CHICAGO – Chicago O’Hare International Airport’s new customer facility charge bond credit established to help finance a consolidated car rental center received a first-time rating of Baa1 from Moody’s Investors Service.
The city late this month or early in August intends to sell $231 million of senior lien customer facility charge revenue bonds. The rating agency assigned the same rating to the city’s $288 million subordinate lien TIFIA loan. The outlook on both is stable.
Bank of America Merrill Lynch is the senior manager with Estrada Hinojosa & Co. Inc. and Raymond James serving as co-senior managers. Frasca & Associates and DNG Consulting LLC are advisers. Ricondo & Associates is airport consultant.
The federal government last month advanced the city’s financing plans by formally inviting it to apply for the Transportation Infrastructure Finance Innovation Act loan to help finance the $884 million intermodal facility. The city’s overall financing package relies on the upcoming bond issue, the TIFIA loan, and proceeds of previously revenue bonds and other airport funds.
The new facility would consolidate car rental functions and provide additional public parking in a five-level structure, provide a bus plaza, and extend the airport transit system known as the people-mover. The facility is expected to provide cost savings to the rental companies and reduce the amount of vehicles and buses on the terminal roadways.
The new credit benefits from the airport’s historically stable demand for rental car transactions which are expected to generate strong debt service coverage levels from the collection of facility rent from the rental car companies and CFC collections.
Challenges include the high debt level which is double all other CFC-backed transactions rated by Moody’s. The initial CFC rate of $8 per day is among the highest in the country. Both factors are “central to the rating,” Moody’s said. The rate is considered a credit weakness.
Other factors behind the rating include the airport’s ability to raise the CFC rate as needed and a commitment from the rental companies to cover shortages in CFC collections if needed for debt service or operations.
The structure is padded with some additional covenants for the benefit of bondholders. Senior lien debt is limited to no more than $300 million until Jan. 1, 2023. A debt service reserve will hold 100% of maximum annual debt service on the senior lien and subordinate lien will be funded at 100% of average annual debt service. Supplemental reserves are also being established. A $20 million CFC Stabilization Fund will also be established. The funds are not pledged to bondholders. Debt service coverage excluding the various reserves is projected to remain above 2.82 times on the senior lien and 1.74 times for all debt.
“The rating for the TIFIA loan is the same due to the springing lien feature and the key risks of construction risk and uncertain rate raising ability given the high initial CFC rate, which are common to both liens,” Moody’s added.
The credit faces significant construction risks with the project’s design only 30% complete. The construction is “somewhat heightened by the complexity of the project, but the airport department has recent experience that will offset that risk,” Moody said.
The rental companies are able to withdraw from the lease if the TIFIA loan is not approved for at least $200 million, if construction does not begin in 36 months, or if the construction price exceeds $765 million and agreement cannot be reached with the airport on adjustments. The city was facing litigation over the financing and development of the project from the major rental car facilities with the companies charging that the city was unfairly altering lease practices. The city and companies settled their differences in late May.