Standard & Poor's Ratings Services said it has revised its outlook on the city of Chicago, Ill.'s third-lien general airport revenue bonds (GARBs) and stand-alone passenger facility charge (PFC) revenue bonds issued for Chicago O'Hare International Airport to stable from positive.
At the same time, Standard & Poor's assigned its A-minus rating to the proposed O'Hare series 2012 GARBs and 2012 stand-alone PFC bonds. Standard & Poor's also affirmed its A-minus rating on Chicago's third-lien GARBs and stand-alone PFC revenue bonds issued for the airport, its AA-minus rating on Chicago's second-lien GARBs, and its AAA/A-1 ratings on the airport's series 2005C and 2005D variable-rate third-lien GARBs.
The outlook on the second-lien GARBs is stable.
In addition, Standard & Poor's withdrew its AA long-term rating on Chicago's first-lien GARBs issued for O'Hare, which have been redeemed.
"The outlook revision reflects our belief that definite financial plans for the $2.3 billion O'Hare Modernization Program Phase 2B are not likely to be finalized until 2014 or later," said Standard & Poor's credit analyst Joseph Pezzimenti. The likely prolonged effects of sluggish economic conditions and volatile fuel prices contributing to stagnant enplanement trends and limiting PFC revenue capacity, and uncertainty about what form American Airlines Inc. will take when it emerges from bankruptcy, were also factors in the outlook revision. Although management has done a good job with progressing the modernization plan (OMP) on time and within budget the scope and complexities of the OMP, and potential significant debt needed to complete it limit the ratings.
The outlook revision on the stand-alone PFC bonds rating reflects the expectation that American will remain committed to market and adequate pro forma maximum annual debt service (MADS) coverage under various stress scenarios. The combination of potential leveraging of PFC revenues, no increase to the PFC cap by Congress, and the potential for lower coverage from flat or declining enplanements limits the stand-alone PFC rating.
The 2012 PFC bond proceeds will refund some maturities of the series 2011 PFC bonds.
The ratings incorporate O'Hare's generally stable demand characteristics as a result of being one of the world's largest and most important connecting hub airports and serving a deep and diverse local economy that has good income levels. Countering these strengths are significant additional debt needs, high exposure to connecting traffic, and high air carrier concentrations.
As part of the March 2011 dismissal of United and American's lawsuit against Chicago a new funding agreement between the city and airlines. Under the agreement, the airfield portion of the OMP became into two phases, 2A and 2B; the city received airline approval to use GARBs to fund the majority of the $943 million OMP Phase 2A work; and negotiations with the airlines for funding approval of OMP Phase 2B will begin no later than March 1, 2013. Definite financial plans for OMP Phase 2B, however, will not be available until 2014 or beyond.
The stable outlook reflects the expectation that GARB DSC will remain adequate and stand-alone PFC bond DSC good as a result of generally stable enplanement levels. S&P doesn't expect to raise the ratings within the two-year outlook period, given the airport's potential significant additional debt needs. S&P could lower the ratings if project costs cannot be contained, the OMP causes significant disruptions to operations, or if enplanement levels drop significantly.
