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Type:
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Communication
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Status:
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Placed on File
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Intro date:
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12/14/2016
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Current Controlling Legislative Body:
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Title:
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Certificate Pursuant to Bond Ordinance - Chicago O'Hare International Airport, General Airport Senior Lien Revenue Refunding Bonds, Series 2016A, Series 2016B and Series 2016C
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Attachments:
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1. F2016-65.pdf
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Department of Finance city of chicago TO—i 3C December 5, 2016 Carina Sanchez Deputy City Clerk m ^ 121 North LaSalle Street City Hall - Room 107 Chicago, Illinois 60602 RE: City of Chicago Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A, Series 2016B and Series 2016C (the "Bonds") Dear Ms. Sanchez: Attached is the Certificate Pursuant to Bond Ordinance which is required to'be filed with your office pursuant lo Part B, Article II, Section 2.6(c) of the ordinance adopted by the City Council of the City of Chicago (the "City Council") on September 14, 2016. Executed copies of the Official Statement and Contract of Purchase for the Bonds are also included. Please direct this filing to Ihe City Council. Chief Financial Officer 121 NORTH LASALLE STREET, SUITE 700. CHICAGO, ILLINOIS 60602 t—*l C'1 CERTIFICATE PURSUANT TO BOND ORDINANCE Pursuant to the provisions of the ordinance adopted by the City Council of the City of Chicago (the "City") on September 14, 2016 (the "Bond Ordinance"), authorizing the issuance of the City's Chicago O'Hare International Airport General Airport Senior Lien Revenue Bonds in one or more series, the undersigned, CAROLE L. BROWN, the duly qualified and acting Chief Financial Officer of the City, hereby certifies as follows: (a) Except as otherwise defined herein, all defined terms contained in this Certificate shall have the same meanings, respectively, as such terms are defined in the Bond Ordinance. I (b) Pursuant to Part A, Article I, Section 1.2(e), Part B, Article II, Section 2.1(b) and (f) and Section 2.6(a) and (c) of the Bond Ordinance, the undersigned Chief Financial Officer has determined that the Bonds, (as hereinafter defined) shall be issued in an aggregate principal amount of $1,014,335,000 and in three series, such series to be designated (i) Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A in the aggregate principal amount of $27,335,000 (the "Series 2016A Senior Lien Bonds"), (ii) Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B in the aggregate principal amount of $461,945,000 (the "Series 2016B Senior Lien Bonds") and (iii) Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C in the aggregate principal amount of $525,055,000 (the "Series 2016C Senior Lien Bonds" and, together with the Series 2016A Senior Lien Bonds and the Series 2016B Senior Lien Bonds, the "Bonds"), and that the Bonds shall be dated, bear interest and mature, and shall be subject to optional and mandatory redemption prior to maturity, all as set forth in the "Schedule of Maturities" attached here to as Exhibit A. Bonds that are subject to optional redemption may be redeemed at a redemption price of 100% of the principal amount of Bonds being redeemed plus accrued interest thereon to the redemption date. Bonds subject to mandatory redemption will be redeemed at a redemption price equal to 100% of the principal amount redeemed plus accrued interest thereon to the redemption date without premium. (c) Pursuant to Part B, Article II, Section 2.2 of the Bond Ordinance, the net proceeds of the sale of the Bonds shall be applied in the manner and amounts as described in Exhibit B attached hereto, entitled "Application of Proceeds." o - ;—O
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Pursuant to Part B, Article II, Section 2.6(a) and (b) of the Bond Ordinance, the undersigned Chief Financial Officer has determined, with the concurrence of the Chairman of the Committee on Finance of the City Council, that the aggregate purchase price for the Bonds shall be $1,152,913,642.07 (reflecting a par value of $1,014,335,000 less an underwriters' discount of $4,597,555.68 plus an original issue premium of $143,176,197.75), representing an aggregate purchase price for the Bonds which is not less than 98% of the principal amount of the Bonds (less any original issue discount which may be used in the marketing of the Bonds), plus accrued interest thereon from their date to the date of delivery thereof and payment thereof and on behalf of the City has executed and delivered a Contract of Purchase, dated November 3, 2016 between the City and Merrill Lynch, Pierce, Fenner & Smith, Inc. as representative of the underwriters as listed therein (the "Contract of Purchase").
Pursuant to Part B, Article II, Section 2.12 of the Bond Ordinance, the undersigned Chief Financial Officer has determined that the Series 2016A and Series 2016B Bonds are "Common Reserve Bonds" as defined in the related Supplemental Indentures. Upon the issuance of the Bonds, the City will deposit $41,246,250 from proceeds of the Bonds into the Common Debt Service Reserve Sub-Fund, and that such deposit of funds into the Common Debt Service Reserve Sub-Fund is in the best financial interests of the City.
Pursuant to Part B, Article II, Section 2.6(f) of the Bond Ordinance, the undersigned Chief Financial Officer has executed a Continuing Disclosure Undertaking, dated as of December 5, 2016, evidencing the City's agreement to comply with the requirements of Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, with respect to the Bonds.
Pursuant to Part B, Article II, Section 2.6(c) of the Bond Ordinance, delivered herewith for filing with the office of the City Clerk is one copy of the Official Statement dated December 5, 2016 relating to the Bonds and an executed copy of the Contract of Purchase to be filed as soon as practicable after the delivery of the Bonds.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.]
-2-
IN WITNESS WHEREOF, the undersigned has hereunto subscribed her official signature this 5th day of December, 2016.
CITY OF CHICAGO
Carole L. Brown Chief Financial Officer
[Signature Page - Certificate Pursuant to Bond Ordinance]
EXHIBIT A
Schedule of Maturities and Redemption Provisions for the Series 2016A, Series 2016B and Series 2016C Senior Lien Bonds
Authorization: (i) Master Indenture of Trust Securing Chicago O'Hare International Airport Senior Lien Obligations dated as of October 1, 2012 (the "Senior Lien Master Indenture") as supplemented by a Fifth-Second Supplemental Indenture securing Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A dated as of December 1, 2016 (the "Fifty-Second Supplemental Indenture"), a Fifty-Third Supplemental Indenture securing Chicago O'FIare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B dated as of December 1, 2016 (the "Fifty-Third Supplemental Indenture"), and a Fifty-Fourth Supplemental Indenture securing Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C dated as of December 1, 2016 (the "Fifty-Fourth Supplemental Indenture"), each from the City of Chicago (the "City") to U.S. Bank National Association, as trustee, and (ii) an ordinance adopted by the City Council of the City on September 14, 2016.
Dated Date: December 5, 2016
$27,335,000
Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT)
MATURITY INTEREST
(JANUARY n AMOUNT RATE
2017 600,000 3.00%
*** *** ***
950,000 5.00
1,000,000 5.00
1,045,000 5.00
1,100,000 5.00
1,155,000 5.00
1,210,000 5.00
1,275,000 5.00
1,340,000 5.00
1,405,000 5.00
1,470,000 5.00
1,550,000 5.00
1,625,000 5.00
1,710,000 5.00
1,790,000 5.00
1,885,000 5.00
1,975,000 5.00
2,075,000 5.00
2,175,000 5.00
PRICE YIELD (%) CUS1P
100.144 0.98% 167593SZ6
*** *** ***
110.088 1.62 167593TA0
112.803 1.73 167593TB8
115.130 1.86 167593TC6
116.698 2.06 167593TD4
117.885 2.25 167593TE2
118.571 2.45 167593TF9
119.015 2.63 167593TG7
117.6031" 2.79 167593TH5
116.557T 2.91 167593TJ1
115.5221 3.03 167593TK8
1 14.5821 3.14 167593TL6
113.989f 3.21 167593TM4
113.400| 3.28 167593TN2
112.8971" 3.34 167593TP7
112.4811- 3.39 167593TQ5
112.149f 3.43 167593TR3
111.900t 3.46 167593TS1
111.653| 3.49 167593TT9
t Priced to the January I, 2026 optional redemption date.
A-1
Maturity (January 1)
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2031 2032 2032 2033 2033 2034 2034 2035 2035 2036 2037 2038 2039
$85,480,000
$461,945,000
Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT)
Rate
Interest
100.315
104.331
107.903
111.170
114.285
116.871
119.088
120.643
121.428
122.176
120.719t
119.9081
118.395f
117.6911
106.254t
117.0791
105.688t
116.2101
104.967t
115.436t
104.648t
115.093f
104.1711
114.4971-
114.3271
114.074J
113.989T
1 13.9051
Price: 113.820t
Price
5.00%
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
4.00
5.00
4.00
5.00
4.00
5.00
4.00
5.00
4.00
5.00
5.00
5.00
5.00
5.00
Term Bond due January 1,2041
CUSIP (167593)
167593TU6
167593TV4
167593TW2
167593TX0
167593TY8
167593TZ5
167593 UA8
167593UB6
167593UC4
167593UD2
167593UE0
167593UF7
167593UG5
167593UH3
167593UJ9
167593UU4
167593UK6
167593UV2
167593UL4
167593UW0
167593UM2
167593UX8
167593UN0
167593UY6
167593UP5
167593UQ3
167593UR1
167593US9
CUSIP: 167593UT7
t Priced to the January 1, 2026 optional redemption date.
A-2
Maturity (January 1) 20T7
* * *
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038
$525,055,000
General Airport Senior Lien Revenue Bonds, Series 2016C (AMT)
Interest
5.00% + **
5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
100.315 ***
107.903 1 11.170 114.285 116.871 119.088 120.643 121.428 122.176 120.719f 119.908t 118.3951 117.6911 117.079+ 116.21 Of 115.436+ 115.093 + 114.497+ 1 14.3271 114.0741 1 13.989+
0.62% ***
1.13 1.28 1.38 1.53 1.68 1.87 2.10 2.28 2.44 2.53 2.70 2.78 2.85 2.95 3.04 3.08 3.15 3.17 3.20 3.21
Amount Rate Price Yield(%)
1 1,065,000 * * *
15,545,000 16,320,000 17,140,000 17,995,000 18,895,000 19,840,000 20,830,000 21,875,000 22,965,000 24,115,000 25,320,000 26,585,000 27,915,000 29,310,000 30.775,000 32,315,000 33,930,000 35,630,000 37,410,000 39,280,000
CUSIP (167593) 167593UZ3
167593 VA7 167593VB5 167593 VC3 167593VD1 167593 VE9 167593VF6 167593VG4 167593 VH2 167593VJ8 167593 VK5 167593 VL3 167593 VM1 167593VN9 167593VP4 167593VQ2 167593 VR0 167593 VS8 167593 VT6 167593VU3 167593 VV1
t Priced to the January 1, 2026 optional redemption date.
A-3
Redemption Provisions for the Scries 2016A, Series 2016B And Series 2016C Senior Lien Bonds
Optional Redemption Provisions
2016A Senior Lien Bonds The 2016A Senior Lien Bonds maturing on and after January 1, 2027, are subject to redemption at the option of the City on or after January 1, 2026, in whole or in part at any time, and if in part, in such order of maturity as the City shall determine and within any maturity by lot, at the redemption price equal to the principal amount of each 2016A Senior Lien Bond to be redeemed, plus accrued interest to the date of redemption.
2016B Senior Lien Bonds The 2016B Senior Lien Bonds maturing on and after January 1, 2027, are subject to redemption at the option of the City on or after January 1, 2026, in whole or in part at any time, and if in part, in such order of maturity as the City shall determine and by lot for 2016B Senior Lien Bonds of the same maturity and interest rate, at the redemption price equal to the principal amount of each 2016B Senior Lien Bond to be redeemed, plus accrued interest to the date of redemption.
2016C Senior Lien Bonds The 2016C Senior Lien Bonds maturing on and after January 1, 2027, are subject to redemption at the option of the City on or after January 1, 2026, in whole or in part at any time, and if in part, in such order of maturity as the City shall determine and within any maturity by lot at the redemption price equal to the principal amount of each 2016C Senior Lien Bond to be redeemed, plus accrued interest to the date of redemption.
