O'Hare paper goes down easy with investors
CHICAGO – Healthy demand prompted Chicago to add $150 million to its O’Hare International Airport revenue bond sale, making it the city’s single largest airport transaction ever at $2 billion.
The deal, in the works for months, marks the first financing to help fund an $8.5 billion terminal makeover and expansion at the nation’s third-busiest airport. The city council has authorized another $2 billion but more is expected in the coming years as the bulk of the program relies on borrowing.
“The city experienced robust investor demand for the financing, which will support the O’Hare Terminal Area Plan,” chief financial officer Carole Brown said in a statement. “This demand allowed for a $150 million increase in the amount issued.”
The city's timing on the sale worked in its favor too as yields fell during the day. The deal, with JPMorgan running the books, eclipsed a $1.95 billion sale in 2015.
The senior lien airport revenue bonds sold in three series: two tax-exempt tranches for $596 million and $613 million and a taxable one for $800 million. The deal drew 119 investors, including 62 new ones, and was more than two times oversubscribed, the city said.
The mostly new money bonds offered a variety of serials and terms, taxable, tax-exempts, and both alternative minimum tax and non-AMT paper. The deal was repriced by midday and the underwriting team took orders on some terms until 5 p.m. Eastern time.
The deal’s structural details, such as coupons and prices, were geared to cater to specific investor appetites, with the lower coupons appealing to retail and the premium prices attractive to institutions as a protection against rising interest rates, said several market participants.
The city’s airport enterprise debt has traditionally fared well, with little yield penalty demanded by investors compared with some other city credits due to the airport’s strengths and the federally mandated separation of airport revenues from general city coffers.
The deal carries A ratings from S&P Global Ratings and Fitch Ratings and an A-plus from Kroll Bond Rating Agency with the exception of insured pieces.
A 2018B $71 million 2053 maturity non-AMT with a 4% coupon carried coverage by Assured Guaranty Municipal and was rated AA by S&P. A 2018A series $115 million 2043 maturity subject to the AMT with a 4% coupon was insured by Build America Mutual and was rated AA by S&P. The information was based on the last available pricing wire distributed late Tuesday.
The $596 million A series that was subject to the AMT offered serial maturities from 2020 to 2039 with 5% coupons and yields ranging from 2.29% on the short end to 3.87%. Terms were offered in 2043, 2048, and 2053 with coupons ranging from 4% to 5% and yields ranging from 4.07% to 4.50%.
The AMT 10-year landed at a spread of 78 basis points to the AAA benchmark at its Monday closing level and 31 basis points to the single A, where the bonds were rated. The 10 benchmarks moved eight basis points lower by Tuesday’s market close. A 30-year AMT maturity landed at an 85 basis point spread to the AAA and a 34 basis point spread to the single A. Those benchmarks moved eight basis points by the market close Tuesday.
Non-AMT bonds in 2038 and longer saw spread 25bps tighter than their AMT counterparts, according to Municipal Market Data.
The $613 million B series of non-AMT bonds offered serials from 2036 to 2039 with yields ranging from 3.51% to 3.67% with 5% coupons. Terms were offered in 2044, 2048, and 2053 with coupons of 4% to 5% and yields between 3.85% and 4.22%.
A 20-year maturity in the non-AMT series landed at a 57 basis point spread to the AAA and seven basis point to the single A. The 30-year maturity in the non-AMT series landed at a 53 basis point spread to the AAA and a 12 basis point spread to the A. The benchmark yield was cut eight basis points by market close Tuesday.
The $800 million taxable C series with a make whole call sold in a 2049 term and 2054 term with yields of 4.472% and 4.572%, respectively, that represented a 130 basis point and 140 basis point spread to comparable Treasurys.
The expansive makeover included in the new airport lease and use agreement struck with most airlines earlier this year calls for the redevelopment of existing terminals, the expansion of the existing international terminal, new satellite concourses, and the demolition of one domestic terminal to replace it with another global terminal.
More than 20 firms rounded out the syndicate. Frasca & Associates LLC and Swap Financial Group are advisors. Mayer Brown LLP and Neal & Leroy LLC are bond counsel.
A 10-year maturity on Chicago’s $1.1 billion O’Hare sale just after the 2016 presidential election landed at an 82 basis point spread to the MMD top benchmark. In a $1 billion sale just before the election, the 10-year landed at a spread of 58 basis points. Both were in non-AMT series.