CHICAGO — Chicago's efforts to solve its pension funding crisis could negatively impact O'Hare International Airport's growth prospects, Moody's Investors Service warns in a new report that otherwise offered the city good credit news.

"While the airport is largely immune from the pension funding issues affecting other city credits, Moody's does expect that steps to remedy pension funding issues will negatively affect long term economic growth, which will likely cause the airport to see weaker origination and destination (O&D) passenger growth than its international gateway peers," Moody's said in an Aug. 26 report affirmed the airport's ratings.

Chicago Mayor Rahm Emanuel is expected to outline plans to cover an up to $550 million spike in public safety pension contributions when he unveils a proposed 2016 budget late next month. The city also must close an operating deficit and may have to go back to the drawing board on reforms to its other two pension funds if the Illinois Supreme Court doesn't reverse a lower court ruling. Tax hikes are expected but the city must balance the need to draw more from its tax base with efforts to preserve it, market participants warn.

The city's fiscal strains have dragged its Moody's credit down to junk and its water and sewer and the park district's credit have all suffered too.

On the pension front, the school system and Cook County also are in need of more revenue to solve their pension ills adding to the burden on an overlapping tax base.

The Moody's warning offsets what is otherwise rare good news for the city from Moody's that the O'Hare credits are holding their own. Analysts affirmed the A2 assigned to $6.5 billion of senior lien general airport revenue bonds and $663 million of outstanding passenger facility charge debt. The outlook on all $7 billion of debt is stable.

"The GARB ratings are based on the large and economically varied service area that provides a strong demand for air travel, as well as the airport's position as a connecting hub for two of the four largest airlines in the US and the stable financial metrics provided by the airport's use and lease agreement," Moody's said.

The rating is pressured by the airport's highly leveraged position although levels should remain flat over the next four years as new debt issuance approximates amortization on existing bonds.

"The PFC bond rating is based on the ample coverage, which is expected to continue given the steady enplanement trend and the declining debt service schedule," Moody's said.

The stable outlook reflects analysts' expectation that passenger level trends will continue to grow in line with national trends and that the remaining portions of the airport's capital plan will be managed without significant cost overruns, both of which will support stable financial metrics.

Moody's also affirmed the Baa1 assigned to Chicago O'Hare's $249 million of customer facility charge senior bonds and subordinate $288 million Transportation Infrastructure Finance Innovation Act loan. The outlook is stable.

"The rating is based on the airport's historically stable demand for rental car transactions which are expected to result in strong debt service coverage levels from the collection of facility rent from the rental car companies and from CFC collections," Moody's said.

No airport issuance is imminent but the Emanuel administration submitted to the City Council ordinances seeking authorization for up to $2 billion of O'Hare borrowing earlier this summer. The council will consider the request this fall.

The O'Hare general airport revenue bond authorization would include $1.7 billion of refunding and $300 million of new money for capital projects. The city's has an $8 billion capital program to reconfigure O'Hare's runways with negotiations pending on with airlines on remaining pieces.

O'Hare reclaimed the title of world's busiest airport in 2014, a decade after ceding the status to Atlanta's Hartsfield-Jackson Memorial Airport. The status is based on the number of flights which totaled 881,933, down .2% from 2013, compared to Atlanta's 868,359 flights.

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