Mandatory Sinking Fund Redemption Provisions.
2016B Senior Lien Bonds The 2016B Senior Lien Bonds maturing on January 1, 2041 are subject to mandatory redemption in part by lot from Sinking Fund Payments on January 1 of each of the years and in the respective principal amounts set forth below at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date of redemption:
Year 2040 204 It
Amount($) $ 95,000 85,385,000
f Final Maturity
If the City redeems 2016B Senior Lien Bonds subject to mandatory redemption pursuant to optional redemption or purchases 2016B Senior Lien Bonds subject to mandatory redemption and cancels the same, then an amount equal to the principal amount of 2016B Senior Lien Bonds of such Series and maturity so redeemed or purchased shall be deducted from the mandatory redemption requirements as provided for such 2016B Senior Lien Bonds of such Series and maturity in such order as an Authorized Officer of the City shall determine.
A-4
Notice and Selection of Bonds Notice of redemption of the defined term for all three Series is just Bonds which are subject to optional redemption (i) identifying the Bonds or portions thereof to be redeemed, and (ii) specifying the redemption date, the redemption price, the places and dates of payment, that from the redemption date interest will cease to accrue, and whether the redemption is conditioned upon sufficient moneys being available on the redemption date (or any other condition), shall be given by the Trustee by mailing a copy of such redemption notice, not less than 30 days nor more than 60 days prior to the date fixed for redemption, to the Registered Owner of each such Bond to be redeemed in whole or in part at the address shown on the registration books. Redemption notices will be sent by first class mail, except that notices to Registered Owners of at least $1,000,000 of Bonds of the same Series shall be sent by registered mail. Failure to mail any such notice to the Registered Owner of any such Bond or any defect therein shall not affect the validity of the proceedings for such redemption of such Bond. Any such notice mailed as described above shall be conclusively presumed to have been duly given, whether or not the Registered Owner of any Bond receives the notice.
If a Bond is of a denomination larger than $5,000, all or a portion of such Bond (in a denomination of $5,000 or any integral multiple thereof) may be redeemed, but such Bond shall be redeemed only in a principal amount equal to $5,000 or any integral multiple thereof. Upon surrender of any Bond for redemption in part only, the City shall execute and the Trustee shall authenticate and deliver to the Registered Owner thereof, at the expense of the City, a new Bond or Bonds of the same Series, maturity and interest rate and of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the Bond surrendered.
If fewer than all of the Bonds of the same Series, maturity and interest rate are called for redemption, such Bonds (or portions thereof) to be redeemed shall be selected by lot by the Trustee (except at any time when such Bonds are held in a book entry system, in which case selection of such Bonds to be redeemed will be in accordance with procedures established by the book entry depository).
A-5
EXHIBIT B
Sources and Uses of Funds
City of Chicago - Chicago O'Hare International Airport General Airport Revenue Bonds, Series 2016 FINAL VERIFIED NUMBERS AGGREGATE
Dated
Date 12/5/2016 Delivery
Date 12/5/2016
Series 2016A (AMT)
Scries 2016B (Non-AMT)
Series 2016C (Non-AMT)
Par Amount Premium
27,335,000.00 3,825,843.95
461,945,000.00 54,913,257.55
525,055,000.00 84,437,096.25
,014,335,000.00 143,176,197.75
1,157,511,197.75
Scries 2016A (AMT)
Series 2016B (Non-AMT)
Series 2016C (Non-AMT)
Refunding Escrow Deposits:
Cash Deposit
Open Market Purchases
30,992,142.50 185,215,575.07 5.00 216,207,722.57
- 329,075,435.68 565,071,049.38 894,146,485.06
30,992,142.50 514,291,010.75 565,071,054 38
Other Fund Deposits:
Debt Service Reserve Fund
Delivery Date Kxpenses:
Cost of Issuance Underwriter's Discount
35,135.71 130,632.62
593,772.17 1,969,702.01
674,892.12 2,497,221.05
1,303,800.00 4.597,555.68
3,172,113.17
Other Uses of Funds:
Additional Proceeds
31,160,843.95 516,858,257.55 609,492,096.25 1,157,51 1,197.75
Nov 3, 2016 6.38 pm Prepared by Bank of America Merrill Lynch
RATINGS: SEE "RATINGS" HEREIN
The delivery of the 2016 Senior Lien Bonds is subject to the opinions of Katten Muchin Rosenman, LLP and Neal & Leroy, LLC, Co-Bond Counsel, to the effect that under existing law, interest on the 2016 Senior Lien Bonds is not includible in the gross income of the owners thereof for federal income tax purposes and that, assuming continuing compliance with the applicable requirements of the Internal Revenue Code of 1986, interest on the 2016 Senior Lien Bonds will continue to be excluded from the gross income of the owners thereof for federal income tax purposes. In addition, (i) interest on the 2016A Senior Lien Bonds is an item of tax preference for purposes of computing individual and corporate alterna tive minimum taxable income; (ii) interest on the 2016B Senior Lien Bonds and the 2016C Senior Lien Bonds is not an item of tax preference for purposes of computing individual and corporate alternative minimum taxable income for purposes of the individual and corporate alternative minimum tax; and (iii) interest on the 2016A Senior Lien Bonds is not excludable from the gross income of owners who are "substantial users" of the facilities financed or refinanced thereby. Interest on the 2016 Senior Lien Bonds is not exempt from present Illinois income taxes. See "TAX MATTERS" herein.
$1,014,335,000 CITY OF CHICAGO Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds
$27,335,000 $461,945,000 $525,055,000
Series 2016A Series 2016B Series 2016C
(AMT) (Non-AMT) (Non-AMT)
Dated: Date of Delivery Due: January 1, as shown on the inside cover
The 2016 Senior Lien Bonds will be limited obligations of the City of Chicago (the "City") payable from and secured by a pledge of Revenues (as herein defined) derived from the operation of Chicago O'Hare International Airport ("O'Hare") and will be secured on a parity basis as to the Revenues with the City's Outstanding Senior Lien Bonds and such other Senior Lien Obligations as may be outstanding from time to time, as more fully described herein. The 2016A Senior Lien Bonds and the 2016B Senior Lien Bonds will not be secured by Other Available Moneys (as herein defined). The 2016C Senior Lien Bonds through Fiscal Year 2018 will also be payable from and secured by a pledge of annual payment amounts to be derived from a subordinate pledge of PFC Revenues (as herein defined), including moneys to be withdrawn from the PFC Capital Fund. The claim of the 2016C Senior Lien Bonds to the PFC Revenues is subordinate to the right of payment to the claim of the City's PFC Obligations (as herein defined) and subject to certain rights and obligations of the City as described under the heading "SECURITY FOR THE 2016 SENIOR LIEN BONDS." See "THE 2016 SENIOR LIEN BONDS" and "SECURITY FOR THE 2016 SENIOR LIEN BONDS." Neither the faith and credit nor the taxing power of the City, the State of Illinois or any political subdivision of the State of Illinois will be pledged to the payment of the principal of or interest on the 2016 Senior Lien Bonds.
The 2016 Senior Lien Bonds will be issued as fully registered bonds in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the 2016 Senior Lien Bonds. Purchasers of the 2016 Senior Lien Bonds will not receive certificates representing their interests in the 2016 Senior Lien Bonds purchased. Ownership by the beneficial owners of the 2016 Senior Lien Bonds will be evidenced by book-entry only. Principal of and interest on the 2016 Senior Lien Bonds will be paid by U.S. Bank National Association, Chicago, Illinois, as trustee for the 2016 Senior Lien Bonds to DTC, which in turn will remit such principal and interest payments to its participants for subsequent disbursement to the beneficial owners of the 2016 Senior Lien Bonds. As long as Cede & Co. is the registered owner as nominee of DTC, payments on the 2016 Senior Lien Bonds will be made to such registered owner, and disbursal of such payments to beneficial owners will be the responsibility of DTC and its participants. See APPENDIX G-"DESCRD?TION OF BOOK-ENTRY ONLY SYSTEM."
Interest on the Senior Lien Bonds is payable January 1 and July 1 of each year commencing January 1, 2017. The 2016 Senior Lien Bonds are subject to optional and mandatory redemption prior to maturity in the manner and at the times set forth herein. See "THE 2016 SENIOR LIEN BONDS-Redemption Provisions."
The City will use the proceeds from the sale of the 2016 Senior Lien Bonds, together with other available funds, to: (i) refund certain outstanding Airport Obligations (the "Refunded Bonds," as herein defined), (ii) fund the related reserve requirements for the 2016 Senior Lien Bonds and (iii) pay costs and expenses incidental thereto and to the issuance of the 2016 Senior Lien Bonds. See "PLAN OF FINANCE" and "SOURCES AND USES OF FUNDS."
For a discussion of certain investment considerations associated with the purchase of the 2016 Senior Lien Bonds, see "CERTAIN INVESTMENT CONSIDERATIONS."
For maturities, principal amounts, interest rates, prices, yields and CUSIP numbers, see the inside cover pages.
The 2016 Senior Lien Bonds are offered when, as and if issued by the City and accepted by the Underwriters subject to the approval of their validity by Katten Muchin Rosenman LLP, Chicago, Illinois, and Neal & Leroy, LLC, Chicago, Illinois, Co-Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by (i) its Corporation Counsel and (ii) in connection with the preparation of this Official Statement, Miller, Canfield, Paddock and Stone, P.L.C., Chicago, Illinois, and McGaugh Law Group, LLC, Chicago, Illinois, Co-Disclosure Counsel to the City. Certain legal matters will be passed upon for the Underwriters by Ice Miller LLP, Chicago, Illinois, Underwriters' Counsel. It is expected that delivery of the 2016 Senior Lien Bonds in book-entry form will be made through the facilities of DTC on or about December 5, 2016.
BofA Merrill Lynch
Cabrera Capital Markets, LLC Jefferies
Estrada Hinojosa & Company, Inc. IFS Securities, Inc. Mesirow Financial, Inc. North South Capital, LLC
Raymond James Stinson Securities, LLC Ziegler
Dated November 3, 201G
Maturities, Amoun ts, Interest Rates, Prices, Yields and CUSIP+ Numbers
City of Chicago Chicago O'Hare International Airport
$27,335,000
General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT)
Maturity Interest
tJanuarytIY ~~~"Amount " "Rate"""
2017 $ 600,000 3.00%
*** *•* ***
950,000 5.00
1,000,000 5.00
1,045,000 5.00
1,100,000 5.00
1,155,000 5.00
1,210,000 . 5.00
1,275,000 5.00
1,340,000 5.00
1,405,000 5.00
1,470,000 5.00
1,550,000 5.00
1,625,000 5.00
1,710,000 5.00
1,790,000 5.00
1,885,000 5.00
1,975,000 5.00
2,075,000 5.00
2,175,000 5.00
"Price "Yield" "" CUSIP* "
100.144 0.98% 167593SZ6
*** *** ***
110.088 1.62 167593TA0
112.803 1.73 167593TB8
115.130 1.86 167593TC6
116.698 2.06 167593TD4
117.885 2.25 167593TE2
118.571 2.45 167593TF9
119.015 2.63 167593TG7
117.603* 2.79 167593TH5
116.557* 2.91 167593TJ1
115.522* 3.03 167593TK8
114.582* 3.14 167593TL6
113.989* 3.21 167593TM4
113.400f 3.28 167593TN2
112.897* 3.34 167593TP7
112.481* 3.39 167593TQ5
112.149* 3.43 167593TR3
111.900* 3.46 167593TS1
111.653*. 3.49 167593TT9
* Priced to the lanuary 1,2026 optional redemption date.
+ Copyright 2016, American Bankers Association. CUSIP data herein are provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of bondholders only at the time of issuance of the 2016 Senior Lien Bonds and the City does not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any lime in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2016 Senior Lien Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2016 Senior Lien Bonds.
