CHICAGO – Chicago enters the market Tuesday with $825 million of new money and refunding O’Hare International Airport revenue bonds in a deal to help fund plans to overhaul and expand the airport’s international terminal.

The new money “will fully finance the International terminal 5 expansion project” with more gates and space to “accommodate increased international and domestic traffic,” the Department of Aviation's first deputy commissioner, Susan Warner-Dooley, said in an investor presentation.

A United Airlines plane at Chicago's O'Hare airport.
Chicago is pricing $825 million of O'Hare International Airport debt. United

The terminal overall was announced last year by Mayor Rahm Emanuel and it’s now included a $2.27 billion five-year capital improvement program. Additional runway work is ongoing under the O’Hare Modernization program and hotel projects are also in the works with additional terminal projects under study.

The bonds are selling in four series. Loop Capital Markets is senior manager. D&G Consulting and PFM Financial Advisors are co-advisors on the deal and Ricondo & Associates provided a feasibility study. Chapman and Cutler LLP and Charity & Associates PC are co-bond counsel.

Ahead of the sale, Fitch Ratings and S&P Global Ratings affirmed O’Hare’s single-A level ratings on both its $7.28 billion of general airport revenue bonds and $560 million of passenger facility charge debt. GARB debt is projected to grow to $8.9 billion over the next five years.

An A series for $56 million will refund 2010 and 2011 bonds, matures in 2040 and is secured by general airport revenues. A second series for $359 million refunds 2011 bonds and is secured by general airport revenues and passenger facility charges with a final maturity in 2039. A third series for $121 million is secured by general revenues and grant receipts with a final 2031 maturity. All three are not subject to the alternative minimum tax.

The refunding bonds are expected to generate about $47 million in net present value savings, according to the city.

A fourth series of AMT bonds totals $289 million and represents the new money piece of the transaction. It’s secured by general airport revenues and its final maturity is pushed out to 2052. Proceeds also cover capitalized interest.

"The ratings incorporate our view of ORD's steady financial performance, relatively high traffic levels, generally stable demand characteristics, local economy that we consider deep and diverse, and status as one of the world's largest and most important connecting hub airports," S&P analyst Joseph Pezzimenti said.

The airport’s significant debt needs under the O’Hare Modernization Program and other capital improvement projects, exposure to changes in connecting traffic demands, and a moderately high air carrier concentration offset the airport’s strengths.

United Airlines account for 44% of travelers and American represents 36%. Connecting traffic makes up about half of the total 38.9 million passengers that used the airport last year with growth up 16.9% since 2013.

S&P said its stable outlook on the GARBs reflects the expectation that the GARB debt service coverage ratios – based on S&P calculations – will remain at or above 1.1 times and the airport’s liquidity positions and passenger levels remain relatively stable.

Ricondo projects DSC will remain above 1.1 times through 2025.

The stable outlook on the PFC bonds reflects the expectation that stand-alone PFC maximum annual debt service coverage and passenger levels remain stable.

Fitch said its GARB rating reflects “the strong local market, the strategic location of Chicago, IL as a hub and the demonstrated importance of the airport to both United Airlines and American Airlines” as well as “favorable progression of the airport capital programs with overall costs remaining in line within existing budgets, while airport traffic is trending in a positive direction.”

The PFC rating reflects “consistent performance of high debt coverage levels in excess of 2x and low leverage from pledged cash flow.”

Airline costs per passenger are moderate for a large hub airport at under $15 but are expected to rise above $20 over the next five year and could hit a peak of $25.

Fitch said the airport’s credit profile benefits progress made on the OMP launched more than a decade ago to reconfigure the airport’s runways. More than half of the costs have been incurred and three of four new runways have been completed. Additional runway projects are estimated at $1.6 billion, Fitch said. It’s separate from the $2.27 billion CIP program.

The sale marks the third major O’Hare deal to sell since mid-2016. The city’s revenue-backed issues have fared much better than the city’s general obligation deals as investors view the city’s enterprise systems and their revenue streams as largely insulated from the city’s fiscal strains. Market participants said the deal faces some additional penalty, like all issuers out of Illinois, due to the state’s fiscal deterioration over a historic budget impasse.

A 10-year maturity on Chicago’s $1.1 billion O’Hare sale just after the presidential election landed at an 82 basis point spread to the MMD top benchmark. In a $1 billion sale just before the election, the 10-year landed at a spread of 58 basis points. Both were in non-AMT series.

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