Chicago Gives MidCo More Time to Plan

CHICAGO - Chicago will give the private consortium that wants to lease the city's Midway Airport for 99 years for an up-front payment of $2.5 billion up to an additional six months to put its financing scheme together.

Mayor Richard Daley said at a news conference that the international credit crunch was to blame for the delay in the transaction's closing. "This is a huge crisis that's affecting all markets," he said.

It remains unclear whether the deal might fall through. Sources said the investment group remains hopeful it can come up with additional bank financing and equity investors to complete the transaction this year. The city could also rebid the lease.

If the deal falls through, the city would face an additional $40 million of red ink in its $6 billion 2009 budget. The city already faces a $64 million shortfall and finance officials have warned that number could grow to $200 million by the end of the year.

The airport deal - first announced last September - was originally on a fast track to win Federal Aviation Administration approval early this year before the change in presidential administrations, but the consortium was unable to submit all the necessary financial documentation to the FAA in time.

The consortium, known as Midway Investment and Development Co., comprises YVR Airport Services Ltd. of Vancouver, Citi Infrastructure Investors of New York, and John Hancock Life Insurance Co. of Boston.

MidCo, as the group is known, in late September submitted the top bid from among a handful of firms pre-qualified by the city to bid. It had faced a deadline of this week to submit its financing information to the FAA in order to meet an April 6 closing deadline.

Chicago first announced four years ago that it would explore the privatization of Midway under a federal pilot program that permits up to five airports to be converted from public to private hands. The city intends to use $900 million from the deal for infrastructure and pension funding.

The first $1.2 billion of the payment from MidCo would go to defease existing Midway airport revenue bonds, with another $225 million would be earmarked for an escrow to help the city pay for police and fire services at the airport. About $100 million would be unrestricted and would help shore up the city's budgets over the next several years.

City officials pushed for swift city council approval of the deal in early October, shortly after it was announced, fearing a delay in federal approval after the change in administration. Some council members were upset they had so little time to review the transaction's details.

Before the council vote, Daley aide Paul Volpe and the lead legal adviser on the deal, John Schmidt of Mayer Brown LLP, said they were not concerned over financing because investor interest remained robust in asset leases due to their rarity and solid returns. They also cited the consortium's posting of $126 million in collateral.

"They are not going to want to lose that money," Schmidt said at the time.

Officials have not disclosed the size of bids from the other pre-qualified bidders or how many were submitted. A total of five were pre-qualified, but not all submitted bids.

The city has come under fire in connection with another of its long-term lease transactions, a lease of the parking meter system that closed in February. A private group, Chicago Parking Meters LLC, paid Chicago $1.15 billion for a 75-year lease. The city is using proceeds to bolster reserves and help cover budget shortfalls.

City residents hit with a spike in parking costs - which jumped as much as four times in some areas - have expressed frustration with inoperable meters and incorrect signage. At the news conference yesterday, Volpe said the city was providing personnel to help the private group, at the operator's expense, to check meters and that the operator had suspended issuing parking violations.

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