Moody’s Drops O’Hare PFC Bonds to A2 as Chicago Readies $1.3B Air Deal

CHICAGO — Moody’s Investors Service yesterday downgraded O’Hare International Airport’s passenger facility charge-backed bonds to A2 from A1 ahead of Chicago’s sale in mid-April of roughly $1.3 billion of new-money and refunding airport-related bonds.

Moody’s affirmed the A1 assigned to the O’Hare third-lien general airport revenue bond program. Fitch Ratings yesterday affirmed the third lien’s A rating and A-plus on the PFC bonds. The city will sell about $1.1 billion of new-money and refunding GARBs in the transaction and $200 million of new-money and refunding PFC bonds.

The new-money piece of the GARBs will finance various projects under the $8 billion O’Hare Modernization Program and refund outstanding second- and third-lien debt and retire existing commercial paper. A portion of the new money will be sold as taxable Build America Bonds.

Proceeds of the PFC bonds will also go to cover OMP expenses, refund parity debt, and fund reserves. Bank of America Merrill Lynch is senior manager on the O’Hare transaction that is expected to price the week of April 12.

The credits benefit from the airport’s diverse and strong originations and destinations base, its unique status as a hub for both American Airlines and United Airlines, and the on-time and on-budget status of the $3.3 billion first phase of the runway expansion program.

The credits’ challenges include increased airline costs, weaker-than-expected passenger levels, and ongoing legal challenges. The weak passenger rates drove the PFC-backed debt downgrade as debt-service coverage had historically remained near or above two times and previous forecasts anticipated it remaining above that level through 2015. Coverage is now projected to fall to 1.52 times in 2011 and remain below 1.75 times through 2015.

“Moody’s believes this is a material change in the coverage for bondholders of the PFC bonds. Recent enplanement trends and the operational disruptions caused by the ongoing OMP are challenges to the airport’s ability to improve this coverage in the near term,” analysts wrote.

Congress is considering increasing the current federal cap of $4.50 for PFCs to as high as $7. An increase in O’Hare’s PFC to above $5.50 would return coverage to more than two times.

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