City of Chicago
Chicago O'Hare International Airport
$461,945,000
General Airport Senior Lien Revenue Refunding Bonds, Scries 2016B (Non-AMT)
Maturity (January 1)
2017
2018
2019
2020
2021 . 2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2031-
2032
2032
2033
2033
2034
2034
2035
2035
2036
2037
2038
2039
Amount $ 10,825,000
52,055,000
56,475,000
59,290,000 2,005,000 2,105,000 2,215,000 2,325,000 2,435,000 2,555,000 2,680,000 2,825,000 2,955,000 3,105,000 1,845,000 -1,420,000 1,920,000
10,360,000 2,000,000
28,500,000 2,080,000
59,910,000 2,155,000
51,625,000 3,775,000 2,515,000 2,790,000 1,720,000
Interest Rate 5.00% 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 4.00 5.00 4.00 5.00 4.00 5.00 4.00 5.00 4.00 5.00 5.00 5.00 5.00 5.00
Price 100.315 104.331 107.903 111.170 114.285 116.871 119.088 120.643 121.428 122.176 120.719+ 119.908* 118.395* 117.691+ 106.254+ 117.079+. 105.688+ 116.210* 104.967* 115.436+ 104.648+ 115.093+ 104.171 + 114.497* 114.327+ 114.074* 113.989+ 113.905*
Yield
0.62%
0.93
1.13
1.28
1.38
1.53
1.68
1.87
2.10
2.28
2.44
2.53
2.70
2.78
3.20
2.85
3.27
2.95
3.36
3.04
3.40
3.08
3.46
3.15
3.17
3.20
3.21
3.22
CUSIP* 167593TU6 167593TV4 167593TW2 167593TX0 167593TY8 167593TZ5 167593UA8 167593UB6 167593UC4 167593UD2 167593UE0 167593UF7 167593UG5 167593UH3 167593UJ9 167593UU4 167593UK6 167593UV2 167593UL4 167593UW0 167593UM2 167593UX8 167593UN0 167593UY6 167593UP5 167593UQ3 167593UR1 167593US9
5.00% Term Bonds due January 1,2041 Price: 113.820+
+ Priced to the January 1, 2026 optional redemption date
Copyright 2016, American Bankers Association. CUSIP data herein arc provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc The CUSIP numbers listed above arc being provided solely for the convenience of bondholders only at the time of issuance of the 2016 Senior Lien Bonds and the City does not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed alter the issuance of the 2016 Senior Lien Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2016 Senior Lien Bonds.
City of Chicago
Chicago O'Hare International Airport $525,055,000
General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT)
Maturity (January 1)
2017 ***
Amount $11,065,000
Interest Rate 5:00%
Price
100.315 ***
Yield 0.62%
CUSIP' 167593UZ3
2019T
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029'
2030
'2031
2032'
2033
2034
2035
2036
20371
2038
'15,'545,000~ 16,320,000 17,140,000 17,995,000 18,895,000 19,840,000 20,830,000 21,875,000 22,965,000 24,115,000 25,320,000 26,585,000 27,915,000 29,310,000 30,775,000 32,315,000 33,930,000 35,630,000 37,410,000 39,280,000
5:00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5':00 5.66 5.00 5.00 5:00 5:00 5.00 5.00 '5.00 5.00
07:903 ' 111.170 114.285 116.871 119.088 120.643 121.428 122.176 120.719+ 119.908+ 118.395+ 117!691 + 117.079+ 116.210+ 115.436+ 115.093+ 114:497+ 114.327+ 114:074+ 113.989+
13" 1.28 1.38 1.53 1.68 1.87 2.10 2.28 2.44 2:53 2.70 2.78 2.85 2.95 3.04 3.08 3.15 3.17 3.20 3.21
-167593VA7-167593 VB5 167593VC3 167593 VD1 167593VE9 167593VF6 167593VG4 167593VH2 167593VJ8 167593VK5 167593VL3 I67593VM1 167593VN9 167593VP4 167593VQ2 167593VR0 167593VS8 167593VT6 167593 VU3 167593VV1
+ Priced to the January 1, 2026 optional redemption date.
+ Copyright 2016, American Bankers Association. CUSIP data herein are provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above arc being provided solely for the convenience of bondholders only at the time of issuance of the 2016 Senior Lien Bonds and the City does not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of Ihe 2016 Senior Lien Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors thatiis applicable to all or a portion of certain maturities of the 2016 Senior Lien Bonds.
City of Chicago
Chicago O'Hare International Airport
Mayor
Rahm Emanuel
City Treasurer Kurt A. Summers, Jr.
City Clerk Susana A. Mendoza
City Council Committee on Finance Edward M. Burke, Chairman
Chief Financial Officer Carole L. Brown
City Comptroller
Erin Keane
Budget Director Alexandra Holt
Corporation Counsel Stephen R. Patton, Esq.
Department of Aviation
Ginger S. Evans, Commissioner
Co-Bond Counsel Katten Muchin Rosenman, LLP Neal & Leroy, LLC
Co-Disclosure Counsel Miller, Cantield, Paddock & Stone, P.L.C McGaugh Law Group, LLC
Airport Consultant
Ricondo & Associates, Inc.
Co-Financial advisors
Frasca & Associates, LLC Columbia Capital Management, LLC
Regarding run Usk of This Official Statement
The Underwriters have provided the following sentence for inclusion in the Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.
This Official Statement is being used in connection with the sale of the 2016 Senior Lien Bonds and may not be reproduced or used, in whole or in part, for any other purpose. Certain information contained in this Official Statement has been obtained by the City from DTC and other sources that are deemed to be reliable; however, no representation or warranty is made as to the accuracy or completeness of such information by the City. The delivery of this Official Statement at any time does not imply that information herein is correct as of any time subsequent to its dale.
This Official Statement should be considered in its entirety and no one factor considered more or less important than any other by reason of its position in this Official Statement. Where statutes, reports or other documents arc referred to herein, reference should be made to such statutes, reports or other documents in their entirety for more complete information regarding the rights and obligations of parties thereto, facts and opinions contained therein and the subject matter thereof. Any statements made in this Official Statement, including the Appendices, involving matters of opinion or estimates, whether or not so expressly stated, arc set forth as such and not as representations of fact, and no representation is made that any of such estimates will be realized. This Official Statement contains certain forward-looking statements and information that are based on the beliefs of the City as well as assumptions made by and currently available to the City. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected.
Neither the City nor any other independent accountants, have compiled, examined, or performed any procedures with respect to, or been consulted in connection with the preparation of, the prospective financial information contained herein. The City's independent auditors assume no responsibility for the content of the prospective financial information set forth in this Official Statement, disclaim.any association with such prospective financial information, and have not, nor have any other independent auditors, expressed any opinion or any other form of assurance on such information or its achievability.
No dealer, broker, sales representative or any other person has been authorized by the City to give any information or to make any representation other than those contained in this Official Statement in connection with the offering it describes and, if given or made, such other information or representation must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities other than those described on the cover page and inside cover pages hereof, nor shall there be any offer to; sell, solicitation of an offer to buy or sale of, the 2016 Senior Lien Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information and opinions expressed herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of O'Hare.since the date of this Official Statement. Neither this Official Statement nor any statement that may have been made verbally or in writing is to be construed as a contract with the registered or beneficial owners of the 2016 Senior Lien Bonds.
In making an investment decision, investors must rely on their own examination of the terms of this offering, including the merits and the risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.
Certain persons participating in this offering may engage in transactions that maintain or otherwise affect the price of the 2016 senior lien bonds. specifically, the underwriters may overallot in connection with the Offering, and may bid for, and purchase, the 2016 Senior Lien Bonds in the open market. The prices and other terms respecting the Offering and sale of the 2016 Senior Lien Bonds may be changed from time to time by the underwriters after the 2016 senior lien bonds are released for sale, and the 2016 Senior Lien Bonds may be offered and sold at prices other than the Initial Offering Prices, including sales to dealers who may sell the 2016 senior llln bonds into investment accounts.
Table of Contents
Heading Page
Introduction l
Authorization|910|Purpose|910|Refunded Bonds|910|Additional Airport Obligations|910|Security for the 2016 Senior Lien Bonds|910|Limited Obligations|910|Chicago O'Hare International Airport|910|Capital Programs|910|Regional Airport Oversight|910|Certain Investment Considerations|910|Report of the Airport Consultant|910|Regarding Use of the Official Statement|910|The 2016 Senior Lien Bonds 9
General 9
Redemption Provisions 9
Security for the 2016 Senior Lien Bonds 11
General 11
O'Hare Revenues Must Be Used For Airport Purposes 11
Pledge of Revenues and PFCs 12
Description of Revenues 13
Description of Pledged PFCs 14
Flow of Funds 15
Payment of Debt Service on the 2016 Senior Lien Bonds 20
Debt Service Reserves : 21
Debt Service Coverage Covenants 23
Covenants Against Lien on Revenues 24
Issuance of Additional Senior Lien Bonds 24
Airport Use Agreements 25
Issuance of Additional Senior Lien Obligations Secured by Pledged PFCs 26
Proposed Amendment to the Senior Lien Indenture 26
Remedies 27
Certain Provisions of the PFC Indenture 27
Plan of Finance 29
General 29
Refunding Plan 29
2016 Airport Projects 29
Other Future Financings for O'Hare 29
Sources and Uses of Funds 30
Chicago O'Hare International. Airpor t 30
General 30
The Air Trade Area 31
Other Commercial Service Airports Serving the Chicago Region 32
Existing Airport Facilities 32
Airport Management 33.
Regional Authority 33
O'Hare Noise Compatibility Commission 33
Budget Procedures 34
Air Traffic Activity at O'Hare 34
~- Recent O'Hare Operations ....... 34
Passenger Activity at O'Hare 34
Aircraft Operations 36
Airlines Providing Service at O'Hare 37
O'Hare Financial Information 40
Operating Results .7 40
Discussion of Financial Operations 41
Cash Balances '. 42
. Insurance.......................................................................... ¦¦¦¦ .:.......42
Pension Costs 42
Outstanding Indebtedness at O'Hare : 45
General 45
Airport Obligations : ; .7... 45
. Letter of Credit Facilities Securing Indebtedness at O'Hare 47
Airport PFC Obligations 48
Airport CFC Obligations : 48
Special Facility Revenue Bonds 49
PFC PROGRAM AT O'HARE 49
General , 49
Collection of the PFCs .' 49
The City's PFC Approvals 50
Termination of Authority to Impose PFCs 51
Capital Programs - 51
General 51
OMP Airfield Projects 51
2016 Airport Projects 52
Capital Improvement Program 52
Other Recently Announced Capital Projects 53
Management Approach for Capital Programs 53
Federal Legislation, State Actions and Proposed South Suburban Airport 53
Certain Investment Considerations 54
General Factors Affecting Level of Airline Traffic and Revenues 55
Uncertainties of the Airline Industry 55
Effect of Airline Bankruptcy 56
Capacity of National Air Traffic Control and Airport System 56
-u-
Expiration of Airport Use Agreements 57
Capital Programs Costs and Schedule 57
Future Indebtedness 57
Availability of PFC Revenues 58
Additional Federal Authorization and Funding Considerations 59
Regulations and Restrictions Affecting O'Hare 59
Competition 60
Impact of Regional and National Economic Conditions on O'Hare 60
Financial Condition of the City and Other Overlapping Governmental Bodies 60
Municipal Bankruptcy 61
Force Majeure Events Affecting the City and O'Hare 62
Enforcement Actions 62
Limited Obligations 62
Assumptions in the Report of the Airport Consultant 63
Limited Liability Subordination 63
Forward-Looking Statements 63
Litigation 64
Tax Matters 64
Certain Legal Matters 67
Underwriting 67
Secondary Market Disclosure 68
Annual Financial Information Disclosure 68
Reportable Events Disclosure 69
Consequences of Failure of the City to Provide Information 70
Amendment; Waiver 71
Termination of Undertaking 71
EMMA 71
Additional Information 71
Corrective Action Related to Certain Bond Disclosure Requirements 71
Co-Financial Advisors and Independent Registered Municipal Advisor 73
Independent Auditors 73
Ratings : 73
Certain Verifications 74
Airport Consultant 74
Miscellaneous 74
-iii-
APPENDIX A APPENDIX B APPENDIX C
APPENDIX D APPENDIX E APPENDIX F APPENDIX G APPENDIX H
GLOSSARY OF TERMS
SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS
AUDITED FINANCIAL STATEMENTS
REPORT OF THE AIRPORT CONSULTANT , PROPOSED FORMS OF OPINIONS OF CO-BOND COUNSEL DESCRIPTION OF BOOK-ENTRY ONLY SYSTEM
BONDS TO BE REFUNDED !
