Chicago brings $1.5 billion deal to fund O’Hare capital plans
5 min read
Bloomberg News
Chicago’s ambitious capital improvement program for O’Hare International Airport will benefit from a massive bond sale coming to market this week.
The $1.56 billion of general airport senior lien revenue and refunding bonds are part of the airport’s sprawling CIP, which is expected to total $11.5 billion over the next decade, $9 billion of that bond funded.
Co-lead managers Jefferies, Cabrera Capital Markets and Loop Capital Markets are planning to price the deal Thursday, according to an online investor presentation.
Traffic at O’Hare, home to hubs of two of the largest U.S. airlines, hadn’t bounced all the way back to pre-pandemic levels, according to full-year 2024 statistics provided in the presentation.
O’Hare saw a slower recovery than its peers due to a combination of phased gate and terminal work and a greater reliance on corporate travel, while airports that relied more heavily on domestic-leisure travel bounced back faster, S&P Director Joseph Pezzimenti said by email.
The bonds are rated A-plus with stable outlooks by S&P, Fitch Ratings and KBRA.
“The stable outlook on the GARB rating reflects our expectation that ORD enplanements will further recover, and the airport will return to fully residual operations” after a period of weakened activity and slower passenger traffic recovery relative to other large hubs, S&P said in its rating report.
The senior lien revenue bond deal consists of a $1.063 billion Series 2025E, tax-exempt but subject to the alternative minimum tax, a $479.95 million non-AMT Series 2025F, and a $22.1 million Series 2025G AMT refunding.
New money proceeds will fund the ORDNext terminal development program; repay portions of the city’s outstanding credit agreement notes; raise the amount in the common debt service reserve sub-fund to the required level; fund capitalized interest; and pay costs of issuance.
Frasca & Associates and Phoenix Capital Partners are co-municipal advisors. Co-bond counsels are Katten Muchin Rosenman and Neal & Leroy.
Fitch said its rating balances O’Hare’s strong air trade service area, strategic location as a hub and demonstrated importance to both United and American Airlines with the risks stemming from O’Hare’s large capital programs and its plans to significantly increase its debt burden.
“The airlines’ preapproval for substantial elements of the overall capital program and the long-term residual airline agreement provide mitigation to these credit pressures,” Fitch said in its rating report, noting that net leverage will probably stay below 13x during the construction period, and will average 11x over the next ten years, excluding the benefit of capitalized interest.
Still, O’Hare’s airline cost per enplanement is relatively high, at $25.75 in fiscal 2024, and Fitch expects that figure to rise to $40 or more in the next decade, “as airport capital spending is captured in the airline rate base,” the rating agency said.
Fitch projects O’Hare debt issuances “will cause CPE to continue rising into the foreseeable future,” Scott Monroe, US transportation sector lead at Fitch, said by email.
“However, the airline use agreement has strengthened ORD’s financial profile by increasing both coverage and liquidity, and peer airports will likely experience significant upward pressure on CPE as well,” he added.
S&P also projects cost per enplanement to rise, which Pezzimenti said will be due to an increase in the airline rate base to help service higher debt service requirements from issuing GARBs to fund the capital improvement program.
O’Hare saw 40 million enplanements in 2024, a 9.3% increase over 2023 levels and 95% recovered compared to 2019 levels, according to an online investor presentation.
At fiscal year’s end 2024, O’Hare’s debt per enplaned passenger had reached $270. That’s expected to climb steeply through 2031, to around $400 per enplaned passenger, according to KBRA, which noted that only 25.7% of O’Hare’s capital improvement plan was funded at FYE 2024.
“With several other large airports implementing large capital programs, KBRA believes O’Hare’s debt levels will be high but in line with other facilities,” KRBA Senior Director Peter Stettler said by email.
The airport’s debt burden is currently around $10.2 billion. After the issuance of the Series 2025AB and 2025EFG bonds, O’Hare will have $12.4 billion of outstanding debt, $11.9 billion of that from GARBs. By 2031, outstanding debt may hit $19.8 billion, according to KBRA.
The GARBs, which are limited obligations of the city, are secured by a first lien on airport net revenue. Available passenger facility charge revenue and net Federal Aviation Administration grant receipts also pay a share of GARB debt service.
PFC revenue is sensitive to changes in enplanements, S&P noted.
As of Monday morning, O’Hare was
“We view current conditions as temporary,” Pezzimenti said. “We also expect O’Hare will be able to service its GARB debt service because of the cost recovery nature of its agreements with the airlines.”
Moreover, the net FAA grant receipts are not sensitive to enplanement numbers; instead, they derive from the FAA’s letter-of-intent program. The agency has never missed a payment during the fiscal year in which it was scheduled under that program.
“We believe ORD will continue to receive timely letter-of-intent grant receipts given the importance and significance of the airport to the national aviation system,” S&P said in its rating report.
O’Hare has four lines of credit with four separate banks that provide $750 million total in interim borrowing capacity for its capital program. Those serve as “an additional source of standby liquidity,” according to the investor presentation.
According to S&P, the airport has about $341 million outstanding between Bank of America, Wells Fargo Bank and Huntington National Bank. The fourth line, with PNC Bank, has no draws outstanding.
The outstanding principal on those lines of credit will be repaid with proceeds from the Series 2025AB bonds. The terms under the lines of credit “pose no contingent liquidity risk exposure to the airport,” S&P said.
O’Hare’s cash and investment balances, excluding debt service reserve accounts, stood at $1.329 billion as of Oct. 20, or roughly 497 days cash on hand.
KBRA’s Stettler said O’Hare has implemented large, complex capital programs before, and the current CIP is comparable to the O’Hare Modernization Program, which realigned the airfield.
One key element of the ongoing ORDNext effort, the groundbreaking for Concourse D, occurred in August; the new concourse will offer 19 internationally capable boarding gates. As of Oct. 21, the city had completed 51% of bids, with 46% of bids in progress, according to the investor presentation.
The city also recently implemented the first gate redetermination process since signing the Airport Use and Lease Agreement in March 2018, according to the investor presentation. The AULA included cost escalation provisions and cost recovery mechanisms, as well as airline approval for $8.6 billion of capital projects.
In 2025, both American and United are set to increase departing seat capacity year-over-year, airport officials aid in the investor presentation.
The city’s finance team did not respond to questions by press time. The Chicago Department of Aviation did not respond to requests for comment.
