk said. It also involves a “springing mortgage,” which would come into effect should the airport authority fail to meet its payment obligations, a condition by which RBC could foreclose on the property.

Zunk stated in a e-mail Wednesday that he was the one who negotiated the deal. “There were five or six banks that I talked to, all of them with a major presence in the Fairhope community but still large enough to handle the size of the deal. I coordinated the list of banks with (the city treasurer) to be sure I didn't miss any that might be qualified,” Zunk wrote.

The 257 acres were purchased from the McGowin family in 2007, the same year the airport authority was formed as a public corporation independent of the city of Fairhope, Zunk said Wednesday.

The property was purchased with an eye toward expanding the size and services of the airport to include a terminal, additional taxiways and hangers, Zunk said.

Since the airport authority was formed, several grants have been obtained from state and federal agencies to enhance the services at the airport and to prepare for future development. The most recent of those was one for of $252,167 from the Federal Aviation Administration that will be used for the design construction of some 60 acres on the eastern side of the existing 6,600-foot-long runway, for additional access roads, taxiways and to update the existing airport layout drawing.

The council approved the receipt of that federal funding earlier this month.

Volkert and Associates Inc., which did the earlier layout drawing, is expected to perform the engineering design construction work on the project, Zunk said, adding that only a couple of companies in the area do that kind of work.

An additional grant of $6,636 was obtained from the Alabama Department of Transportation to help fund the project.

“Those engineering plans can be given to a contractor who can then immediately start work on the project,” Zunk said. “The size of the property includes planning for roads, asphalt, drainage and other complex engineering issues.”

The ultimate construction based on the design construction plans could cost upward of $4 million, which would also be funded primarily by the federal government, Zunk said.

“The whole point of doing this is the recognition of the importance of the airport as one key to the economic future of the area,” Zunk said. “There are people and companies now who would like to move here but we don’t have the place for them yet at the airport.”