Chicago plans to issue $80.865 million of senior lien airport revenue refunding bonds for Midway International Airport in a deal that would replace variable-rate debt and associated swaps with fixed-rate bonds.
The pricing date is flexible, said city of Chicago Chief Financial Officer Jill Jaworski.
"The Midway deal is day to day," Jaworski said, adding that Chicago is doing this refunding deal now because "market dynamics are favorable to terminate the associated swaps and issue fixed-rate refunding bonds."
The deal is comprised of $72.98 million of Series 2024A tax-exempt bonds, with interest payments subject to the alternative minimum tax, and $7.885 million of Series 2024B non-AMT tax-exempt bonds.
The new bonds will refund all or a portion of Midway's Series 2004C senior lien revenue bonds and its Series 2004D senior lien revenue bonds, according to the
The 2024 bonds, with a 2035 final maturity, will be non-callable and secured by the airport's net revenues. After issuance, Midway will have about $1.4 billion total first-lien debt.
The municipal advisor is RSI Group. Jefferies is bookrunner, with BofA Securities and Cabrera Capital Markets as senior managers. Swap advisor is PFM Swap Advisors, and Charity & Associates, P.C. is bond counsel.
The deal is rated A, outlook stable, by
"We believe taking out variable rate debt with fixed rate debt is prudent in managing [Midway]'s capital structure as it removes variable rate debt exposure," an S&P spokesperson said. "We view the terminations of these swaps as de-risking a portion of their debt portfolio and simplifying their capital structure."
S&P noted in its rating action that Midway's nearly 11 million enplanements in 2023, its ability to maintain high activity levels through varying economic cycles and its role as a national hub for Southwest Airlines all contributed to the A rating, as did Midway's "very strong management and governance."
But it also pointed to credit weaknesses such as a relatively high debt burden and cost structure, plus Southwest's 87% share of total enplanement in 2023.
"We expect the airport will maintain financial metrics consistent with an adequate financial risk profile despite its moderately sized [capital improvement plan], inclusive of additional debt expected in 2025," the rating agency said.
The airport's $514 million capital improvement plan remains "manageable," and the new modern senior lien indenture structure will strengthen Midway's financial position, the investor presentation says.
Harvey Zachem, managing director of KBRA's public finance ratings group, pointed to credit positives such as residual agreements that obligate airlines such as Southwest to absorb rate and rental charge hikes; Midway's "strong, diverse, expansive air trade area"; and the airport's status as the third-busiest airport in Southwest's route system.
"Interest rate swaps have associated risks and complexities, including interest rate movements that do not always match expectations, and require ongoing monitoring," he said of Chicago's decision to terminate the swaps.
Zachem also highlighted Midway's narrow debt service coverage, reflective of "an adequate, although strengthened, rate covenant and residual airport use agreement." And he noted its non-airline revenue performance ranks among the lowest of U.S. commercial airports.
Still, Midway's 2023 enplanements rose 10.5% year-over-year, reaching 105% of fiscal year 2019's enplanements, the presentation said, and carriers served 93 destinations from Midway in December, up from 79 four years earlier.
