Chicago has three new money and refunding deals in the works for O’Hare International Airport.

CHICAGO – Chicago plans to sell up to $3.5 billion of O'Hare International Airport debt later this year in three transactions to generate refunding savings and fund a new runway and gate expansion.

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.

Mayor Rahm Emanuel's finance team introduced the three ordinances authorizing the borrowing to the city council at its meeting Wednesday.

They will be reviewed by the Finance Committee before receiving a full council vote. The council won't meet again until September 14 after its traditional summer break.

The first of the three ordinances permits the refunding of up to $1.5 billion of O'Hare general airport revenue bonds for savings in a deal that would be led by Bank of America Merrill Lynch.

A second authorizes the issuance of up to $1.5 billion of new money O'Hare GARBs to finance the final runway under the O'Hare Modernization Program in a deal led by Morgan Stanley.

The third allows an up to $500 million new money and refunding of passenger facility revenue bonds with the new money funding the $300 million redesign and expansion of terminal five for additional gates. Loop Capital Markets will run the books.

The deals are expected to sell in the third quarter, said city finance department spokeswoman Molly Poppe.

The city and key O'Hare airlines reached agreement earlier this year on the next $1.3 billion phase of the modernization program that includes a final runway and last week Emanuel unveiled the plan for new gates.

Under the latter, the city would 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 the larger project, which would carry a multi-billion dollar price tag, is further off with airlines only agreeing to negotiations.

"In order to grow, innovate and continue to provide excellent service in a dynamic global aviation system, O'Hare needs to significantly expand and modernize," Chicago Department of Aviation Commissioner Ginger Evans said at the announcement last week.

Other recently announced projects include the development of two new hotels and upgrades to the existing O'Hare Hilton, which combined would double room capacity at the airport.

The $10-$12 billion O'Hare 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.

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.

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 United Airlines and American.

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.

"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 the Kroll Bond Rating Agency.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.