CHICAGO — Chicago Mayor Rahm Emanuel’s finance team will introduce to the City Council this week an ordinance seeking approval to refund up to $1.75 billion of O’Hare International Airport general airport revenue bonds and passenger facility charge bonds for savings.
The administration will also submit general obligation and water revenue bond authorizations, officials confirmed Friday. They said the underwriters were named last week and Barclays Capital was chosen to run the books on the airport deal. The city does not publicly release its deal teams until they are submitted to council.
The borrowing comes as O’Hare’s second largest carrier and one of its two hub airlines — AMR Corp.’s American Airlines — is winding its way through Chapter 11 bankruptcy. Fort Worth-based American filed bankruptcy in November in an attempt to shed debt and lower labor costs to improve its competiveness.
The airline serves about 36% of O’Hare passengers,with only United Airlines serving more. City officials believe O’Hare’s key role in American’s network puts it in a good position as the company reorganizes. “We have been reassured by American that Chicago remains a key part of its long-term business strategy and that any immediate or long-term impacts will be very minimal for Chicago,” Aviation Commissioner Rosemarie Andolino said in a statement earlier this month.
“We believe that this restructuring process will give American the flexibility to build and invest in its strongest markets, like Chicago, which the company has historically done and has set significant goals to do in the future, especially for international flights,” she added.
American’s health is all the more important for O’Hare with Chicago’s $8 billion runway expansion underway. The rating agencies weighed in on the risk factors following the bankruptcy filing. Moody’s Investors Service affirmed its ratings on $6 billion of O’Hare GARBs while Fitch Ratings lowered its outlook to negative from stable following the filing.
Moody’s assigns an A1 and negative outlook to the airport’s third lien — the primary borrowing vehicle used by the city to fund O’Hare’s expansion program. Moody’s rates the second-lien bonds A1, assigns an Aa3 to the first-lien bonds, and an A2 rating on $816 million of PFCs, all three with stable outlooks.
Moody’s analysts wrote that the credit benefits from a large and diverse origin and destination base with strong demand, a unique dual-hub status for both American and United, and management’s completion of the $3.28 billion first phase of the $8 billion expansion plan within budget.
The third lien’s rating is being stressed by weaker-than-expected passenger levels and the increased debt load. “The negative outlook … is reinforced by the Chapter 11 bankruptcy filing,” Moody’s noted.
O’Hare was one of three American connecting hub airports whose bonds were assigned a negative outlook by Fitch. “Credit concerns may increase during the course of American’s bankruptcy proceedings should the reorganization process lead to operating decisions that reduce or reallocate the carrier’s schedule,” Fitch wrote.
Fitch affirmed the AA-plus, AA, and A-minus assigned to O’Hare’s first, second and third liens, respectively. Annual debt service is expected to rise by more than 50% in the next five years, Fitch noted. “Fitch believes that in the event the American bankruptcy results in material reductions in passenger traffic, this scenario would exacerbate the cost risk in terms of cost per enplanement,” analysts wrote.
Standard & Poor’s rates the PFC bonds and third-lien GARBs A-minus and assigns a positive outlook. The second-lien GARBs are rated AA-minus and the first-lien GARBs AA.
The city issued $1.1 billion of mostly new-money O’Hare debt last spring. United and American sued, seeking to halt the original version of the deal as they had not signed off on various projects in the next expansion phase. The airlines and city settled on a compromise that advances just $1.17 billion of projects for now.