Chicago Chief Financial Officer Carole Brown said limiting the city’s use of bond firms could pose challenges as it seeks specific expertise and capital capacity.

CHICAGO – Underwriters, advisors, and lawyers working on Chicago's bond deals once were expected to simply show up to City Council finance committee meetings. Now they must come prepared to take the "hot seat" and defend their firm's ethnic, racial, and gender diversity.

The city has long met its minority- and women-owned participation goals on bond teams, but council members several years ago began extending their scrutiny to the diversity of professionals working on the deals. They come to the committee meetings armed with data firms are required to provide in their economic disclosure statements under a 2014 ordinance.

The aim is use the city's fiscal muscle on bond deals to promote the hiring and advancement of minorities and women, and council members have since broadened their surveillance to encompass firms' total staff -- which for some banks numbers in the thousands.

"You need [your staff] to consciously reflect the city if you want city business," Alderman Walter Burnett told firms Friday, when the issue was front and center at the finance committee as it considered ordinances authorizing up to $3.5 billion of O'Hare International Airport debt.

One African-American council member said the Black Caucus should consider voting "no" on bond deals to send a message to firms on hiring. Another called for a review of all deals since Rahm Emanuel took office in 2011 to see if advances have been made. One Latino alderman said he's working on an ordinance that could lead to a ban on bond business going to firms that lack diversity and don't make strides on that front after a warning.

Finance committee members who are members of the Black Caucus and Progressive Caucus voted to delay approval of the three O'Hare issues. They were primarily frustrated by the diversity levels of Aviation Department staffing but some variances in the bond data and dissatisfaction with diversity among the staffs on the finance teams didn't help.

The bonds were subsequently approved at a committee meeting Monday and are expected to pass at Wednesday's City Council meeting.

The council needs to send "a message to the industry that we need diversity otherwise you can't do business with the city," said Alderman Gilbert Villegas, who said he's working on an ordinance that would outline diversity goals. He envisions offering firms that don't comply a warning and if they don't make strides then hitting them with a ban on business.

Chapman and Cutler LLP's William Corbin Jr., a partner and leader of the public finance group, was called to testify on the firm's minority staffing numbers. The firm is pension disclosure counsel on all three airport deals and bond counsel on one.

Of the firm's 337 professionals, 45 are African American. Only one partner is an African-American. One African-American is working on the deals but not at the partner level.

"It's not for lack of effort," Corbin told council members of the firm's efforts to recruit more minorities. "We aggressively seek and recruit minority candidates…we hear your message…we do work hard at trying to increase the numbers."

Several aldermen spoke of the need for jobs in their community with the city's spike in homicides serving as undercurrent for their concerns.

Chicago's chief financial officer Carole Brown, who is African-American and worked for both minority-owned and Wall Street firms during her long career as a public finance banker, agreed that every firm "should be seeking" to have a more diverse staff but said limiting the city's use of firms could pose challenges as the city looks at a firm's expertise in sectors and capital capacity in compiling its teams.

As a regular issuer of large bond deals, Chicago's debt is attractive to financial firms but the downward slide of the city's bond ratings, to as low as speculative Ba1 from Moody's Investors Service, doesn't help its leverage.



Bank of America Merrill Lynch will be the senior manager on up to $1.5 billion of general airport revenue bond refundings with minority-owned firms accounting for 32% of the team. The city projects net present value savings of 12.5% on the GARB refunding of 2006, 2008, 2010 and 2011 bonds for overall savings of $187 million.

Cabrera Capital Markets and Jefferies are co-seniors. Katten Muchin Rosenman LLP and Neal & Leroy LLC are co-bond counsel. Chapman is pension disclosure counsel. Miller Canfield Paddock & Stone and McGaugh Law Group are disclosure counsel. Frasca & Associates and Columbia Capital Management LLC are advisors and Ricondo & Associates provided a feasibility study.

Morgan Stanley is senior manager on up to $1.5 billion of new money GARBs with 30% minority-owned team participation. About $1.3 billion of the proceeds will fund airfield projects including construction of the final runway in the O'Hare Modernization Program with $150 million covering design and other costs. Barclays and Piper Jaffray are co-seniors with the same advisors and legal firms on the deal.

Loop Capital Markets, a majority African American-owned firm, will lead up to $500 million of passenger facility charge-backed issuance with 83.5% of the overall team being firms that qualify as minority-owned.

The deal includes $350 million of new money to help cover renovations and expansion projects at Terminal 5 and $80 million to refund 2010, 2011, and 2012 bonds with 7.5% net present value savings, or $5.8 million, expected, Brown said.

The city typically gives itself a cushion in the size of its borrowing requests, especially on economically sensitive refundings where additional opportunities for savings might arise.

Ramirez and Citi are co-seniors for the PFC-backed bonds. Chapman and Charity & Associates are co-bond counsel. Thompson Coburn LLP and Sanchez Daniels & Hoffman LLP are disclosure counsel. Chapman is pension disclosure counsel. AC Advisory Inc. and D&G Consulting are advisors and Ricondo provided the feasibility study.

The GARB refunding is planned later this quarter and the other two deals are expected in the fourth quarter, according to city documents.



The city and key airlines at O'Hare reached agreement earlier this year on the next $1.3 billion phase of the O'Hare Modernization Program that includes a final runway. More recently a pact was reached on a gate expansion in which the city will redesign a portion of Terminal 5 to accommodate up to nine new gates. The city also wants to eventually demolish Terminal 2 and rebuild it as a central hub.

The airlines have signed off on the gates but a larger terminal expansion envisioned by Emanuel, which would carry a multi-billion dollar price tag, is further off with airlines only agreeing to negotiations.

The $10 billion to $12 billion modernization program launched more than a decade ago had called for a new terminal on the western edge of the airport. That was put on hold without airline support.

The primary purpose of the program is to redesign and expand the airport's runways, shifting to a parallel design from an intersecting layout that forces the closure of runways during poor weather at one of the nation's busiest airports.

Fitch Ratings in May upgraded O'Hare'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 outlook on both is stable.

O'Hare's senior-lien bonds are rated A2 by Moody's, A by S&P Global Services and A-plus by the Kroll Bond Rating Agency. The PFC bonds carry the same Moody's and S&P ratings and are not rated by Kroll.

O'Hare benefits from the strong local market and its strategic location as a hub for United Airlines and American Airlines. More than 38 million passengers use the airport annually.

O'Hare has completed the first $3.2 billion phase of the 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. The airport also has a $1.7 billion five-year capital improvement program.

While Chicago has paid punishing spread penalties on its recent general obligation sales as its ratings deteriorated over its pension ills, enterprise backed bonds that include O'Hare and Midway International Airport debt have fared better with investors demanding far leaner penalties.

The city has another $2 billion of debt sales planned for the remainder of the year including up to $1.25 billion of new money and refunding general obligation debt expected this quarter. Another $200 million of sales tax backed bonds, $400 million of wastewater revenue paper, and $200 million of water revenue bonds are planned for the fourth quarter.

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