CHICAGO — Fitch Ratings on Wednesday lowered its rating on O’Hare International Airport’s upcoming $1.1 billion issue of passenger facility charge bonds by two notches due to the airport’s increased leverage as Chicago seeks to fund remaining projects under an $8 billion expansion without airline support.
Fitch also downgraded the airport’s third-lien general airport revenue bond credit by one notch. The action lowers the rating assigned to $816 million of PFC bonds to A-minus from A-plus and $5.1 billion of third-lien GARBs to A-minus from A. Fitch affirmed the AA-plus assigned to the $73 million of first-lien GARBs and AA on $369 million of second-lien GARBs. The outlook on all the credits is stable.
The new bonds mark the first new-money borrowing to fund the final phase of the $8 billion O’Hare Modernization Program. The city has wrapped up financing for the program’s $3.3 billion first phase.
The city will take retail orders on Feb. 1 and hold an institutional pricing the next day. Citi is senior manager and Siebert Brandford Shank & Co. is co-senior.
The downgrade reflects a sizable increase in airport borrowings using both the GARB and PFC credits to fund the completion phase of the OMP and ongoing capital programs that will costs an additional $4 billion. “As a result, Fitch views there to be elevated risk with regard to the airport’s leverage, financial flexibility, and cost competitiveness,” analysts wrote.
The airport’s debt load is expected to increase to $11.4 billion in 2015, up from a current level of $6 billion, and O’Hare’s airlines have yet to agree to fund the completion phase. Without airline approval, the city intends to sell as much as $4.2 billion of third lien GARBs with a debt-service deferral structure that puts off payments until after the 2018 expiration of the current airline use agreement.
“Going forward, the planned borrowings to fund the capital programs will result in O’Hare airport possessing an overall debt burden that will be among the highest for any U.S. airport,” Fitch wrote.
While the capital projects will help address O’Hare’s capacity constraints and operational delays, Chicago’s decision to move forward with the remaining OMP projects without airline approval “raises concerns on airline support and cost recovery terms for the planned borrowing,” Fitch said. Debt-service coverage on the PFC credit will fall to 1.4 times from around 2 times due to the new issue.
The airport’s strengths include the strong local market it serves, the strategic location of Chicago to serve as a hub, and the demonstrated importance of the facility to both United Airlines — which recently acquired Continental Airlines — and American Airlines. Both carriers operate hubs at O’Hare.
The transaction includes four series. The $468 million Series A passenger facility charge revenue bonds and $152 million Series C bonds will provide initial financing for the completion phase of the O’Hare Modernization Program. The $81 million of Series B bonds will refund outstanding debt.
A fourth series of bonds for $413 million, backed first by $610 million in approved federal grants and secondly by a subordinate PFC pledge, will also raise new money for both the completion phase and the final projects in the $3.3 billion first phase of the OMP.
Moody’s Investors Service earlier this week revised its outlook to negative on the airport’s third-lien bonds.
