Chicago’s airport enterprises, led by O’Hare International Airport, offer a bright spot its debt portfolio.

CHICAGO – Chicago's airport enterprise paper is faring much better with analysts than the city's general obligation debt.

Last week, Fitch Ratings upgraded Chicago O'Hare International Airport's $6.4 billion of senior lien general airport revenue bonds rating to A from A-minus. About $600 million of passenger facility charge revenue bonds were affirmed at A. The rating on both is stable.

The city has no near-term, new money borrowing in sight for O'Hare although it has struck an agreement with airlines on the next phase of its modernization program. A "potential refunding for savings" is being eyed for later this year, said finance department spokeswoman Molly Poppe.

Fitch said the "the upgrade reflects continued favorable progression of airport capital programs, with overall costs continuing to remain in line within existing budgets while airport traffic is trending in a steadily positive direction."

In recent years, traffic growth has exceeded Fitch's base case assumptions while budgets associated with the remaining capital programs have remained intact. The airport benefits from the strong local market and its strategic location as a hub for both United Airlines and American Airlines which account for more than 80% of flights.

More than 38 million passengers use the airport annually. "Traffic performance has trended positive for several consecutive years anchored by increasing domestic and international services," Fitch said.

The airport's leverage has historically been high but is expected to drop to a level that's in line with A level metrics. Airline costs of $15 per passenger are in line with other major city airports but will rise to cover future costs associated with the capital projects, Fitch said.

O'Hare has completed the first $3.2 billion phase of its $8 billion modernization plan and the city is nearing completion on another $1.17 billion that represents the first part of phase two, which was approved in a 2011 pact between the city, airlines, and federal authorities.

Chicago and the major airlines earlier this year agreed on the next phase -- $1.3 billion of projects that pave the way for a new runway to complete the long-planned parallel reconfiguration of the airport's runways. A proposed terminal expansion and other projects that make up the $8 billion price tag are still on hold. Three of four new runways have opened.

The airport also has a $1.7 billion five-year capital improvement program.

"Future requirements are still significant and rely heavily on future debt borrowings for funding," Fitch said. "Latest financial plans to support the remaining elements of the capital program show overall debt levels rising to over $9 billion in total over the next five years."

O'Hare's senior-lien bonds are rated A2 by Moody's, A by S&P Global Services and A-plus by Kroll Bond Rating Agency.

Chicago's second airport, Midway International Airport also won an upgrade from Fitch ahead of its $343 million new money and refunding sale that priced last week. The 30-year maturity on the portion of the deal not subject to the alternative minimum tax paid a yield of 3.04 % with 5% coupon, 59 basis points more than the Municipal Market Data top-rated benchmark and 12 basis points over the single-A. The airport carries three single-A level ratings. Traders said the deal benefited from the airport's improved credit and market demand for airport paper.

City finance officials said the deal was oversubscribed by about three times, allowing the syndicate to lower yields on some maturities by up to 10 basis points. The paper was purchased by 75 investors – including many buyers who do not currently hold Midway debt. The city achieved a present value savings of $4.3 million or about 10% on the refunding piece of the sale.

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