-IV-
$1,014,335,000
City of Chicago Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds
$27,335,000 Series 2016A (AMT)
$461,945,000 Series 2016B (Non-AMT)
$525,055,000 Series 2016C (Non-AMT)
Introduction
This Official Statement is furnished to set forth certain information in connection with the offering and sale by the City of Chicago (the "City") of its $27,335,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (the "2016A Senior Lien Bonds"), its $461,945,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (the "2016B Senior Lien Bonds") and its $525,055,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (the "2016C Senior Lien Bonds"). The 2016A Senior Lien Bonds, the 2016B Senior Lien Bonds and the 2016C Senior Lien Bonds are referred to collectively herein as the "2016 Senior Lien Bonds." Certain other capitalized terms used in this Official Statement, unless otherwise defined herein, are defined in APPENDIX A "GLOSSARY OF TERMS."
AUTHORIZATION
The 2016 Senior Lien Bonds will be issued under the authority granted to the City as a home rule unit of local government under the Illinois Constitution of 1970. The 2016 Senior Lien Bonds will be issued pursuant to an ordinance adopted by the City Council of the City on September 14, 2016 (the "Bond Ordinance"). The 2016 Senior Lien Bonds will also be issued and secured under the Master Indenture of Trust Securing Chicago O'Hare International Airport General Airport Revenue Senior Lien Obligations dated as of September 1, 2012 (the "Senior Lien Indenture") from the City to U.S. Bank National Association, Chicago, Illinois, as successor trustee to LaSalle Bank National Association (the "Trustee"), as supplemented by the Fifty-Second Supplemental Indenture (the "Fifty-Second Supplemental Indenture"), the Fifty-Third Supplemental Indenture (the "Fifty-Third Supplemental Indenture") and the Fifty-Fourth Supplemental Indenture (the "Fifty-Fourth Supplemental Indenture" and collectively with the Fifty-Second Supplemental Indenture and the Fifty-Third Supplemental Indenture, the "2016 Supplemental Indentures" and each a "2016 Supplemental Indenture") each dated as of December 1, 2016 and each from the City to the Trustee.
The Senior Lien Indenture grants to the Trustee a first lien on and pledge of Revenues to secure (i) the 2016 Senior Lien Bonds which arc described in this Official Statement, (ii) all of the previously issued and outstanding Senior Lien Bonds (the "Outstanding Senior Lien Bonds" which, together with the 2016 Senior Lien Bonds, are herein referred to as the "Senior Lien Bonds") and (iii) any other Senior Lien Obligations (as herein defined) issued by the City in accordance with the Senior Lien Indenture. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS."
The following table provides a description of each Supplemental Indenture and the related series of 2016 Senior Lien Bonds:
Supplemental Indenture
Fifty-Second Supplemental Indenture Fifty-Third Supplemental Indenture Fifty-Fourth Supplemental Indenture
Related 2016 Senior Lien Bonds 2016A Senior Lien Bonds 2016B Senior Lien Bonds 2016C Senior Lien Bonds
The Senior Lien Indenture as supplemented by the 2016 Supplemental Indentures and as it may heretofore or hereafter be amended and supplemented from time to time in accordance with its terms, is collectively herein referred to as the "Senior Lien Indenture."
Purpose
The City will use the proceeds from the sale of the 2016 Senior Lien Bonds, together with other
available funds, to: (i) refund certain outstanding Airport Obligations (the "Refunded Bonds," as herein
defined), (ii) fund the related reserve requirements for the 2016 Senior Lien Bonds and (iii) pay costs and
expenses incidental thereto and to the issuance of the 2016 Senior Lien Bonds. See "PLAN OF
FINANCE" and "SOURCES AND USES OF FU.NDS'iherein. _ _
For information on the book-entry system operated by DTC, see APPENDIX G-"DESCRIPTION OF BOOK-ENTRY ONLY SYSTEM."
Refunded Bonds .
A portion of the net proceeds, of the 2016 Senior Lien Bonds will be applied to the refunding of the following bonds ofthe City (collectively, the "Refunded Bonds"):
Refunding Series City of Chicago Chicago O'Hare International Airport Bonds to be Refunded* RefundedBond ¦ Principal'Amount — Matiirities-td be > Refunded*
2016A General Airport Third Lien Revenue Refunding Bonds, Series 2006B (AMT) $30,280,000 2026+, 2031+,2037*
2016B General Airport Third Lien Revenue Bonds, Series 2008B (Non-AMT) General Airport Third Lien Revenue Bonds, Series 2008C (Non-AMT) General Airport Third Lien Revenue Bonds, Series 2011C (Non-AMT) 175,500,000 36,255,000 238,985,000 2018 -2020- ' 2019 - 2023 2028+, 2033*. 2038+ 2041* .
2016C General Airport Third Lien Revenue Bonds,.Series 2008A (Non-AMT). 530,170,000' 2019-2028, 2034 2033*, 2038+, 2038f
*In all cases, the redemption price is at par. f Term Bonds.
See APPENDIX H-"BONDS TO BE REFUNDED" for additional information on the Refunded Bonds
ADDITIONAL AIRPORT OBLIGATIONS
The City plans to issue its $778,135* million General Airport Senior Lien Revenue Bonds, Series 2016D (the "2016D Senior Lien Bonds"), its $148,915* million General Airport Senior Lien Revenue Bonds, Series 2016E (the "2016E Senior Lien Bonds") and its $139,890 million* General Airport Senior Lien Revenue Bonds, Scries 2016F (the "2016F Senior Lien Bonds" collectively with the 2016D Senior Lien Bonds and the 2016E Senior Lien Bonds, the "2016 New Money Bonds") to fund the 2016 Airport Projects (as herein defined) at O'Hare. For a discussion of the 2016 Airport Projects and 2016 New Money Bonds, sec APPENDIX E-'REPORT OF THE AIRPORT CONSULT A NT-The Airport Facilities, Capital Program, and 2016 Projects." If issued, the City will offer the 2016 New Money Bonds pursuant to a separate official statement.
The City has the authority to issue an additional $500 million of PFC Obligations. Within the first six months of 2017, the City plans to issue PFC Obligations (the "2017 PFC Bonds") to pay the costs of certain projects included in the O'Hare Modernization Program (the "OMP"), fund the related reserve requirements, refund certain outstanding PFC Obligations and pay the related costs of issuance of the 2017 PFC Bonds, as more fully described under "PLAN OF FINANCE" herein.
* Preliminary, subject to change.
The City previously authorized the issuance of Chicago O'Hare International Airport Commercial Paper Notes (the "CP Notes") and Chicago O'Hare International Airport Credit Agreement Notes (the "Credit Agreement Notes"), respectively, in a combined aggregate principal amount outstanding at any one time of up to $1 billion. Pursuant to this authority, the City recently established a $420 million CP Notes program and intends to establish a $180 million program for the issuance of Credit Agreement Notes. The CP Notes and the Credit Agreement Notes (if and when issued) are Junior Lien Obligations and are subordinate to the 2016 Senior Lien Bonds and all other Senior Lien Obligations with respect to their claim on Revenues. See "OUTSTANDING INDEBTEDNESS AT O'HARE."
The City expects to issue additional Airport Obligations, including Senior Lien Bonds, PFC Obligations, CP Notes and Credit Agreement Notes (each as herein defined), from time to time, to continue implementation and funding of capital projects at O'Hare and refunding Outstanding Airport Obligations. For a discussion of future financing needs for O'Hare, .see "CAPITAL PROGRAMS-OMP Airfield Projects" and APPENDIX E "REPORT OF THE AIRPORT CONSULTANT-The Airport Facilities, Capital Program and 2016 Projects."
Security for the 2016 Senior Lien Bonds
2016 Senior Lien Bonds. The 2016 Senior Lien Bonds will be secured under the Senior Lien Indenture by a lien on and pledge of all Revenues and will be payable from amounts that may be withdrawn -from the Debt Service Fund created under the Senior Lien Indenture and in the case of the 2016C Senior Lien Bonds through Fiscal Year 2018, from amounts that may be withdrawn from the 2016C Senior Lien Bond PFC Revenue Deposit Account (as herein-defined) created under the Fifty-Fourth Supplemental Indenture. The following table sets forth the pledged security for each Series of 2016 Senior Lien Bonds:
Refunding Series Pledged Security
2016A Revenues
2016B Revenues
2016C Revenues and PFC Revenues through 2018
See "SECURITY FOR THE 2016 SENIOR LIEN BONDS - Pledge of Revenues and PFCs."
For purposes of this Official Statement, the term "Senior Lien Obligations" refers to the 2016 Senior Lien Bonds, all Outstanding Senior Lien Bonds, and other obligations of the City payable from Revenues, other than Junior Lien Obligations, including any obligations of the City under a Qualified Senior Lien Swap Agreement and obligations incurred by the City to reimburse the issuers of any letters of credit or bond purchase agreements securing one or more Series of Senior Lien Bonds; the term "Junior Lien Obligations" refers to CP Notes, Credit Agreement Notes, and other obligations payable from amounts to be withdrawn from the Junior Lien Obligation Debt Service Fund; and the term "Airport Obligations" refers to and includes all obligations payable from Revenues, including Senior Lien Obligations and Junior Lien Obligations.
The 2016 Senior Lien Bonds will be secured on a parity basis as to the Revenues with the Outstanding Senior Lien Bonds, which are currently outstanding in the aggregate principal amount of $6,400,885,000 (which amount includes Outstanding Senior Lien Bonds anticipated to be refunded with a portion of the proceeds of the 2016 Senior Lien Bonds). Subject to certain requirements set forth in the Senior Lien Indenture, the City may issue or incur additional Senior Lien Obligations that will be secured on a parity basis with the 2016 Senior Lien Bonds and the Outstanding Senior Lien Bonds. Sec "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Issuance of Additional Senior Lien Bonds."
The Senior Lien Indenture requires that all Revenues be deposited in the Revenue Fund held by the Trustee and be applied in accordance with the flow of funds as provided in the Senior Lien Indenture. Pursuant to the Senior Lien Indenture, moneys and securities held by the City in the Airport Development
|1010|
Fund and the Airport General Fund may be applied, used and withdrawn by the City for any lawful corporate purpose. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Flow of Funds," and APPENDIX B "SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE." The Senior Lien Indenture also provides that the City will comply with all valid acts, rules, regulations, orders and directives of any governmental, legislative, executive, administrative or judicial body applicable to O'Hare, unless the City contests'them in good faith, all to the end that O'Hare will remain operational at all times.
