Regional News

Chicago Eyes Three Deals Worth $3 Billion

CHICAGO — After it courts buyers at an investor conference set for late next month, Chicago plans to offer up more than $3 billion of new-money and refunding general obligation water revenue and airport debt.

The City Council’s Finance Committee approved three bond sales and increases to various commercial paper programs at a meeting Monday and the full council will vote as soon as Wednesday on the measures.

The ordinances authorize the sale of up to $900 million of new-money and refunding GOs, $750 million of new money and refunding water revenue bonds, and $1.75 billion of refunding third-lien O’Hare International Airport revenue bonds and passenger facility revenue bonds.

The airport refunding “would allow O’Hare to take advantage of low interest rates,” generating general airport revenue bond savings that will ease airline fees and PFC savings that will go back into funding airport projects, said chief financial officer Lois Scott. A total of $40 million in savings from the overall transaction is expected.

Barclays Capital is the senior manager for the GARBs, which total about $1 billion, and Citi is senior manager on the PFC piece, which is around $650 million. Chicago typically leaves additional borrowing room in its bond ordinances to provide flexibility in final sizing and structuring.

The firms were picked for the experience of members of their public finance teams in helping structure the airport’s second and third liens. “We expect this to be a complex transaction and wanted to make sure we had firms with experience with the O’Hare liens,” Scott said.

The airport’s second-largest carrier, American Airlines, filed for Chapter 11 bankruptcy late last year.

Frasca & Associates LLC and D&G Consulting Group are financial advisors. Katten Muchin Rosenman LLP is bond counsel. Burke Burns & Pinelli Ltd is co-bond counsel. Minority- and women-owned firms make up 35% of the deal.

The sizing of the water revenue bonds is still being decided but tentatively includes $200 million of new money, with room for more, and $300 million of refunding. “We will evaluate at pricing whether market conditions are so good that we want to do more and fund 2013 projects,” Scott said.

Siebert Brandford Shank & Co. is senior manager. Phoenix Capital Partners LLC is advisor. Perkins Coie LLP is bond counsel and Shanahan & Shanahan LLP is co-bond counsel. About 54% of the work will go to minority- and women-owned firms.

About $300 million of the GO deal represents new money. Most proceeds will go toward neighborhood and other capital projects planned in the 2012 budget, with $60 million earmarked for court judgments. The remainder represents a mix of refunding bonds for present-value savings and a restructuring that was included in Mayor Rahm Emanuel’s $6.3 billion budget that provides relief by pushing off debt service payments.

Mesirow Financial Inc. is the senior manager, AC Advisory and Public Finance Associates are advisors and Chapman and Cutler LLP is bond counsel. About 30% of the overall finance team are minority and women-owned firms.

The administration also sought increases in various commercial paper programs that provide bridge financing and ease liquidity pressures. “It will ensure that the city has liquidity for unforeseen needs,” Scott told the committee of the GO increase to $300 million from $250 million.

Chicago anticipates selling all bond transactions during the second quarter beginning in May after its second investor conference, scheduled for April 26. The conference is a follow-up to an October one hosted by Emanuel, Scott, other administration officials, and the leaders of the city’s sister agencies, including the Chicago Transit Authority and Chicago Public Schools.

“We have a significant amount of debt to issue this year,” Scott said of the timing of the second conference.

The city launched the conference last year as a means to improve its investor outreach and combat past interest-rate penalties due to financial headline risks and Illinois’ budget woes.

The first conference took place just a few months after Emanuel took office, so the follow-up will provide finance officials with the chance to update investors on efforts to deal with their agencies’ fiscal challenges. The city anticipates selling the water bonds first, followed by the GOs, and then the airport refunding.

Ahead of a GO sale last year, Fitch Ratings affirmed the AA-minus assigned to $6.7 billion of Chicago GOs, Moody’s Investors Service affirmed its Aa3 and Standard & Poor’s affirmed its A-plus. All three ratings had stable outlooks.

The 2012 budget included a steep, four-year increase in water and sewer fees to help accelerate planned projects. The added revenue paves the way for the upcoming water bond issuance. The city last sold water revenue bonds in 2010. They are secured by the net system revenues that come from consumer payments.

Ahead of the 2010 sale, Fitch rates the senior debt AA-plus and second-lien bonds AA. Standard & Poor’s rates the second-lien bonds AA-minus and assigns a AA to the senior-lien bonds. Moody’s rates the second-lien bonds Aa3 and the senior-lien bonds Aa2. Coverage was expected to fall to 1.1 times this year before the rate increase.

Chicago sold $1.1 billion of O’Hare debt last year to help fund an ongoing $8 billion runway expansion. Moody’s assigns an A1 and negative outlook to the third-lien GARBs, an A1 to the second lien, a Aa3 to the first lien, and an A2 to $816 million of PFC bonds. The latter three have stable outlooks.

Fitch assigns a AA-plus, AA and A-minus to O’Hare’s first, second and third liens, respectively, and an A to the PFC debt. S&P rates the PFC bonds and third-lien GARBs A-minus with a positive outlook. The second-lien GARBs are rated AA-minus; the first-lien ones are AA.



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