Fitch downgrades O’Hare bonds

Posted Jan. 12 at 6:01 p.m.

By Jon Hilkevitch and Julie Johnsson | The Daley administration is flying into dangerous financial territory by increasing borrowings for the expansion of O’Hare International Airport to unprecedented levels in order to keep the runway construction project going, a top bond credit rating agency cautioned Wednesday.

Fitch Ratings downgraded O’Hare revenue bonds as well as bonds backed by passenger ticket taxes to “A-” status, while assigning a “stable” rating outlook.

The action came two days after Moody’s Investors Service downgraded to a “negative” outlook from “stable” some of the revenue bonds that Chicago has issued to help pay for the $15 billion O’Hare Modernization Program and related capital improvements deemed necessary for the success of the massive airfield project.

The credit-rating downgrade also comes as Chicago prepares an emergency $1 billion bond issuance to sustain the O’Hare project.

Fitch and Moody’s both sounded the alarm over large increases in airport debt to fund the rest of the expansion project, without a buy-in from the airlines serving O’Hare.

American and United airlines have balked at the cost of the project and its scope, including a proposed western passenger terminal complex that neither carrier wants built. They also currently do not need the additional flight capacity that new runways would provide.

“Going forward, the planned borrowings to fund the capital programs will result in O’Hare airport possessing an overall debt burden that will be among the highest for any U.S. airport,” Fitch said.

The downgrade report estimated the Chicago Department of Aviation will need to borrow almost $6 billion to complete planned O’Hare improvements projected to cost more than $4 billion, and that the aggregate airport debt will increase to about $11.4 billion by 2015.

The Fitch report also took issue with Chicago’s plan to defer repayment of interest and principal on construction bonds until at least 2018. It would result in much larger payments over the long run, likely forcing the airport to increases landing fees and other charges paid by the airlines, which in turn would pass along the costs to air travelers.

Fitch warned that such a scenario could put O’Hare at a competitive disadvantage with other large airports.

The city offered little reaction after receiving a second dose of negative feedback from credit market experts this week.

“We are waiting to hear from the other rating agencies before commenting on this,” said Pete Scales, spokesman for the Chicago Department of Budget and Management.

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  1. ejhickey Jan. 12 at 11:39 pm

    another muni bond issue in trouble.

  2. off_leash Jan. 13 at 11:01 a.m.

    Ditch the Illinois Prevailing Wage Act (820 ILCS 130/0.01-12) and watch the projected costs drop like a rock.