CHICAGO — Chicago has backed off from its plan to sell $1.1 billion of O’Hare International Airport bonds next week as it fights a lawsuit filed by the airport’s two largest carriers challenging its authority to finish work on an $8 billion expansion plan without airline consent.
The city has postponed the deal until there is a resolution of the litigation, market participants said Thursday. Citi is the book-running senior manager and Siebert Brandford Shank & Co. is co-senior.
A spokesman for Chicago’s finance department said officials hope to enter the market quickly, but no timetable has been set. “The timing of the issuance …is yet to be determined, but the sale will not proceed as scheduled on Feb. 1 and 2, 2011. The city is committed to moving ahead as quickly as possible with these bonds,” said finance department spokesman Pete Scales.
The city on Thursday filed a motion to dismiss the lawsuit which American Airlines and United Airlines filed last week against the city ahead of the bond sale. The deal includes a mix of securities, some backed solely by passenger facility charges and others by both PFCs and federal grants. Chicago had planned to take retail orders on Feb. 1 and hold an institutional pricing the next day.
Several investors had said they expected the city to delay the sale given the rocky market, the airport’s recent downgrades, and concerns that the litigation could halt pending projects.
The airlines want to halt financing plans for the projects they have not yet approved and the city wants to begin construction in time for the spring season. To bypass airline approval, the city intended to sell PFC and grant backed bonds. While airline approval is not needed for PFC borrowing, the carriers are challenging the city’s ability to proceed with the construction of projects that would be financed with the bond proceeds.
The city planned later this year to begin selling up to $2.5 billion of general airport revenue bonds with a delayed amortization schedule that doesn’t call for debt service to begin until after current lease agreements expire in 2018. Airline rates and charges that go to finance capital projects and repay general-airport revenue borrowing are incorporated into those pacts. The lawsuit seeks to halt any GARB borrowing without airline approval.
Airline executives met Thursday with Illinois’ U.S. senators who want to broker a resolution.
Katten Muchin Rosenman LLP and Charity & Associates PC are co-bond counsel.
Chicago Mayor Richard Daley unveiled the expansion program in 2001 and the federal government approved it in 2005.