As a recipient of federal grants for O'Hare, the City is required by federal law, including, without limitation, grant assurances applicable to the City under grant agreements with the Federal Aviation
. Administration. ("FAA"),Jo_^ _
or operating costs of O'Hare/the local airport system; or other local facilities which are ownedior operated; by the City arid directly arid substantially related to the air transportation of passengers or property. Any diversion by the City ofrevenues generated at O'Hare, including the! Revenues,5 in violation of-fcdcral law or the City's grant assurances, would subject the City to potential enforcement actions-by the FAA^and might result in a default under the Senior Lien Indenture, which, upon becoming an Event of Default under the Senior Lien Indenture, could result in the exercise by'the Trustee of the remedies under the Senior Lien Indenture. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-O'Hare Revenues Must Be Used For1 Airport Purposes:" ;
- Moneys deposited by the City: as-Revenues in accordance with the Senior Lien^Indenture include rentals, fees and charges imposed upon the Airline Parties'(as herein defined) under the Airport Use Agreements (as herein defined). The Airport Use Agreements provide that the aggregate of all rentals, fees and'charges to be paid by the Airline Parties shall be sufficient to pay for the net cost of operating, maintaining and developing O'Hare (excluding the Land Support Area, as herein defined), including the satisfaction of all of the City's obligations to make deposits and payments under the Senior Lien Indenture. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Airport Use Agreements." The expiration date for all of the Airport Use. Agreements is May 11, 201.8. Upon the expiration of the Airport Use Agreements, the City may extend such agreements, enter into new agreements with the airlines, or impose rates and charges upon the airlines by City ordinance consistent with the requirements of federal law. Regardless of which of these options is pursued, the Ci ty has covenanted in the Senior Lien Indenture (which will rerriain in'effect beyond the expiration of the Airport Use Agreements) to establish rentals, rates and other charges for the use and operation of O'Hare such that Revenues (including rentals, fees and charges'iriiposed on the airlines), together with certain other moneys deposited with the' Trustee, are sufficient to pay the "Operation and Maintenance Expenses" (as defined in APPENDIX A) at O'Hare arid to.satisfy the debt service coverage covenants contained in the Senior Lien Indenture. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Debt Service Coverage Covenants" and "Airport Use Agreements." Thus, while it is not possible to predict whether any airline will be contractually obligated to make payments, including, among other things, for debt service on the 2016 Senior Lien Bonds, the Outstanding Senior Lien Bonds or any other Senior Lien Bonds after the expiration date of the Airport Use Agreements in 2018, the City is obligated under the Senior Lien Indenture to impose rentals, rates and other charges on the airlines for use of O'Hare that will enable the City to satisfy the Senior Lien Indenture debt service coverage covenants.
The Senior Lien Indenture provides that, in connection with the expiration of the current Airport Use Agreements, beginning on the first Business Day of June 2018, or another date as the City may select and designate in a Certificate filed with the Trustee (the "Transition Date"), certain new Funds and Accounts will be established and the application of moneys in the Revenue Fund will be revised. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Flow of Funds-Flow of Funds After the Transition Date," and APPENDLX B ' SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LI EN INDENTURE-Indenture Funds and Payment of Debt Service-Disbursements from Revenue Fund From and After the Transition Date."
|1010|
There is no provision for acceleration of the maturity of the 2016 Senior Lien Bonds if any default occurs in the payment of the principal of or interest on the 20.16 Senior Lien Bonds or in the performance of any other obligation of the City under the Senior Lien Indenture or if interest on the 2016 Senior Lien Bonds becomes includible in the gross income of the owners thereof for federal income tax purposes.
2016C Senior Lien Bonds. In addition to the Revenues, the 2016C Senior Lien Bonds are also payable through Fiscal Year 2018 from and secured by a pledge of annual payment amounts to be derived from a subordinate pledge of PFC Revenues (as herein defined) including moneys to be withdrawn from the PFC Capital Fund (as herein defined) (the "2016C Pledged PFCs"). With respect to each such Fiscal Year, the amount of 2016C Pledged PFCs will be the greater of (a) the sum of the 2016C Deposit Requirements (as herein defined) for the July 1 and January 1 Deposit Dates (as herein defined) of the Bond Year commencing during that Fiscal Year and (b) one and ten-hundredths times the Net Debt Service with respect to the 2016C Senior Lien Bonds for the Bond Year commencing during such Fiscal Year.
The PFC Indenture (as herein defined) established the PFC Revenue Fund (the "PFC Revenue Fund"), the PFC Bond Fund (the "PFC Bond Fund") and the PFC Capital Fund (the "PFC Capital Fund"). The 2016C Pledged PFCs are subject, however, to: (i) the prior and superior pledge of and lien on the PFC Revenues and the moneys in the PFC Capital Fund as security for the payment of PFC Obligations (as herein defined) secured under the PFC Indenture (as herein defined); (ii) the payments by the City to fund the costs of certain capital projects at the Chicago/Gary International Airport from PFC Revenues pursuant to the Compact between the City and the City of Gary dated April 15, 1995 Relating to the Establishment of the Chicago-Gary Regional Airport Authority (the "Compact"); (iii) the parity pledge of and lien on the PFC Revenues and the moneys in the PFC Capital Fund as security for the payment of the Senior Lien Obligations of the City issued or secured under the (A) Twenty-Seventh Supplemental Indenture, including the outstanding Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 2008A (the "Series 2008A Bonds"); (B) Thirty-Sixth Supplemental Indenture, including the outstanding Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 201 OF (the "Series 201 OF Bonds"), and (C) Thirty-Eighth Supplemental Indenture, including the outstanding Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 201 IA (the "Series 2011A Bonds"); (iv) the City's right to issue additional Senior Lien Obligations that are also secured by PFC Revenues, including moneys to be withdrawn from the PFC Capital Fund, on a parity with the Series 2016C Senior Lien Bonds; and (v) the City's right to issue Subordinated PFC Obligations (as herein defined) that are secured by a pledge of and lien on the PFC Revenues and the moneys in the PFC Capital Fund that is superior to the pledge and lien created by the Fifty-Fourth Supplemental Indenture.
For purposes of this Official Statement, the term "PFC Obligations" refers to all bonds, notes or evidences of indebtedness payable from PFC Revenues and issued by the City at any time under and pursuant to the Master Trust Indenture Securing Chicago O'Hare International Airport Passenger Facility Charge Obligations dated as of January 1, 2008, amending and restating the Master Trust Indenture securing Chicago O'Hare International Airport Second Lien Passenger Facility Charge Obligations dated as of May 15, 2001, as supplemented and amended (the "PFC Indenture"), from the City to The Bank of New York Mellon Trust Company, National Association, as successor to BNY Midwest Trust Company, N.A., as trustee (the "PFC Trustee"), including any obligation of the City under a Qualified PFC Swap Agreement and any obligation incurred by the City to reimburse the issuers of any letters of credit securing one or more Series of PFC Obligations; the term "Subordinated PFC Obligations" refers to all bonds, notes or evidences of indebtedness, so designated and issued by the City payable out of or secured by the pledge of amounts withdrawn from the PFC Revenue Fund, the PFC Bond Fund or the PFC Capital Fund which pledge is junior and subordinate to the pledge for the PFC Obligations; and the term "Airport PFC Obligations" refers to and includes all bonds, notes or other evidences of indebtedness secured by a pledge of PFC Revenues, including PFC Obligations and Subordinated PFC Obligations.
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Moneys withdrawn from the PFC Capital Fund will be paid to the Trustee and deposited into the 2016C Senior Lien Bond PFC Revenue Deposit Account to satisfy the 2016C Deposit Requirements for the 2016C Senior Lien Bonds for each January 1 and July 1 Deposit Date through Fiscal Year 2018. The City has also agreed that through Fiscal Year 2018, the aggregate sum withdrawn from the PFC Capital Fund and paid to the Trustee for deposit into the 2016C Senior Lien Bond PFC Revenue Deposit Account will be not less than one and ten-hundredths times the Net Debt Service with respect to the 2016C Senior Lien Bonds for the Bond Year commencing during such Fiscal Year.
The "PFC Revenues" consist of all revenue received by the City from the passenger facility
charges imposed by the City at O'Hare pursuant to the PFC Act, the PFC Regulations, the PFC Approvals
—(as-defihed-herein)-and an'Ordinance-adopted-by-the-City-Council ofthe City-on. January.J2, ¦1993(each
such passenger facility charge referred to'as a "PFC," and collectively, the "PFCs"), including any interest
earned thereon after such revenue has been remitted to the City as provided in the PFC Regulations. See
"PFC PROGRAM AT O'HARE" herein for a more detailed'discussion of O'Hare's PFC program and
"OUTSTANDING INDEBTEDNESS AT O'HARE—Airport PFC Obligations" for a discussion of
outstanding indebtedness of the City payable from and secured by PFC Revenues imposed at O'Hare. As
of October 18, 2016, the City has authority1 from the FAA to impose and use PFCs of $4.50 per eligible
enplaned passenger 'up to an1 aggregate total of $6.55 billion'to pay for certain Approved Projects (as
herein defined). The FAA has approval authority over PFC applications and amendments submitted by
the City requesting use of PFCs (the'"'PFC Approvals"). Se'e "PFC PROGRAM AT O'HARE" for a
more detailed description of the City's PFC collection authority. ¦'' ' ¦'¦ ' ¦
Limited Obligations
The 2016'Senior Lien Bonds willnotbe general obligations-of the City and will hot1 constitute an indebtedness or a^ loan-of credit of-1 the City within the meaning of any - constitutional or statutory limitation,1 ari'd>!neither 'm'^'fai'to^and-credit 'hoMhe taxing'power of theState of Illinois,- 'the' City !6r any other apolitical subdivision of the State of Illinois will be pledged'to the payment of the principal of or interest on the'2016 Senior Lien Bonds. The 2016 Senior Lien Bonds are not payable in any manner from revenues raised by taxation. No property ofthe City (including property located at O'Hare) is pledged as security for the 2016 Senior Lien Bonds.
Chicago O'Hare International Airport
O'Hare is the primary commercial airport for the City. O'Hare occupies approximately 7,272 acres of land and is located 18 miles northwest of the City's central business district. Based on preliminary data from Airports Council International ("AO"), for the 12-month period ended December 2015, O'Hare ranked second worldwide and second.in the United States in total aircraft operations, and fourth worldwide and second in the United States in terms of total passengers. According to the Chicago Department of Aviation ("CDA"), O'Hare had approximately 70.0 million total enplaned passengers in 2014 and approximately 76.9 million in 2015. United Airlines and American Airlines each maintains a hub at O'Hare. United Airlines (including its regional affiliates) operated 571 daily departures from O'Hare as of August 2016 and accounted for 44.2 percent of the enplaned passengers at O'Hare in 2015. American Airlines (including US Airways with which American Airlines merged in 2015 and their regional affiliates) operated 479 daily departures from O'Hare as of August 2016 and accounted for 35.8 percent ofthe enplaned passengers at O'Hare in 2015. For additional information regarding O'Hare, see "CHICAGO O'HARE INTERNATIONAL AIRPORT," "CERTAIN INVESTMENT CONSIDERATIONS" and APPENDIX E-'REPORT OF THE AIRPORT CONSULTANT."
Capital Programs
The City has on-going capital programs at O'Hare as described below. For purposes of this Official Statement, the OMP, the 2016-2020 CIP (as herein defined) and other recently announced capital projects are collectively referred to herein as the "Capital Programs."|1010|
O'Hare Modernization Program. The OMP was designed to meet the future development needs at O'Hare and to address flight delays and to increase capacity. The OMP airfield projects (the "OMP Airfield Projects") are changing the airfield from a layout with intersecting runways to a modern parallel runway system. The OMP, which includes the construction of one new runway, the relocation of three existing runways and the extension of two existing runways, is being undertaken in phases. To date, three ofthe four runways have been completed and one ofthe two runway extensions has been completed. All of the completed OMP Airfield Projects have been fully funded, requiring no further General Airport Revenue Bond ("GARB") funding. The only OMP Airfield Projects remaining to be funded and constructed are one runway and one runway extension. For additional information, see "CAPITAL PROGRAMS" and APPENDIX E "REPORT OF THE AIRPORT CONSULTANT."
Capital Improvement Program. The capital improvement program includes projects at O'Hare that address ongoing capital needs. O'Hare regularly updates and adopts a five-year capital improvement program for budget and planning purposes. The current five-year capital improvement program (the "2016-2020 CIP") includes: construction of a multi-modal facility (the "Multi-Modal Facility") which will have a consolidated rental car facility (the "CRCF"), which includes two levels of public parking and an extension of the Airport Transit System (the "ATS"); the construction of a cargo facility in the northeast area of the Airport; the expansion of the airport maintenance center; electrical and mechanical upgrades to the heating and refrigeration plant; ongoing runway and taxiway rehabilitation; and additions and modifications to terminal facilities. For additional information regarding the 2016-2020 CIP and the funding thereof, see "CAPITAL PROGRAMS-OMP Airfield Projects" and APPENDIX E-"REPORT OF THE AIRPORT CONSULTANT-Thc Airport Facilities, Capital Program and 2016 Projects."
