CHICAGO – Moody’s Investors Service affirmed Midway International Airport’s single-A level ratings Tuesday and said it should not see a significant credit impact from Chicago’s effort to privatize the airfield, which served a record number of passengers last year.
The agency rates the 85-year-old airport’s first lien revenue bonds A2 and the second lien bonds A3. A stable outlook is assigned to the airport’s $1.4 billion of outstanding debt, which would be retired if the city opts to lease the airport.
The city announced on Monday that the airport saw a record 9.67 million passengers travel through it gates last year, up 3.35 % from 2011. The record breaks one set in 2004 when the airport saw 9.5 million enplanements.
Continued growth is expected this year. Five airlines provide 510 daily flights to 65 destinations , led by Southwest Airlines which expanded service there last year. “It is a major driver of economic activity and job growth for the city of Chicago and I am pleased that it continues to grow,” Mayor Rahm Emanuel said in a statement.
Midway’s growth bodes well for its appeal with potential investors but Southwest’s dominance is both a credit strength and challenge and the high cost per passenger are factors that potential investors will consider in their valuation, market participants said.
The Federal Aviation Administration last month cleared the path for Chicago to consider privatizing Midway under a federal pilot program by allowing the city to release a request for qualifications from potential bidders. The RFQ asks prospective bidders to submit their interest and qualifications with responses due by February 22. Former Mayor Richard Daley had reached a $2.5 billion lease deal but the deal fell through in 2009 due to tightened credit markets.
Chicago will use the results of the RFQ to determine whether to proceed with a formal bidding process later this year. Emanuel has pledged that any deal would benefit both city taxpayers and airport users and a special panel would represent their interests in reviewing a potential deal.
Moody’s described as credit strengths the airport’s strong niche service in a diverse market, it’s key role as a provider of east-west connections for Southwest, and a new 15-year airline use agreement.
Southwest accounts for more than 90% of passenger travel, which has bolstered the airport’s operations, but such concentration leaves the airport susceptible to the airline’s fortunes. The airport’s high debt levels and operating costs also pose a credit challenge with cost-per-passenger level well above the median which could discourage additional operators. The city also must refinance mandatory tenders coming due in 2015 and 2016 if it does not pursue a lease deal.
Moody’s said its stable outlook reflects the view that enplanements will continue to grow, Southwest will continue to utilize the airport at current levels, and that the capital plan will be modest because the recent terminal redevelopment program has been completed.
“The rating and outlook are additionally based on Moody’s expectations that existing bonds will be redeemed or defeased in the event of a successful privatization,” analysts added.
While the city has said it’s still only exploring a lease, U.S. Sen. Dick Durbin, D-Ill., has urged caution, noting the federal investment of $378 million in Midway since 1982, saying some form of repayment could be required.