CHICAGO Chicago paid $3.5 million in fees and expenses to lawyers and other advisors on its aborted plan to privatize Midway International Airport, according to the city’s Chief Financial Officer Lois Scott.
Chicago Mayor Rahm Emanuel earlier this month pulled the plug on privatization plans for Midway under a federal pilot program after one of only two remaining bidders dropped out, raising concerns that the lack of competition might erode the deal’s value. Scott said the spending on advice was well worth it.
“It’s our job look at these issues, study them, and decide whether to proceed” as a government, Scott said Wednesday, after delivering the keynote address at the National Bond Lawyers Association’s Annual Bond Attorneys Workshop in Chicago. “The mayor decided not to proceed but now we have a roadmap and a clear set of principles” for considering future public-private partnerships.
The city has not yet formally relinquished the single hub slot that it had planned to lease under the Federal Aviation Administration’s Privatization Pilot Program program, though Scott said the city expects that the FAA will require it to do so. The city first reserved the slot in the fall of 2006. If the city decided to pursue a lease sometime in the future, it would need to reapply for the hub slot. The city earlier this month did submit to the FAA a notice formally withdrawing its “revised preliminary application.”
“The city set high standards in exploring a potential leasing of Midway that would ensure taxpayers and our airport stakeholders received a fair and equitable deal,” Scott said in a letter withdrawing the application. “Throughout the process, the city remained committed to proceeding only if a transaction could meet the criteria. At this time, we do not believe these conditions will be met.”
Of the $3.5 million in fees, financial advisors collected $113,500 in reimbursements for expenses. They stood to collect a fee only if a deal closed. Lead advisor Credit Suisse Securities LLC received $110,000 and co-advisor M.R. Beal & Co. got $3,500. Another co-advisor Cabrera Capital Markets LLC did not submit expenses.
Legal advisors received a total of $1.1 million, with lead legal advisor Mayer Brown LLP collecting $571,000. The rest went to co-advisors Pugh, Jones & Johnson; Cotillas & Associates; and Sanchez, Daniels & Hoffman LLP.
Technical consultants received another $1.1 million with Ricondo & Associates receiving $655,000, Avia Solutions $308,000; Tetra Tech $85,000; and Connico nearly $8,000. Other costs included fees of $467,000 paid to Deloitte; $167,000 paid to American Appraisal; and $242,000 to Interlink.
Two firms hired by a special advisory panel appointed by Emanuel to review the process and any proposed transaction ahead of a city council vote were paid $350,000. Half went to Loop Capital Markets LLC and the other to KPMG.
The city had planned to use proceeds from an initial upfront payment to retire Midway’s $1.4 billion of debt with the rest providing an annual revenue stream to fund infrastructure work. Emanuel in December announced the city would “explore” the privatization of Midway.
Former Mayor Richard Daley had struck a $2.5 billion, 99-year deal in 2008, but the winning bidder couldn’t raise the financing after the credit markets tightened following the 2008 financial crisis. The deal was cancelled in 2009.
The FAA program allows for up to 10 airports to be privatized. The 1996 program allows airports to enter into long-term operating leases or pursue the sale of a facility to a private firm. The program exempts the airports from laws that require airport revenues to be spent on airports.