Other Recently Announced Capital Projects. The City recently announced a new series of capital projects that are neither directly part ofthe OMP Airfield Projects nor the 2016-2020 CIP, as well as other projects including an expansion ofthe International Terminal and Concourse L in Terminal'3. Additional long-term terminal development and redevelopment options as part of a Terminal Area Plan ("TAP") are being evaluated in coordination with the airline representatives. The TAP is in preliminary planning and discussion phases. In addition to the terminal projects, a redevelopment of the existing terminal hotel and the construction of two new hotels on O'FIare property arc also planned and expected to be completed between 2020 and 2022. The feasibility of a future express rail third-party project connecting O'Hare to the central business district is currently being studied. For additional information on these projects and the funding thereof, see "CAPITAL PROGRAMS-Other Recently Announced Capital Projects" and APPENDIX E- 'REPORT OF THE AIRPORT CONSULTANT."
Regional Airport Oversight
The City operates O'Hare and Chicago Midway International Airport ("Midway") through the CDA as separate and distinct enterprises for financial purposes. The 2016 Senior Lien Bonds are not secured by any revenues generated, or property located, at Midway. See "CHICAGO O'HARE INTERNATIONAL AIRPORT-Other Commercial Service Airports Serving the Chicago Region" herein. On April 15, 1995, the City and the City of Gary, Indiana entered into the Chicago/Gary Compact with respect to the relationship among O'Hare, Midway, Merrill C. Meigs Field* and the Gary/Chicago Airport (now known as Gary/Chicago International Airport). Gary/Chicago International Airport is owned by the City of Gary, Indiana. See "CHICAGO O'HARE INTERNATIONAL AIRPORT-Regional Authority."
Certain Investment Considerations
The 2016 Senior Lien Bonds may not be suitable for all investors. Prospective purchasers ofthe 2016 Senior Lien Bonds should read this entire Official Statement for details ofthe 2016 Senior Lien
Meigs Field was closed in March 2003.|1010|
Bonds, the use ofthe proceeds ofthe 2016 Senior Lien Bonds, the financial condition ofthe airlines and certain other factors that could adversely affect,the airline industry, including specifically the information under the caption "CERTAIN INVESTMENT CONSIDERATIONS."
Report of the Airport Consultant
The Report of the Airport Consultant dated- November 3, 2016 (the "Report of the Airport
Consultant") prepared by Ricondo & Associates, Inc., the City's airport consultant (the "Airport
Consultant','), included as APPENDIX E, provides certain information with respect to O'Hare and its
capital programs, evaluates aviation activity .-at .O'Hare and presents the analysis undertaken by the Airport
.Consultant, to demonstrate the ability of. the City to comply with the requirements of the Senior Lien
Indenture for .Fiscal: Years 2016 through 2025 based on • the assumptions set forth ¦ therein (the
"Projections"). The final maturity-date .-of each Series ofthe 2016 Senior Lien Bonds extends beyond the
period of :the Projections. Projections contained an the Report of the Airport Consultant are based on
assumptions'set forth therein: i .
As ¦ noted below under "-Regarding .'Use of the . Official Statement—Forward-Looking ^/ate/Me/ites'- anyiprojection^ including,' but not limited . to those contained in. the Report of the Airport Consultant,; is subject to uncertainties,--including .-.the. possibility,'that some, of the. assumptions, used to develop the;projections will.no.the realized and that unanticipated.events and-circumstances will occur: Accordingly^there are likely-^©-be differences between'projections an'd actual results, which differences could be material.; See APPENDLX E-!'REPORT OF THE: AIRPORT CONSULTANT."-. ;
Regarding Use of the Official Statement
....... Fory\'ar.d-Looking.Statements. . Allstatements other than, statements of historical facts included in
this Official .'Statement are forwardTlooking. statements,, including, without limitation: (a) statements concerning'projections of future passenger- activity! at O'Hare and of future financial, performance at O'Hare; See APPENDIX E-' REPORT OF THE AIRPORT CONSULTANT"; (b) statements of the plans and .objectives of the City in relation to the Capital Programs (as herein defined) (see "CHICAGO O'HARE INTERNATIONAL AIRPORT," "AIR TRAFFIC ACTIVITY AT O'HARE" and "CAPITAL PROGRAMS"); and. (c);assumptions relating to the statements described in .clauses (a) and (b) above , (collectively, the "Forward-Looking Statements"): See "CERTAIN INVESTMENT CONSIDERATIONS-Forward Looking Statements." .
Projections. The Projections set forth in the Report of the Airport Consultant or otherwise in this Official Statement were not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the City's management, were prepared on a reasonable basis, reflect the best-currently available estimates and judgments, and present, to the best of management's knowledge and belief, the expected course of action and the expected future financial performance of the City. However, this information is not fact and should not be relied upon as being necessarily indicative of future results; and readers of this Official Statement are cautioned not to place undue reliance on the prospective financial information. Neither the City's independent auditors, nor :any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. Such parties assume no responsibility for, and disclaim any association with, the prospective financial information.
The City has included the Report ofthe Airport Consultant, based upon the Airport Consultant's expertise in the aviation industry. The Airport Consultant believes that the expectations reflected in the Forward-Looking Statements are reasonable. However, there can be no assurance that the expectations contained in the Forward-Looking Statements, including those set forth in the Report of the Airport
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Consultant, will be achieved. Important factors that could cause actual results to differ materially from the current expectations of the Airport Consultant are discussed in this Official Statement.
Glossary of Terms; Document Summaries. This Official Statement contains summaries of the terms of and security for the 2016 Senior Lien Bonds, together with descriptions of O'Hare and its operations. A Glossary of Terms used in the Senior Lien Indenture is included as APPENDIX A, a summary of certain provisions of the Senior Lien Indenture is included as APPENDIX B and a summary of certain provisions of the Airport Use Agreements is included as APPENDIX C. APPENDIX A-"GLOSSARY OF TERMS" contains terms of general applicability, which are used herein, and terms related to the Senior Lien Indenture and the Airport Use Agreements as set forth therein. Certain capitalized terms, not otherwise defined herein, are defined as set forth in APPENDIX A. All references to the 2016 Senior Lien Bonds are further qualified by references to the information with respect to them contained in the Senior Lien Indenture. All references herein to agreements and documents arc qualified in their entirety by references to the definitive forms of the agreement or document.
The 2016 Senior Lien Bonds
General
The 2016 Senior Lien Bonds will mature on January 1 ofthe years and in the amounts shown on the inside front cover pages hereof and will be dated as of their date of delivery. The 2016 Senior Lien Bonds will bear a fixed rate of interest until their final maturity or earlier redemption at the rates per annum set forth on the inside front cover pages hereof. Interest on the Senior Lien Bonds is payable January 1 and July 1 of each year commencing January 1, 2017.
The 2016 Senior Lien Bonds will be subject to redemption as described below under "Redemption Provisions."
The 2016 Senior Lien Bonds will be issued only as fully registered bonds. The 2016 Senior Lien Bonds will be issued in denominations that are integral multiples of $5,000. The 2016 Senior Lien Bonds will be initially registered through a book-entry only system operated by The Depository Trust Company, New York, New York ("DTC"). Details of payments of the 2016 Senior Lien Bonds .when in the book-entry form and the book-entry only system are described in APPENDIX G-"DESCRlPTION OF BOOK-ENTRY ONLY SYSTEM." Except as described in APPENDIX G, beneficial, owners ofthe 2016 Senior Lien Bonds will not receive or have the right to receive physical delivery of 2016 Senior Lien Bonds, and will not be or be considered under the Senior Lien Indenture to be the Registered Owners thereof. Accordingly, beneficial owners must rely upon (i) the procedures of DTC and, if such beneficial owner is not a DTC Participant, the DTC Participant who will act on behalf of such beneficial owner to receive notices and payments of principal and interest on the 2016 Senior Lien Bonds and to exercise voting rights, and (ii) the records of DTC and, if such beneficial owner is not a DTC Participant, such beneficial owner's DTC Participant, to evidence its beneficial ownership of 2016 Senior Lien Bonds. As long as DTC or its nominee is the Registered Owner of 2016 Senior Lien Bonds, references herein to Bondholders or Registered Owners of such 2016 Senior Lien Bonds shall mean DTC or its nominee and shall not mean the beneficial owners of such 2016 Senior Lien Bonds.
Redemption Provisions
Optional Redemption
20I6A Senior Lien Bonds. The 2016A Senior Lien Bonds maturing on and after January 1, 2027, arc subject to redemption at the option ofthe City on or after January 1, 2026, in whole or in part at any time, and if in part, in such order of maturity as the City shall determine and within any maturity by lot, at the redemption price equal to the principal amount of each 2016A Senior Lien Bond to be redeemed, plus accrued interest to the date of redemption.
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2016B Senior Lien Bonds. The 2016B Senior Lien Bonds maturing on and after January 1, 2027, are subject to redemption at the option ofthe City on or after January 1, 2026, in whole or in part at any time, and if in part, in such order of maturity as the City shall determine and by lot for 2016B Senior Lien Bonds ofthe same-maturity and interest rate, at the redemption price equal to the principal amount of each 2016B Senior Lien Bond to be redeemed, plus accrued interest to the date of redemption.
2016C Senior Lien -Bonds. The 2016C Senior Lien Bonds maturing on and after January !-; 2027,
arc subject to redemption1 at the option of the City on or after January 1, 2026, in whole or in part at any
time, and if in .part, in-such order of maturity as the City shall determine and within any maturity by lot,the redemption price equal to' the principal amount of each 2016C Senior Lien Bond to be redeemed, plus
.accrued.interest to the date of redemption •: : _ _ ;
. Mandatory Redemption.
2016B Senior Lien Bonds. The 2016B Senior Lien Bonds maturing on January 1, 2041 are subject to mandatory redemption in part by'lot'from Sinking. Fund Payments on January 1 of each ofthe years and in the respective principal amounts set forth below at a redemption price equal to the principal-amount thereof to be redeemed, plus accrued interest to the date of redemption:
;. „ ._ Year . Principal Amount .
. 2040 . . $ 95,000.
2041* 85,385,000 . .
• t Final Maturity
If the City redeems 2016B Senior Lien Bonds maturing on January 1, 2041 pursuant to optional redemption or'purchases 2016B Senior LienBonds maturing on; January 1,2041 -and cancels the same, then ah amount equal to the' principal amount of 2016B Senior Lien Bonds'maturing on January 1, 2041 so redeemed or purchased shall be.deducted from the mandatory redemption requirements as provided for such 2016B Senior Lien Bonds in such order as an Authorized Officer of the City shall determine.
Redemption Procedures: Notice 'of redemption of the 2016 Senior Lien Bonds which are subject to optional redemption. (i)> identifying the 2016 Senior Lien Bonds or-portions thereof to be redeemed, and (ii) specifying the redemption date, the redemption price, the places and dates of payment, that from the redemption date interest will cease .to accrue, and whether the redemption is conditioned upon sufficient moneys being'available on the redemption date (or any other condition), shall be given by the Trustee by mailing a copy of such redemption notice, not less than 30 days nor more than 60 days prior to the date fixed for redemption, to the Registered-- Owner of each such 2016 Senior Lien Bond to be redeemed in whole or in part at'the address shown on the registration books. Redemption notices will be sent by first class mail, except that notices to Registered Owners of at least $1,000,000 of 2016 Senior Lien Bonds of the same Series shall be sent by registered'mail.' Failure to mail any such notice to the Registered Owner of any such 2016 Senior Lien Bond or any defect therein shall not affect the validity ofthe proceedings for such redemption of such 2016 Senior Lien Bond. Any such notice mailed as described above shall be conclusively presumed to have been duly given, whether or not the Registered Owner of any 2016 Senior Lien Bond receives the notice.
