Chicago Offers $250 Million for O’Hare After City Rating Cut

Chicago offered about $250 million of revenue bonds for O’Hare International Airport, the nation’s second-busiest, about three weeks after the city had its rating cut three levels by Moody’s Investors Service.

The issue included a portion maturing in January 2023 that was being offered with a yield of 4.18 percent, according to data compiled by Bloomberg. That was down from 4.21 percent earlier in the sale. Interest rates declined across maturities, and by as much as 0.13 percentage point.

The 10-year yield is 1.31 percentage points more than benchmark municipal debt, data compiled by Bloomberg show. O’Hare’s bonds have a Baa1 rating from Moody’s, three steps above junk. The gap compares with a 1.44 percentage point penalty on similarly rated revenue debt, the data show.

The sale shows that the municipal market “understands the underlying strength of the Chicago economy,” Sarah Hamilton, a spokeswoman for Mayor Rahm Emanuel, said in an e-mail. “The financing costs for the project will be extremely attractive.”

The deal is the first by a Chicago issuer since the city’s general-obligation grade was dropped three levels to A3 from Aa3 by Moody’s on July 17. A cut of that magnitude is unprecedented for such a populous U.S. city, according to Moody’s data since 1990. Chicago has about 2.7 million people, trailing only New York and Los Angeles.

The extra yield investors demanded to own Chicago debt jumped 25 percent in the week after the rating cut, pushing interest rates to a two-year high. The O’Hare revenue bonds are considered limited obligations of the city, backed by some customer facility charges, though not Chicago’s taxing power, according to offering documents.

The proceeds will finance a rental-car facility and improvements to the airport’s transit system. O’Hare served about 67 million passengers in 2012, according to Airports Council International data.

Municipal airport bonds have lost 4.4 percent this year, a bigger decline than the 4.1 percent drop for the broader $3.7 trillion market, Bank of America Merrill Lynch data show. It would be the first time since 2010 that airport debt underperformed the entire market.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net

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