CHICAGO — Chicago is gearing up to enter the market next week with its long-planned sale of up to $900 million of O'Hare International Airport general airport revenue bonds to raise new money for projects and refund older debt for savings.
The city is offering four series on Oct. 2 that include $80 million of new money securities subject to the alternative minimum tax and $314 million of new money not subject to the AMT. The size of the refunding pieces is dependent on interest rates and includes up to $371 million subject to the AMT and $134 million not subject to the AMT. The refunding bonds go out to 2034 and the new money to 2044. The bonds are secured by a first lien on airport net revenues.
JPMorgan is running the books with Ramirez & Co. and Siebert Brandford Shank & Co. LLC serving as co-senior managers and another eight firms rounding out the team as co-managers. DNG Consulting LLC and Frasca & Associates LLC are advisors. Ricondo & Associates is airport consultant. Quarles & Brady LLP and Cotillas & Associates are bond counsel.
The City Council signed off on the sale in March along with a $250 million of O'Hare customer facility charge deal, which sold last month.
The new money will help fund the airport's routine capital improvement program which includes an expansion of its airport transit system and terminal improvements. It also will help fund the ongoing $8 billion O'Hare Modernization Program that is overhauling and expanding the airport's runways.
One major institutional buyer said he was awaiting an investor roadshow to resolve questions he has before deciding on whether he would submit an order. The portfolio manager he wants updates on how much future financing is needed for the OMP, the status of the program, and the status of negotiations with the airport's major airlines on their support. Several market participants said they didn't think the city's own credit deterioration -- unrelated to the O'Hare credits -- or the ongoing bankruptcy of American Airlines, which has an O'Hare hub, would impede interest in the sale or significantly impact pricing.
The airport ranked second last year nationally in both the number of flights and passenger levels 33.2 million last year. The issue is being sold under a senior lien. The city in August 2012 refunded GARBs in a deal that streamlined the facility's GARB-lien structure under one new senior lien.
The deal comes as American remains in Chapter 11. The carrier had hoped to exit bankruptcy soon but it's been stalled by the federal government's filing of an anti-trust lawsuit challenging its merger with US Airways. American has maintained most operations at O'Hare throughout its bankruptcy but potential changes after it emerges could pose some risk to local operations.
Moody's Investors Service rates the airport's $6.3 billion of GARBs at A2. Fitch Ratings assigns its A-minus rating and a negative outlook. Standard & Poor's also rates the bonds A-minus, but with a stable outlook. The airport's debt portfolio includes another $700 million of bonds backed by passenger facility charges levied on passenger travel. They are rated A2 by Moody's, A-minus by Standard & Poor's and A by Fitch with both assigning a stable outlook. None have yet released new GARB reports on the upcoming sale.
In affirming its airport ratings over the summer, Fitch said the airport benefits from its position as a major domestic connecting hub and international gateway but is strained by very high leverage. Debt service coverage was at 1.21 times last year and liquidity from unrestricted reserves was adequate at 181 days. Although airport managers have a record of completing projects on time and within budget, the size of the airport's expansion pose a risk.
Both United Airlines - which also operates a hub at O'Hare - and American have resisted Mayor Rahm Emanuel's efforts to push forward on remaining projects under the OMP, which reconfigures and expands the airport's runways. The two airlines account for 80% of O'Hare traffic and want future projects tied to demand.
The airport has nearly completed the $3.3 billion first phase of the program and wrapped up financing for them. The airlines agreed to a scaled back second phase of $1.17 billion in 2011 with additional projects planned in a second phase of work still the subject of ongoing negotiations. The offering statement reports that the exact timing of some second phase projects is not known at this time but for purposes of the consultant's report anticipates a 2015 start date.
