Regional News

Midway Aims for Big Deal

CHICAGO — Chicago Mayor Rahm Emanuel submitted to the City Council Wednesday ordinances allowing for the issuance of up to $1.5 billion of Midway Airport bonds and about $300 million of wastewater revenue bonds while pushing off a vote on his controversial plan to set up a new financing arm for some infrastructure projects.

The wastewater ordinance authorizes the sale of $300 million of new money and provides room for refunding bonds of up to $300 million. The new money would cover two years worth of projects, city finance officials said. The city intends to issue fixed-rate bonds. The ordinance also authorizes a $150 million commercial paper program.

The Midway deal would raise only about $40 million of new-money with a range of between $200 million and $1.5 billion of refunding bonds for savings and restructuring. The deal’s size and structure will ultimately depend on the city’s decision as to whether it will pursue a privatization of the airport under the Federal Aviation Administration’s pilot program. The ordinance also gives the city the option of using a line of credit in its existing Midway commercial paper program.

Two Emanuel allies — his floor leader Alderman Patrick O’Connor and Finance Commmittee chairman Edward Burke — used a parliamentary maneuver to defer and publish the ordinance establishing the Chicago Infrastructure Trust. The council will hold a meeting next week during which it’s expected to take up the plan aimed at drawing private investment into public works. Emanuel’s move preempted similar action that was expected from council critics of the plan who have pressed for a delay in the vote.

The trust, which would aid the city and its sister agencies, cleared the Finance Committee Monday in an 11-7 vote after more than five hours of debate, during which council members concerned about oversight and accountability issues grilled chief financial officer Lois Scott.

 Emanuel revised the plan last week to address some worries, but some still-skeptical aldermen said the changes and the administration’s assurances were not enough to quash their concerns. They asked the administration to delay a vote but it had refused until it appeared that aldermen would move to stall the vote.

The mayor unveiled the plan to establish the trust in March. At the hearing Monday, Scott laid out how the trust would tap alternative financing for “ambitious and transformative” projects to complement traditional financing models, while preserving the city’s strained general obligation and revenue-backed bonding capacity for routine projects and maintenance.

On the new Midway deal, public finance sources said JPMorgan would run the books on the sale and Bank of America Merrill Lynch and Cabrera Capital Markets would be co-seniors. Ramirez & Co. is lead on the wasterwater bonds, according to sources. The Midway deal comes as the Federal Aviation Administration recently granted Chicago’s request to preserve its ability to lease the airport under a federal pilot program until the end of the year. Chicago struck a $2.5 billion deal to lease Midway to a private investment group in 2008, but it fell apart in 2009 when the consortium couldn’t raise financing due to the international credit crunch.

Emanuel has tread cautiously on the issue due to political and public opposition to future asset leases, previously saying he wasn’t interested in resurrecting the deal. However, he wants to spend billions on infrastructure and the city faces mounting pension obligations. Under an Illinois state law, proceeds of the issue were mostly restricted to those two areas.

In granting the city’s request, the FAA wrote earlier this month that Chicago must include information on a privatization timetable and other updated information  in its application by the end of year deadline. If not submitted, “the FAA will consider the city’s application to be officially withdrawn,” the letter reads.

Moody’s Investors Service last year affirmed its A2 first-lien and A3 second-lien ratings assigned to Midway Airport’s $1.5 billion of outstanding bonds. Fitch Ratings last year affirmed its A rating on first-lien bonds and A-minus on the second lien. Standard & Poor’s also assigns an A and A-minus rating to the debt.

The airport serves 8.7 million passengers annually and it experienced 3% growth in both 2009 and 2010 with passenger numbers up 6% for the first half of last year. Midway bounced back after an 11.4% decline in 2008. The airport benefits from the strong presence of Southwest Airlines/Air Tran, which accounts for more than 90% of traffic. The facility’s bonds are secured by net revenues generated at the airport. 

The city last sold wastewater bonds in 2010. The bonds carry ratings from a high single-A to double-A. Emanuel won a series of water and sewer rate hikes last year to allow for the ongoing issuance of debt without hurting debt-service coverage ratios and accelerate projects.

The new deals follow the council’s recent approval of ordinances allowing for the issuance of more than $3 billion of new-money and refunding bonds in three deals expected to sell during the second quarter after the city holds an investor conference on April 26.

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



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