CHICAGO — Chicago received a rare bit of good credit news Friday when Fitch Ratings elevated its outlook on O’Hare International Airport’s general credit to positive ahead of a $2 billion sale slated for next month.
Fitch affirmed its A-minus rating on $6.4 billion of senior lien general airport revenue bonds.
Analysts attributed the new positive outlook to the “continued favorable progression of the airport capital programs with overall costs continuing to remain in line within existing budgets while airport traffic is trending in a positive direction.”
Fitch affirmed its A rating on O’Hare’s $637 million of passenger facility charge-backed debt and left the outlook at stable.
The airport sale will be Chicago’s largest single bond sale ever and is one in a series of upcoming city deals that total about $3 billion.
The Chicago City Council approved ordinances at their meeting Thursday authorizing $2.7 billion of the general obligation and revenue-backed borrowing. The city does not require approval for the remaining $300 million.
The upcoming O’Hare GARB deal will offer about $1.7 billion of current and advance refunding securities with $150 million of debt service savings expected, city officials said.
The $300 million of new money will finance the airport’s capital improvement program, including an ongoing $8 billion runway reconfiguration, and take out existing commercial paper.
The fixed-rate bonds being sold in five series will mature in 2046. JPMorgan and Loop Capital Markets are co-bookrunning senior managers.
Any future upgrade “will be dependent on operational performance consistent with Fitch's base case assumptions, a reduction in overall leverage, and cost certainty related to the remaining capital program costs,” Fitch analysts wrote.
The airport – where United Airlines and American Airlines operate hubs with the duo accounting for more than 80% of market share – has seen an uptick in passenger growth after remaining flat for several years.
The airport saw a 5% increase in 2014 followed by a 9% increase so far this year. In 2014, the airport handled over 35 million enplaned passengers with about half being connecting traffic.
The stability of United and American is important because their presence and hubbing operations are highly influential to O'Hare's future capital investment and leveraging commitments, Fitch said.
Cost per enplanement at $16.53 is moderate but expected to rise above $20 over the next five years and could peak at $30 under Fitch's ratios. Much of O'Hare's airport revenue and passenger facility charge debt is issued in fixed-rate mode with conservative debt amortization and at 1.1 times debt service coverage and liquidity metrics of 172 days cash on hand are sound. “High leverage remains a concern,” Fitch added.
O'Hare will open the third of four new runways next month and has completed one of two planned runway extensions. Costs to complete the program are estimated at about $3.3 billion. The city has approval from airlines and has identified funding sources for $1 billion but still needs approval from the airlines on the final $2 billion.
Aside from the O’Hare issue, the $1 billion in other deals Chicago plans include up to $500 million of GOs, with $225 million to cover debt service payments coming due. The so-called "scoop-and-toss" maneuver provides budget relief this year.
The remaining GO authority would be tapped for refundings with traditional present value savings, city officials said during a recent City Council Finance Committee meeting. Citi is the senior manager. The city has seen its GO ratings nosedive over its pension woes and in May Moody’s Investors Service dropped it to junk.
The city will also issue $100 million of taxable wastewater revenue-backed borrowing to terminate swaps now in default due to the city’s credit deterioration and will convert $330 million of floating-rate wastewater bonds to a fixed rate. Ramirez is the senior manager on both pieces.
The City Council authorized another $100 million is to be borrowed through the state's clean water revolving fund. Those bonds would be sold by the Illinois Finance Authority on the city’s behalf.