If a 2016 Senior Lien Bond is of a denomination larger than $5,000, all or a portion of such 2016 Senior Lien Bond (in a denomination of $5,000 or any integral multiple thercot) may be redeemed, but such 2016 Senior Lien Bond shall be redeemed only in a principal amount equal to $5,000 or any integral multiple thereof. Upon surrender of any 2016 Senior Lien Bond for redemption in part only, the City shall execute and the Trustee shall authenticate and deliver to the Registered Owner thereof, at the expense of the City, a new 2016 Senior Lien Bond or 2016 Senior Lien Bonds of the same Series,
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maturity and interest rate and of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the 2016 Senior Lien Bond surrendered.
If fewer than all of the 2016 Senior Lien Bonds of the same Series, maturity and interest rate are called for redemption, such 2016 Senior Lien Bonds (or portions thereof) to be redeemed shall be selected by lot by the Trustee (except at any time when such 2016 Senior Lien Bonds are held in a book-entry system, in which case selection of such 2016 Senior Lien Bonds to be redeemed will be in accordance with procedures established by the book-entry depository).
For information on the book-entry system operated by DTC, see APPENDIX G-"DESCRTPTION OF BOOK-ENTRY ONLY SYSTEM."
Security for the 2016 Senior Lien Bonds
General
The 2016 Senior Lien Bonds and the interest thereon are limited obligations of the City payable from and secured by a pledge of the Revenues of O'Hare and certain funds, sub-funds and accounts maintained under the Senior Lien Indenture and do not constitute an indebtedness or a loan of credit of the City within the meaning of any constitutional or statutory limitation, and neither the faith and credit nor the taxing power of the State of Illinois, the City or any other political subdivision of the State of Illinois is pledged to the payment of the principal of, premium, if any, or. interest on the 2016 Senior Lien Bonds. The 2016 Senior Lien Bonds are not payable in any manner from revenues raised by taxation. No property ofthe City (including property located at O'Hare) is pledged as security for the 2016 Senior Lien Bonds.
As described below, the claim ofthe holders ofthe Senior Lien Obligations, including holders of the 2016 Senior Lien Bonds, to the Revenues of O'Hare is a first lien on and pledge of such Revenues and is senior to the claim of any Junior Lien Obligations. The 2016 Senior Lien Bonds arc secured on a parity' basis with the City's Outstanding Senior Lien Obligations. Subject to certain conditions set forth in the Senior Lien Indenture, the City may issue additional Senior Lien Bonds or other Senior Lien Obligations (collectively, the "Additional Senior Lien Bonds") that will be secured on a parity basis with the 2016. Senior Lien Bonds and the City's other Senior Lien Obligations. See "OUTSTANDING INDEBTEDNESS AT O'HARE-Airport Obligations-Issuance of Additional Airport Obligations" and "CAPITAL PROGRAMS."
2016 Senior Lien Bonds. The 2016 Senior Lien Bonds are payable from and secured by a pledge of the Revenues. Except for the 2016C Senior Lien Bonds, the 2016 Senior Lien Bonds are not payable from nor secured by Other Available Moneys (as herein defined).
2016C Senior Lien Bonds. The 2016C Senior Lien Bonds will be limited obligations ofthe City payable and secured by (i) a pledge of Revenues derived from the operation of O'Hare and (ii) through Fiscal Year 2018, 2016C Pledged PFCs to be derived from PFC Revenues to be withdrawn from the PFC Capital Fund on a subordinate basis to the payment of PFC Obligations but subject to a parity pledge for certain Senior Lien Obligations, as hereinafter described. The application of 2016C Pledged PFCs for the payment of principal and interest on the 2016C Senior Lien Bonds will reduce the amount of principal and interest expense otherwise payable from Airport Fees and Charges payable by the Airline Parties. See "-Flow of TunAs-Purpose and Funding ofthe 2016C Senior Lien PFC Revenue Deposit Account," below.
O'Hare Revenues Must Be Used For Airport Purposes
The Senior Lien Indenture provides that moneys and securities held by the City in the Airport Development Fund and the Airport General Fund may be applied, used and withdrawn by the City for any lawful corporate purpose. Sec "-Flow of Funds" for a description ofthe Airport Development Fund and
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the Airport General Fund. The Senior Lien Indenture also provides that the City will comply with all valid acts, rules, regulations, orders and directives of any governmental, legislative, executive, administrative or judicial body applicable to O'Hare, unless the City contests them in good faith, all to the end that O'Hare will remain operational at all times.
As a recipient of federal grants for O'Hare, the City is required' by federal-law, including, without limitation, grant assurances applicable to the City under grant agreements with the FAA, to use all revenues generated at O'Hare, including all Revenues, for the capital or operating costs of O'Hare, the local airport system, or other local facilities which are owned or operated by the City and directly and substantially related to the air transportation of passengers or property.
Any diversion by the City of revenues generated at O'Hare, including the Revenues, in violation of federal law or the City's grant assurances, would subject the City to potential enforcement actions by the FAA, including: (i) withholding Airport Improvement Program ("AIP") grant funds, approval of AIP grant applications, modifications of existing AIP grants and approval of applications to impose and use PFCs; and/or (ii) assessment of a civil penalty for unlawful revenue diversion of up to $50,000; and/or (iii) seeking judicial enforcement for violation of any grant assurance; arid/br (iv) assessment of a civil penalty up to three times the amount of the diverted revenue; and/or (v) assessment of interest On the amount of diverted revenue';-and/or (vi) withholding any amount from funds otherwise available to the City: from' the United States Department of Transportation, including funds for other transportation projects, such •as-transit -or multimodal 'projects; and/or (vii) exercise by theTAA- of its right of reverter and, on behalf of the United States, taking title to all or any part of federal:property interests previously conveyed by the federargovernmetit to the City.
In addition, any diversion by the City of revenues generated at O'Hare, including the Revenues, in violation'of the City's' grant- assurances;or federal law may result in a default under the Senior Lien Indenture; which',1 upon'becoming ah Event of Default under the Senior Lieh'mdenfure,'could result in the exercise by the Trustee of'the remedies tinder the Senior Lien indenture: ' Sec "APPENDIX B-SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Remedics."
Pledge of Revenues and PFCs
Revenues. The Senior Lien Indenture authorizes the issuance of Senior Lien Obligations, without limit as to amount but subject to compliance by the City with certain covenants as to; the issuance of additional Senior Lien Obligations, for the purpose of financing Airport Projects, refunding obligations issued to finance Airport Projects and related purposes.! Senior Lien Obligations are secured by, and payable from, Revenues paid to the trustee for deposit into the Revenue Fund established under the Senior Lien Indenture. Pursuant to the Senior Lien Indenture, such Revenues are pledged on a parity basis to the payment of the principal of, premium, if any, and interest on all Senior Lien Obligations (including the 2016 Senior Lien Bonds).
Revenues deposited into the Revenue Fund are allocated monthly to the Operation and Maintenance Fund and semi-annually to the other Senior Lien Indenture'Funds, including the Debt Service Fund. Moneys in the Debt Service Fund are then allocated to Dedicated Sub-Funds, including the Common Debt Service Reserve Sub-Fund and any separate debt service reserve fund, to satisfy the then current Deposit Requirements. See "-Flow of Funds," below.
Each 2016 Supplemental Indenture establishes with the Trustee a separate and segregated sub-fund within the Debt Service Fund (the "2016 Senior Lien Dedicated Sub-Funds," each a "2016 Senior Lien Dedicated Sub-Fund"). Each 2016 Senior Lien Dedicated Sub-Fund and each Account established therein arc held solely for the benefit ofthe Registered Owners ofthe 2016 Senior Lien Bonds issued pursuant to the applicable 2016 Supplemental Indenture. Moneys on deposit in a particular 2016 Senior Lien Dedicated Sub-Fund are not to be used or available for payment of any other Airport Obligations including other 2016 Senior Lien Bonds.
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For a general description of the application of Revenues, sec "Payment of Debt Service on the 2016 Senior Lien Bonds" below and APPENDIX B "SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Source of Payment; Pledge of Senior Lien Revenues and Other Moneys."
Other Available Moneys. The Senior Lien Indenture permits the City, at its option, to transfer to the Trustee Other Available Moneys to pay the principal of and interest on the Senior Lien Bonds in addition to the Revenues. "Other Available Moneys" means, for any Fiscal Year, the amount of money determined by the Chief Financial Officer to be transferred to the Revenue Fund from sources other than Revenues.
Pledge of Other Available Moneys for 2016C Senior Lien Bonds. The Fifty-Fourth Supplemental Indenture provides that 2016C Pledged PFCs will be pledged by the City to the payment of the 2016C Senior Lien Bonds through Fiscal Year 2018. See "-Description of Pledged PFCs" below.
Description of Revenues
General. "Revenues" consist of all amounts received or receivable, directly or indirectly, by the City for the use and operation of, or with respect to, O'Hare (excluding the Land Support Area); provided, however, Revenues does not include: (i) interest accruing on, and any profit from the investment of, moneys in any fund or account of O'Hare that is not available by agreement or otherwise for deposit into the Revenue Fund; (ii) Government Grants-in-Aid; (iii) the proceeds of any PFC, CFC (as herein defined) or similar tax or charge levied by or on behalf of the City including but not limited to, any cargo activity charge or security charge; (iv) insurance proceeds,, except to the extent such moneys are deemed revenues in accordance with generally accepted accounting principles, and condemnation award proceeds; (v) amounts derived by the City from Special Facility Financing Arrangements, but only to the extent such moneys are required to pay the principal of, premium, if any, and interest on Special Facility Revenue Bonds and other payments required by Special Facility Financing Arrangements; (vi) the proceeds of any borrowing by the City; (vii) the proceeds of any tax levied by or on behalf of the City; (viii) security deposits and the proceeds of the sale of any O'Hare property; and (ix) unless otherwise provided in a Supplemental Indenture, any Released Revenues.
"Released Revenues" means any Revenues in respect of which the Trustee has received the following: (i) a request from the City to exclude such Revenues from the pledge and lien of the Senior Lien Indenture; (ii) a Certificate of an Independent Airport Consultant, based upon reasonable assumptions, to the effect that Revenues, after the Revenues covered by such request are excluded for each of the five full fiscal years following the Fiscal Year in which such certificate is delivered, will be sufficient to enable the City to satisfy the debt service coverage covenant described in the first paragraph under the subcaption "-Debt Service Coverage Covenants" below in each of those five fiscal years; (iii) an opinion of counsel to the effect that (a) the conditions to the release of such Revenues have been met, and (b) the exclusion of such Revenues from the pledge and lien of the Senior Lien Indenture will not, in and of itself, cause the interest on any outstanding Senior Lien Obligations to be included in gross income for purposes of federal income taxation; and (iv) written confirmation from each of the Rating Agencies to the effect that the exclusion of such Revenues from the pledge and lien of the Senior Lien Indenture will not cause a withdrawal or reduction in any unenhanced rating then assigned to any Senior Lien Obligations.
For a complete definition of Revenues, see APPENDIX A-"GLOSSARY OF TERMS." For a general description ofthe application of Revenues under the Senior Lien Indenture, see "-Flow of Funds" below and APPENDIX B ' SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Source of Payment; Pledge of Senior Lien Revenues and Other Moneys."
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The Senior Lien Indenture creates the Revenue Fund to be held and administered by the Trustee as provided in the Senior Lien Indenture. The Senior Lien Indenture requires that all Revenues shall be collected by the City and promptly deposited to the credit of the Revenue Fund.
