CHICAGO — Chicago finance officials submitted to the City Council on Wednesday bond ordinances seeking approval to sell more than $3 billion of new-money and refunding general obligation, water revenue, and O’Hare International Airport debt this spring.
The measures go before the City Council’s Finance Committee for review before being voted on by the council at a future meeting. The deals include the refunding for savings of up to $1.75 billion of O’Hare general airport revenue bonds and bonds backed by passenger facility charges collected at O’Hare.
The city also is planning to sell up to $900 million of new-money and refunding GOs and up to $750 million of debt backed by city water charges. It is seeking council approval to raise the amount of its outstanding GO commercial paper to $500 million from $250 million for added flexibility in managing financing needs.
The GOs are “part of a multi-year plan to restructure debt service payable from property taxes to a more manageable level,” said a spokeswoman for the city’s chief financial officer, Lois Scott. “As in the past, a portion of the proceeds will be used for capital needs of the city.”
The deal teams were not immediately available.
Ahead of a GO sale last year that was one of the first sold under the administration of Mayor Rahm Emanuel, 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 with stable outlooks. The city’s GOs suffered a round of downgrades in 2010 due to mounting fiscal woes and the use of reserves and one-shots to close budget gaps.
The $6.3 billion 2012 budget relied mostly on a series of hikes in fees, fines, and taxes to erase $635 million of red ink along with spending and job cuts. Emanuel did not seek a sales or property tax hike. The budget leaves intact about $624 million in reserves but does rely on $88 million in one-shots, including $66 million in debt restructuring and $10 million in swap-related savings. The city’s rising unfunded pension obligations and growing employee and healthcare costs remain its most significant fiscal challenges.
The budget also included a steep four-year increase in water and sewer fees to help accelerate planned projects. The added revenue paves the way for additional bond issuance and should bolster debt service coverage ratios.
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 downgraded $140 million of senior-lien water revenue bonds to AA-plus from AAA and $1.3 billion of second-lien bonds to AA from AA-plus.
Standard & Poor’s affirmed its ratings of AA-minus on the second-lien bonds and AA on the senior-lien bonds in December. "The rating reflects our view of the city's large, diverse, and stable customer base, and strong liquidity when factoring in additional liquidity found in the rate stabilization fund," said Standard & Poor's analyst Corey Friedman.
Moody’s affirmed the Aa3 on the second-lien water bonds and the Aa2 on the senior-lien bonds but revised its outlook to stable from positive.
“The revision of the outlook to stable from positive is primarily based on the coverage levels not increasing to higher levels despite three years of consecutive rate hikes,” Moody’s wrote.
Coverage was expected to fall to 1.1 times this year prior to the 2012 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 airport’s third-lien GARBs, an A1 to the second lien, an Aa3 to the first lien, and an A2 on $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 bonds.
Standard & Poor’s rates the PFC bonds and third-lien GARBs A-minus and assigns a positive outlook. The second-lien GARBs are rated AA-minus and the first-lien GARBs AA.
