O'Hare plans point to billions in new debt
CHICAGO – Authorization for as much as $2 billion in O’Hare International Airport borrowing may be introduced to the Chicago City Council as soon as Wednesday along with an $8.5 billion terminal makeover and expansion plan, sources said.
The bonding ordinance has been in the works for some time and the financial team of underwriters, advisors, and bond counsel were selected earlier this year, multiple public finance sources said. The ordinance must face a Finance Committee hearing before being voted on by the full council.
It’s unclear how much of the deal would finance a multi-year capital improvement program, remaining costs associated with an ongoing reconfiguration and expansion of the airport’s runway projects, and the new terminal program under negotiation with airlines.
The city is in final negotiations on the $8.5 billion terminal overhaul with the airlines at O’Hare and it could be introduced Wednesday.
“This is a game-changer for the city of Chicago,” Mayor Rahm Emanuel said during a public appearance Monday. “This is a once in a lifetime moment to literally leapfrog the competition and become in the United States, the gold standard of what a modern transportation/aviation system looks like…for me this is essential for the vitality of the city.”
On the overall financing plans for the new terminal program, city finance department spokeswoman Molly Poppe said: “The administration will have more detail on the financing in the very near future, but as a general matter, this project will be paid for using traditional airport financing mechanisms, and it will not rely on any taxpayer dollars.”
The city uses passenger facility charges and a general airport revenue bond structure to finance projects at O’Hare and Midway International Airport. The current airline lease and use agreement expires in May so the financing would be built into the new pact.
Poppe would not confirm information on the bonding authorization that sources said was expected to be submitted Wednesday and declined to discuss the size, timing, structure, or security until it’s submitted to the council.
The terminal package has been the subject of negotiations between the Aviation Department and airlines for more than a year and would mark a followup to the ongoing O’Hare Modernization Program launched by Emanuel’s predecessor Richard M. Daley in 2001.
That $10 billion program focused on reconfiguring the airport’s runways to a parallel design in place of the intersecting setup blamed for frequent weather delays. Airlines resisted funding a new western terminal that was part of the original plan.
Emanuel in early 2016 announced funding agreements on the final sixth runway. Emanuel later in the year announced his plans to pursue a terminal revamp when airlines signed off on the $300 million expansion of one terminal and additional gates. American Airlines and United Airlines operate hubs at the airport and account for about 80% of flights.
Aviation Commissioner Ginger Evans has argued terminal upgrades and new gates are needed to remain competitive internationally and relieve congestion now that there is additional flight capacity.
The plan calls for major renovations to Terminal 1, 3, and 5 and the demolition of Terminal 2, which would be replaced with a new international terminal to supplement the existing international facility and be able to accommodate larger aircraft.
New concourses, parking, security screening facilities, and an underground tunnel are part of the eight-year program.
The city is also still pursing efforts to build new hotels and upgrade an existing hotel and is reviewing the qualifications of four firms or teams that have expressed interest in a public-private partnership to build and finance an express rail line between downtown Chicago and O’Hare.
Chicago’s airport credits have fared well in the market compared to the steep penalties it pays on its lower rated general obligation credit.
Chicago sold $812 million of GARBs last June. 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.
The airport has a $2.3 multi-year CIP program and about $1.6 billion in remaining runway costs, Fitch said. In June, the rating agencies said $8.9 billion in GARB debt was expected to be sold over the next five years.
Moody’s Investors Service and Kroll Bond Rating Agency – which rate the airport’s GARBs at A2 and A-plus, respectively -- were not asked to rate the June issue.
Airline cost per passenger, are moderate for a large hub airport at under $15 but are expected to rise above $20 over the next five years.
A 10-year non alternative minimum tax maturity with a 5% coupon on the June sale landed at 2.3%, a 44 basis point spread to the market opening Municipal Market Data’s AAA benchmark with a long 2041 non-AMT, 5% coupon maturity landing at 3.28%, a 65 bp spread.
A 10-year maturity on Chicago’s $1.1 billion O’Hare sale just after the 2016 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.
The airport has recently ranked third nationally in passenger count, behind Atlanta and Los Angeles.