CHICAGO All three rating agencies affirmed Chicago O’Hare International Airport’s general revenue credit ahead of a new-money and refunding sale of up to $900 million slated for Wednesday.
The affirmation came despite analyst concerns over the airport’s challenges including the ongoing bankruptcy of hub operator American Airlines as well as uncertainty over the timing of future projects and future debt needs under the ongoing $8 billion O’Hare Modernization Program.
Standard & Poor’s affirmed both the general airport revenue bonds and stand-alone passenger facility charge ratings at A-minus. Fitch Ratings affirmed the airport’s A-minus GARB rating and negative outlook, and A rating on the PFCs, with a stable outlook.
Moody’s Investors Service affirmed the GARBs’ A2 rating and stable outlook.
The city has $6.3 billion of GARB debt and another $700 million of PFC bonds. The airport ranked second last year nationally in both the number of flights and passenger levels.
Standard & Poor’s analyst Joseph Pezzimenti said the agency believes the airport’s credit profile supports the rating “given the demand characteristics of O’Hare and importance to the global aviation system, and our assessment that the airport has adequate financial resources to service its GARB and PFC debt under what we consider probable lower traffic levels.” The ratings also assume American Airlines will remain committed to serving O’Hare, Pezzimenti said.
Standard & Poor’s praised management’s on-time and on-budget delivery of projects under the first phase of the program but said O’Hare’s debt needs constrain the ratings at their current levels.
Fitch attributes its negative outlook to continued weakness in traffic performance which runs counter to the national trend at other similar international gateway hub airports, and uncertainty over American’s status because of the federal government’s attempt to block its merger US Airways Group with an antitrust lawsuit.
“O’Hare’s financial metrics, including leverage and coverage, are weaker than the indicative range for a large-hub A’ category airport,” Fitch wrote.
The airport’s strengths stem from its strong market position and unique dual hub status but is offset by high leverage and narrow financial margins, Moody’s said.
Debt service coverage was 1.21 times in fiscal 2012 on the GARBs and 1.89 times on the PFCs, which generate about $125 million annually.
The city is offering four series of bonds 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 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.
The new money will help fund the airport’s routine capital improvement program and the OMP that is overhauling and expanding the airport’s runways. The city will supplement debt service reserves with cash as part of the deal.
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. 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 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.
While the airport is operated as an enterprise system distinct from the city’s general fund, the ratings’ affirmation marked a bit of good credit news as the city has been stung with negative credit action in recent months impacting both its general obligation and various revenue-backed credits. The credit deterioration has largely been driven by the city’s mammoth pension obligations and looming $600 million spike in payments due in 2016.