Chicago O’Hare International Airport’s debt-fueled expansion plans combined with the COVID-19 pandemic’s air travel blows led Moody’s Investors Service to move the airport’s rating outlook to negative.
Moody’s affirmed the A2 rating on $1.1 billion of general airport revenue bonds and $419 million of passenger facility charge-backed bonds while revising the outlook from stable. The airport has $8.8 billion of GARB debt and $471 million of PFC bonds but Moody’s does not rate the remainder.
“The negative outlook reflects the expectation of additional leverage that will take ORD's leverage and airline costs well above peer airports and the strain of coronavirus-related shutdowns on demand at the airport and on the city's structural imbalance,” Moody’s said in a Monday report. ORD is O'Hare's airport code.
O’Hare is moving forward with its $11 billion expansion and terminal makeover despite uncertainties around the recovery of air service demand, Moody’s said. The plan relies on $7.8 billion of borrowing through fiscal 2025. The city is currently in the design phase and left open the option to delay projects and the final timeline in the offering statement for its $1.2 billion
The airport is managing the pandemic so far with $294 million in federal CARES Act funding, and savings from the refunding will ease 2021 pressures. Through July 31, passenger levels of 9.5 million were down 61% from last year. PFC collections were down 57.9% to $45.1 million. The airport projects a recovery to 2019 passenger levels in 2024 to 2025.
The rating remains several notches above the city’s general obligation junk rating of Ba1 because it’s a self-supporting enterprise and federal law bans the diversion of airport revenues.
“However, in the event of extreme fiscal distress, there is a degree of contagion risk stemming from its connections to the city. Deterioration of the city's financial condition could also change the local area economic environment which will impact ORD's market position,” Moody’s said.
Ahead of the September sale, Fitch Ratings affirmed its A rating of the GARBs and PFC bonds ratings, and negative outlook. Kroll Bond Rating Agency affirmed the senior lien GARB A-plus rating. It resolved a “developing” watch placement and moved the outlook to negative from stable. S&P Global Ratings affirmed O’Hare’s A rating and negative outlook and removed it from CreditWatch.
Moody’s on Monday also affirmed Chicago Midway International Airport’s A2 rating on $19.4 million of senior lien bonds that accounts for all of Midway’s senior debt and the A3 rating on $1.3 billion of the airport’s $1.7 billion second lien bonds. Moody’s does not rate the remainder. The outlook is stable.
The airport’s stable originations and destination passenger demand and the Chicago market support the ratings and in the near to mid-term the airport could benefit from O’Hare’s expansion plans.
“Over the next five years, the airport is likely to see an improved competitive position while O'Hare airport implements large scale capital improvements that may disrupt passenger throughput and in the longer term, result in higher airline fees,” Moody’s said.
Passenger levels have been down since 2016 and the trend could accelerate due to coronavirus impacts. Through August 31, passenger traffic was down 57.5% to 2.9 million from same period last year. The airport is managing the disruption with $82.3 million of CARES Act relief.
Moody’s also this week affirmed the Baa1 and stable outlook on Midway’s $234 million customer facility charge revenue bonds and subordinate $272 million Transportation Infrastructure Finance and Innovation Act loan.
“While CFC collections are expected to be down in levels that are similar to enplanements, we believe that given the current CFC balances and the CARES Act funding that provides an additional $30 million to the facility for operating expenses and debt service” there’s sufficient funds to cover annual debt service of $28-$32 million should CFC revenues lag, Moody’s said.
The TIFIA loan rating is on par with the bonds because of a default provision that would cause the TIFIA to "spring" to parity with the senior lien bonds. The debt financed construction of a rental car facility.
