Approximately $1.4 billion of rated debt affected
New York, November 03, 2021 -- Moody's Investors Service has affirmed Chicago (City of) IL O'Hare Airport Enterprise's A2 rating on $986 million senior lien revenue bonds and A2 rating on $395 million passenger facility charge (PFC) revenue bonds. The enterprise has $8.6 billion of senior revenue bonds and $395 million of PFC bonds outstanding. The outlook was revised to stable from negative.
RATINGS RATIONALE
Both O'Hare's senior revenue bonds and passenger facility charge (PFC) bonds consider the high level of demand for air travel into the large and economically diverse Chicagoland service area and strong rate-recovery from airlines through a 15-year airport use and lease with its largest hubbing carriers United Airlines Holdings, Inc (Ba2 negative) and American Airlines Group, Inc. (B2 negative). The airport's recovery from the pandemic has slightly trailed the national average, which is normal for airports with high exposure to slower-to-recover international traffic. The airport maintains adequate liquidity, around 427 days cash on hand, considering the mostly residual cost recovery rate-making structure at the airport. The ratings are negatively pressured by the high current leverage, measured at $507 adjusted debt per origination and destination (O&D) enplanement in 2019 before the pandemic and $1,415 with the lower enplanement base in 2020.
The airport's current five-year plan anticipates moderate debt issuance of about $1.4 billion, which is a slower pace than envisioned when the $11.0 billion total capital plan was first announced and a key supporting factor in the stable outlook. The ratings incorporate that the larger plan will likely return when traffic reaches pre-pandemic levels. The ratings also reflect that airline costs at the airport are and will remain elevated compared to domestic connecting hub airports and that significant increases could impair the airport's competitive position in each of its two primary tenant airline's route networks.
The A2 rating on senior lien revenue bonds reflects an adequate net revenue debt service coverage ratio (DSCR), around 1.0x during the pandemic, but should return to 1.10x to 1.15x with normalization of traffic in 2022 and beyond. Bond ordinance debt service coverage was 1.55x in 2020.
The A2 PFC bond rating at parity to the general airport revenue bonds reflects the very strong DSCR of PFC bonds by PFC collections above 3.0x in normal operating conditions.
RATING OUTLOOK
The stable outlook reflects Moody's expectations of improved traffic at the airport as international and business travel recover and a moderate pace of capital spending and debt issuance over the current five year period.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- A long-term capital plan which requires less additional debt to complete, reducing the costs recovered from the airlines while maintaining the competitiveness of the airport
- PFC bonds could be upgraded if the GARBs were upgraded
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Any change in FAA guidance or other precedent that would allow for greater revenue diversion from the enterprise to the city's general fund, or allow for debt service payments to be disrupted
- A significant change in the business strategy of United or American Airlines or change to the airport's market position which leads to sustained enplanement declines
- Accelerated debt issuance that is not supported by airlines
- Deterioration of the city's credit profile
- PFC bonds could be downgraded if GARBs were downgraded or if DSCR on PFC bonds fell below 2.0x for a sustained period
LEGAL SECURITY
Senior lien bonds are secured by a pledge of general airport revenues. The Series 2011A, Series 2008A, and Series 2010F bonds are also secured by a subordinate lien pledge of the airport's PFC revenues. The PFC support is pledged through maturity on the 2011A bonds, but only through 2018 for the 2008A and 2010F bonds. The claim on subordinate lien PFC revenues is junior to the airport's PFC revenue bonds, payments for certain projects at the Gary/Chicago International Airport and would be junior to any Subordinated PFC Obligations issued by the airport, though none are currently outstanding or planned. The Series 2011B bonds are also secured by letter of intent grant receipts net of anticipated pay-go grant receipts. The PFC-backed revenue bonds are secured by a pledge of PFC revenues, with no recourse to airport revenues.
The rate covenant in the senior lien indenture provides for sufficient funds to pay the operation and maintenance expenses at O'Hare and at a minimum meet 125% of the total debt service on all outstanding senior lien bonds. All outstanding senior lien bonds are supported by a common debt service reserve sub-fund equal to the maximum annual debt service.
PROFILE
O'Hare International Airport is owned by the City of Chicago and operated by the Chicago Department of Aviation as a self-supporting enterprise fund of the city. The airport is located 18 miles northwest of Chicago's central business district and is classified as a large hub airport by the FAA and is the primary commercial airport for the city. O'Hare occupies approximately 7,300 acres of land. The airport currently has eight active runways ranging from 7,500 to 13,000 feet with electronic and navigational aids that permit operations in more weather conditions. The airport has four terminal buildings, totaling 191 aircraft gates and four hardstand positions. The airport also has ample public parking spaces, a hotel, air cargo buildings, and aircraft maintenance hangars. United Airlines and American Airlines both operate hubs out of the airport. The airport's use and lease agreement was effective as of May 12, 2018 for a 15-year term for long term signatory airlines and specifies a residual rate making methodology, where aggregate fees and charges paid by airlines must be sufficient to pay net costs of operating and maintaining the airport, including requirements under the bond indentures.
METHODOLOGY
The principal methodology used in these ratings was Publicly Managed Airports and Related Issuers published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1140469. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Earl Heffintrayer
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
Plaza Of The Americas
600 North Pearl St. Suite 2165
Dallas 75201
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Kurt Krummenacker
Additional Contact
Project Finance
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
