CHICAGO — Chicago heads to market Tuesday with a $247 million O'Hare International Airport borrowing to help finance a consolidated car rental center that's part of an $800 million multi-modal transportation facility.

Chicago posted a muni-roadshow along with its offering statement for the new credit, which is backed by customer facility charges and facility rents. The city has increased investor outreach to address credit concerns over the project's construction risks, narrow revenue stream and reliance on rental rates that are among the highest in the nation.

"There are a lot of belts and suspenders and a tremendous amount of additional support for investors" built into the structure, said city debt manager Jeremy Fine. "At the end of the day, the strength of credit lies in the fact that the rental car companies agreed" to the terms and the overall project won federal support.

In addition to the so-called Illinois interest rate penalty tacked onto in-state borrowers, the sale faces a further ding because of the city's recent three-notch general obligation downgrade by Moody's Investors Service, even though the airport is a self-supporting enterprise system. Thomas Spalding, senior investment officer at Nuveen Investments, estimated the likely overall penalty at between 10 and 15 basis points, The deal also joins a heavy supply calendar.

Bank of America Merrill Lynch is the senior manager with Estrada Hinojosa & Co. Inc. and Raymond James serving as co-senior managers. Frasca & Associates and DNG Consulting LLC are advisers. Ricondo & Associates is airport consultant.

The senior lien bonds received a rating of Baa1 from Moody's Investors and BBB from Standard & Poor's. An anticipated $288 million federal Transportation Infrastructure Finance Innovation Act, or TIFIA, loan carries a junior lien pledge. Federal authorities and Mayor Rahm Emanuel announced that the city was invited to apply for the loan in June. The bonds, not subject to the alternative minimum tax, are secured by collections of customer charges and facility lease payments. They mature serially between 2018 and 2033.

Structural support features include a series of cash-funded reserves, the city's unconditional authority to raise rates to cover debt service or operations, and a direct monthly flow of charges and rental payments to the bond trustee. The rental car companies have also agreed to cover shortages in CFC collections if needed for debt service or operations and must step up if one of their counterparts defaults on its lease. The city collected $33 million in charges in 2011 and $34 million last year.

The new $800 million facility would consolidate car rental functions and provide additional public parking in a five-level structure, a bus plaza, and extend the airport transit system known as the people-mover. The facility is expected to provide cost savings to the rental companies and reduce the amount of vehicles and buses on the terminal roadways, easing traffic congestion, travel times, and pollution. "It's truly a multi-modal project" that will better connect transportation modes around the airport, Fine said.

The rental car facility costs $362 million, the people mover extension $371 million, and the parking expansion $84 million. The financing package relies on bond proceeds, the TIFIA loan, previously issued revenue bonds and other airport funds. The city originally estimated the price tag at $765 million but as part of the TIFIA loan review it was raised to $800 million.

The city expects a final construction contract in April and hopes to open the facility in December 2016. The city expects to have executed agreements with a total of eight rental car companies by bond closing. The city stresses that since it began imposing a charge in 2010 it hasn't seen an impact on rentals. Moody's said the new credit benefits from the airport's historically stable demand for rental car transactions. Challenges include the high debt level which is double all other customer facility charge-backed transactions rated by Moody's. The initial CFC rate of $8 per day is among the highest in the country.

A debt service reserve will hold 100% of maximum annual debt service on the senior lien bonds. Supplemental reserves and a $20 million CFC Stabilization Fund will also be established. Debt service coverage excluding the various reserves is projected to remain above 2.82 times on the senior lien and 1.74 times for all debt.

The credit faces significant construction risks with the project's design only 30% complete. The project's complexity heightens construction risk, but the airport has a successful track record in managing large projects in its ongoing $8 billion expansion.

S&P analysts said the firm's rating reflects "our view of the project's very high debt burden, our expectation of slim total cash flow debt service coverage, and the pledged narrow revenue stream."

Weaknesses include the airport's high reliance on American Airlines and United Airlines which account for more than 80 % of flights and minimally adequate total cash flow debt service coverage based on its own calculations, S & P said. Pledged revenues also are subject to economic conditions. The challenges are countered by traditionally strong rental car demand at the airport and the favorable local economy that supports airport demand.

The rental companies are able to withdraw from the lease if the TIFIA loan is not approved for at least $200 million, if construction does not begin in 36 months, or if the construction price exceeds $765 million and agreement cannot be reached with the airport on adjustments.

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