CHICAGO – Chicago sold $120 million of BBB-rated, tax-exempt senior special facilities revenue bonds Tuesday on behalf of a major air cargo operator at O’Hare International Airport.

Aeroterm, a for-profit company, partnered with the city on the development of O’Hare Northeast Cargo Center, an air cargo handling facility completed in two phases in late 2016 with 1.8 million of square footage on a 60-acre ground-leased site. Aeroterm now has a 39% share of O’Hare cargo business. The lease expires in 2051.

A cargo plane at the Aeroterm cargo facility that opened in November 2016 at O'Hare International Airport in Chicago.
A cargo plane at the Aeroterm cargo facility at Chicago O'Hare International Airport. Aeroterm

Proceeds will refinance an outstanding construction loan and reimburse Realterm for a portion of the construction costs on the new air cargo and fuel facility. Aeroterm is Realterm’s asset manager.

Mayor Rahm Emanuel and the company opened the facility at a ribbon cutting ceremony in December 2016. The city said then the facilities being built in three phases were being financed with $160 million from the company and $60 million in city aviation funds.

“The city of Chicago is making investments and improvements to ensure O’Hare has not only the best commercial service, but the best cargo space,” Emanuel said at the ribbon-cutting. The city is wrapping a reconfiguration and expansion of the airport's runways and is embarking on an $8.5 billion passenger terminal makeover.

Transportation Infrastructure Properties LLC is the obligor on the bonds. It’s a “bankruptcy-remote special purpose entity” that serves as the primary financing arm for Realterm Airport Logistics Properties, a real estate investment fund, according to offering documents.

The bonds are payable from loan payments made by members of the obligated group to Chicago under a loan and security agreement. A “trust estate” that includes general financing documents with loan agreements and a senior note secures the bonds. Under the master trust indenture, the obligations are secured by a pledge of gross revenues, a leasehold mortgage on certain facilities, and a membership interest pledge and security.

The offering documents warn that the purchase “involves certain significant risks” that may not be suitable for investors unable to bear “prepayment, payment, credit, liquidity, and market risks associated” with the bonds.

Under the heading “Limited Recourse Transaction,” the offering statement notes that the bonds are part of a project-based financing and the “ability of the obligated group to repay” the bonds “is dependent on appropriate levels of tenancy at the facilities and the operation of the fuel farm.”

A long list of factors from the bankruptcy of a major tenant or tenant defaults to competing facilities and the need for capital improvements can materially impact net operating revenue.

Investors have deepened their scrutiny of special facilities revenue bond structures, their securities, and pledges following the Chapter 11 bankruptcies of major airlines in which some were successful in shedding such debt after judges voided pledges that investors thought offered some security.

The TrIP obligated group has 36 assets at 25 airports with a tenant base of 127 including Federal Express Corp. and DHL Express Inc., major airlines, and Chicago, across its national portfolio. The top 20 tenants account for $105 million in annual revenue.

“Aeroterm has significant market share in the air cargo space with large shares of the market at each of the airports where it operates” including 39% at Chicago, 54% at Houston, 30% at Dallas, and 38 % at Miami, David Rose, a senior vice president at Aeroterm, said in an investor presentation.

The obligor has $350 million of outstanding sold through the New York Industrial Development Agency and the Wisconsin-based Public Finance Authority. Debt service coverage has exceeded 1.7 times since the inaugural 2012 issuance. The debt service reserve fund is being increased by about $6 million, equal to 50% of maximum annual debt service on all bonds.

Goldman Sachs and Loop Capital Markets LLC were underwriters. Greenberg Traurig LLP and Chico Nunes PC were bond counsel. The fixed-rate bonds mature from 2030 through 2048 and are subject to the alternative minimum tax.

A 2033 maturity priced at 3.75%, a 2038 maturity priced at 3.90%, and a 2048 maturity priced at 4%.

With the new deal, several assets are being added while five are being withdrawn from the obligated asset group. S&P Global Ratings assigned a preliminary BBB rating and positive outlook to the bonds. The preliminary assignment is common in corporate, project finance ratings.

The additional debt and changes in pledged assets “slightly increases our forecasted minimum debt service coverage ratio, while the overall asset changes do not change our view of the overall risk profile of the project,” S&P wrote.

“The positive outlook reflects the possibility that absent a recession, the project could exceed our expectations if lease demand increases beyond our expectations and occupancy rates continue to improve. The project has been successful in improving tenant quality and extending lease terms, which provides greater certainty around cash flows and should further limit sensitivity to changes in business conditions,” S&P added.

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