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Fitch Raises O'Hare PFC Bonds to A From A-Minus

CHICAGO — Fitch Ratings affirmed O’Hare International Airport’s third-lien general airport revenue bond rating and raised its passenger facility charge-backed credit as Chicago prepares to enter the market next week with $1.1 billion of airport bonds.

Citi is the book-running senior manager and Siebert Brandford Shank & Co. is co-senior. The deal will include $1 billion of GARBs to finance projects under an ongoing $8 billion runway expansion program and at least another $51 million of refunding revenue bonds backed by PFCs.

Fitch affirmed the A-minus third-lien GARB rating and upgraded the PFC rating to A from A-minus following the city’s decision last month to shift the structure on most of the upcoming transaction to GARBs from PFC bonds. The move eases the growing strain on ­coverage ratios for O’Hare’s PFC credit.

The change followed the city’s resolution of an airline lawsuit challenging its ability to finance and start construction on about $3.36 billion worth of projects in the completion phase of the O’Hare Modernization Program.

American Airlines and United Airlines, both of which operate hubs at O’Hare, filed the lawsuit as the city planned earlier this year to go to market with PFC bonds, a structure the city believed did not require airline approval under its airline use agreement. The current agreement requires airlines to sign off on projects being financed with GARB financing.

In a deal brokered by federal authorities, Chicago can proceed with $1.17 billion of remaining projects. The city agreed to put off other projects for now and the airlines dropped their ­lawsuit. The federal government agreed to ­provide an additional $155 million in support to help resolve the dispute.

Fitch’s action in part reverses its earlier move in which it downgraded the PFC rating by two notches. The rating agency also at that time downgraded O’Hare’s third-lien GARBs. The near doubling of PFC-backed O’Hare debt would have driven down debt service coverage to 1.4 times. The revised borrowing scheme will keep coverage ratios at 1.7 times. “Higher coverage is an important credit factor, given the narrow nature of the revenue stream and the dependence on connecting traffic to generate PFC cash flow,” Fitch analysts said.

The variety of revenues that go to repay GARBs is more diverse and the city agreement with the airlines on some projects is a positive, but the growing debt load remains a concern.

“Fitch still believes there is elevated risk as to the airport’s leverage, financial flexibility, and cost competitiveness even with the changing characteristics of the financing plan,” analysts wrote.

Total airport debt could grow to as much as $10 billion in the next decade if the city completes all projects in the OMP. The GARBs benefit from the airport’s position as one of the nation’s busiest, its central national location, a strong local economy, and its dual hub status.

O’Hare has $5.58 billion of third-lien GARBs outstanding, plus another $73 million of first-lien bonds that are rated AA-plus by Fitch, and $369 million of second-lien bonds that are rated AA.

The city has $816 million of PFC bonds outstanding.

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