Certain Aviation Fuel Taxes Excluded from Revenues. Pursuant to the Airport and Airway Safety and Capacity Expansion Act of 1987 (P.L. No. 100-223) (the "1987 Airport Act"), aviation fuel taxes imposed at airports which have received federal grant funds must generally be used for airport capital and operating costs or for a state aviation program or for noise mitigation purposes on or off the airport. However, certain provisions of the 1987 Airport Act authorize the City to use aviation fuel tax revenues generated from aviation fuel taxes at the per gallon rate in effect at O'Hare on December 30, 1987, for other than such permitted airport-related purposes (such-provisions of the 1987-Airport-Act are referenced in the "Revenue Use Policy" related to such act as "grandfathered'^. Such portion of aviation fuel tax revenues do not constitute Revenues pledged to secure the Senior Lien Bonds under the Senior Lien Indenture; and no pledged Revenues are covered by this 1987 Airport Act provision.
Description of Pledged PFCs
"Pledged PFCs" means, with respect to the 2016C Senior Lien Bonds, the amounts to be withdrawn from the PFC Capital Fund and deposited into the Senior Lien Bond PFC Revenue Deposit Account that the Chief Financial Officer has determined to be Pledged PFCs as evidenced by an Other Available Moneys Certificate. The pledge of and lien on PFC Revenues as-security for the payment of principal and interest oh the Series 2016C Senior Lien Bonds is limited to payments received through Fiscal Year 2018.
Through Fiscal Year 2018-for the 2016C Senior Lien Bonds, the amount of Pledged PFCs will-be the greater of (a) the sum ofthe respective. Deposit Requirements for the July-1 and January 1-Deposit Dates of the Bond Year commencing during .that Fiscal Year and (b) one and ten-hundredths times the Net Debt Service for the Bond Year commencing during such Fiscal Year.
The pledge of PFC Revenues and moneys in the PFC Capital Fund as the source of the Pledged PFCs is subject, however, to (i) the prior and superior pledge of and lien oh the PFC Revenues and the moneys in the PFC Capital Fund as security for the payment of the PFC Obligations secured under the PFC Indenture; (ii) the payments by the City to fund the costs of certain capital projects at Gary/Chicago International Airport from PFC Revenues pursuant to the Compact; (iii) the parity pledge of and lien on the PFC Revenues and the moneys in the PFC Capital Fund as security for the payment of certain Senior Lien Obligations; (iv) the City's right to issue additional Senior Lien Obligations that are also secured by PFC Revenues, including moneys to be withdrawn from the PFC Capital Fund, on a parity with the 2016C Senior Lien Bonds; and (v) the City's right to issue Subordinated PFC Obligations that are secured by a pledge of and lien on the PFC Revenues and the moneys in the PFC Capital Fund that are superior to the pledge and lien on the Pledged PFCs securing the 2016C Senior Lien Bonds. See "-Flow of Funds" below, " Certain Provisions of the PFC Indenture," below and APPENDIX B-"SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Source of Payment; Pledge of Senior Lien Revenues and Other Moneys."
The Fifty-Fourth Supplemental Indenture creates the 2016C Senior Lien Bond PFC Revenue Deposit Account (the "2016C Senior Lien Bond PFC Revenue Deposit Account") to be held and administered by the Trustee for the sole and exclusive benefit of the Registered Owners ofthe 2016C Senior Lien Bonds. The moneys in the 2016C Senior Lien Bond PFC Revenue Deposit Account, which will consist of 2016C Pledged PFCs, will not be used or available for the payment of any other Senior Lien Obligations.
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Flow of Funds
General. Revenues and expenses of O'Hare are accounted for as a separate enterprise fund of the City, subject to the provisions of the Senior Lien Indenture and, prior to the Transition Date, the Airport Use Agreements. Under the Senior Lien Indenture, Revenues, including amounts collected by the City to satisfy deposit requirements established in any resolution, ordinance or indenture securing Airport Obligations, are required to be deposited to the credit of the Revenue Fund in the name of the Trustee with a depository or depositories, each fully qualified under the provisions of the Senior Lien Indenture to receive the same as deposits of money held by the Trustee. The Trustee shall be accountable only for moneys actually so deposited. The Senior Lien Indenture provides that disbursements from the Revenue Fund are to be adjusted as of the Transition Date following the expiration ofthe Airport Use Agreements.
Flow of Funds Prior to the Transition Date. Prior to the Transition Date, the moneys in the Revenue Fund are to be disbursed and applied by the Trustee as required to make the following deposits on the dates and in the amount provided:
On the tenth day of each month, the Trustee shall transfer to the City for deposit into the Operation and Maintenance Fund an amount equal to one-twelfth of the amount provided in the Operation and Maintenance Expense Projection for the current Fiscal Year; provided, however, that if the mid-year projection prepared in accordance with the Airport Use Agreements contains an adjustment of Operation and Maintenance Expenses (exclusive of Operation and Maintenance Expenses of the Land Support Area and required deposits in- the Operation and Maintenance Reserve Fund and the Maintenance Reserve Fund); the-amount required to be deposited in the Operation-and -Maintenance Fund-each montlrof the second six-month period of each Fiscal Year shall be increased or decreased as appropriate by an amount equal to one-sixth of the amount of such adjustment; and
On the Business Day ofthe Trustee immediately preceding each January I and July 1, the Tmstee shall make the following deposits from amounts on deposit in the Revenue Fund in the following manner and order of priority:
First: into the Debt Service Fund the amount, if any, necessary to increase the amount on deposit therein to an amount sufficient to fund the Deposit Requirements corresponding to January 1 or July 1;
Second: to the City for deposit into the Special Capital Projects Fund the amount specified by the City in a Certificate filed with the Trustee as the amount to be deposited at such time in such Fund;
Third: to the City for deposit into the Operation and Maintenance Reserve Fund an amount equal to one-half of the Operation and Maintenance Reserve Fund Deposit Requirement, if any, for the Fiscal Year which includes such January 1 and July 1; provided, however, that if the mid-year projection prepared in accordance with the Airport Use Agreements contains an adjustment of Operation and Maintenance Expenses (exclusive of Operation and Maintenance Expenses of the Land Support Area and required deposits in the Operation and Maintenance Reserve Fund and the Maintenance Reserve Fund), then the amount required to be deposited in the Operation and Maintenance Reserve Fund with respect to each July 1 shall be increased or decreased as appropriate by an amount equal to the amount of such adjustment;
Fourth: to the City for deposit into the Maintenance Reserve Fund an amount equal to the lesser of (i) $1,500,000, or (ii) the amount, if any, required to increase the amount on deposit therein to $3,000,000;
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Fifth: to the City for deposit into the Airport Development Fund an amount equal to one-half of the annual Airport Development Fund Deposit Requirement, if any, for the Fiscal Year which includes such January 1 and July 1; and
Sixth: into the Junior Lien Obligation Debt Service Fund an amount, if any, equal to the amount required by 'any resolution < or ordinance authorizing the issuance of Junior Lien Obligations to be deposited or such date and without priority, one over the other, to any sub-funds on accounts within the-Junior Lien Obligation Debt Service Fund, the amount specified by a Certificate filed with the Trustee.
- ILat-metimeJhe_aboye;:de
this Section, the moneys held in the Revenue Fund arc insufficient to make any such required deposit, the deposit shall be made up on the next applicable deposit date after required deposits into all other Funds enjoying a higher priority shall have been made in full;
The City is mandatorily and irrevocably obligated to apply moneys in the Maintenance Reserve Fund to make up any deficiencies in the Debt Service Fund. In the event moneys are so applied, the amount applied shall be restored on the < next applicable deposit date after all other Fund deposits enjoying a higher priority shall have been made in full. '
The amount of • the Airport-Development Fund. Deposit Requirement shall be stated: in,, a Certificate which shall be delivered to the Trustee prior>to such deposits. Amounts on deposit in the Airport'Development Fund prior to. the Transition Date may be applied, used and withdrawn by the City for-any lawful corporate purposes'of the City, free from any lien or security interest in favor ofthe Trustee and the owners of Senior Lien Obligations:. See "-O'Hare Revenues Must Be Used For Airport Purposes" and APPENDIX B ' SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Indenturei Funds' and Payment of Debt Service-Disbursements from Revenue Fund Prior io< the Transition Date "
At the end of each Fiscal Year, amounts on deposit in the Debt Service Fund, the Operation and Maintenance Fund,' the Operation and Maintenance Reserve Fund, the Maintenance Reserve Fund and the Junior Lien Obligation Debt Service Fund in excess of the amount required under the Senior Lien Indenture or under any Supplemental Indenture or under any ordinance or resolution authorizing the issuance of Junior Lien Obligations to be on deposit in such Fund at the end of such Fiscal Year shall be transferred to the Revenue'Fund.
Flow of Funds After the Transition Date. From and after the Transition Date, the moneys in the Revenue Fund shall be disbursed and applied by the Trustee as required to make the following deposits on the dates'and in the amount provided:
On the tenth day of each month the Trustee shall transfer to the City for deposit into the Operation and Maintenance Fund an amount equal to one-twelfth of the-amount provided in the Operation and Maintenance Expense Projection for the current Fiscal Year; provided, however, that if the mid-year projection contains an adjustment of Operation and Maintenance Expenses, the amount required to be deposited in the Operation and Maintenance Fund each month of the second six-month period of each Fiscal Year shall be increased or decreased as appropriate by an amount equal to one-sixth ofthe amount of such adjustment;
On the Business Day of the Trustee immediately preceding each January 1 and July 1, the Trustee shall make the following deposits in the manner and order of priority set forth:
First: into the Debt Service Fund the amount, if any, necessary to increase the amount on deposit therein to an amount sufficient to fund the Deposit Requirements corresponding to that January 1 or July 1;
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Second, to the City for deposit into the Operation and Maintenance Reserve Fund an amount equal to one-half of the Operation and Maintenance Reserve Fund Deposit Requirement, if any, for the Fiscal Year which includes such January 1 and July 1; provided, however, that if the mid-year projection contains an adjustment of Operation and Maintenance Expenses, then the amount required to be deposited in the Operation and Maintenance Reserve Fund with respect to each July 1 shall be increased or decreased as appropriate by an amount equal to the amount of such adjustment;
Third, to the City for deposit into the Maintenance Reserve Fund an amount equal to the lesser of (i) $1,500,000 and (ii) the amount, if any, required to increase the amount on deposit therein to $3,000,000;
Fourth, into the Junior Lien Obligation Debt Service Fund an amount, if any, equal to the amount required by any resolution or ordinance authorizing the issuance of Junior Lien Obligations to be deposited therein on such date and without priority, one over the other, to any sub-funds or accounts within the Junior Lien Obligation Debt Service Fund, the amount specified by a Certificate filed with the Trustee; and
Fifth, to the City for deposit into the Airport General Fund any amount remaining in the Revenue Fund unless the City shall have filed with the Trustee a Certificate specifying a lesser amount, in which case the amount specified by the City in the Certificate shall be the amount to be transferred to the City at such time for deposit into the Airport General Fund.
If at the time deposits are required to be made under paragraphs (a) or (b) of this Section, the moneys held in the Revenue Fund are insufficient to make any required deposit, the deposit shall be made up on the next applicable deposit date after required deposits into all other Funds enjoying a higher priority shall have been made in full.
The City shall be mandatorily and irrevocably obligated to apply moneys in the Maintenance Reserve Fund to make up any deficiencies in the Debt Service Fund. In the event moneys are so applied from the Maintenance Reserve Fund, the amount applied shall be restored on the next applicable deposit date after all other Fund deposits enjoying a higher priority shall have been made in full.
Amounts on deposit in the Debt Service Fund, the Operation and Maintenance Fund, the Operation and Maintenance Reserve Fund, the Maintenance Reserve Fund and the Junior Lien Obligation Debt Service Fund in excess of the amount required under the Senior Lien Indenture or under any Supplemental Indenture, or under any ordinance or resolution authorizing the issuance of Junior Lien Obligations to be on deposit in such Fund at the end of such Fiscal Year shall be transferred to the Revenue Fund.
All moneys held by the City in the Airport General Fund established on the Transition Date may be applied, used and withdrawn by the City for any lawful corporate purpose of the City, free from any lien or security interest in favor of the Trustee and the owners of Senior Lien Obligations. See "-O'Hare Revenues Must Be Used For Airport Purposes" and APPENDIX B ' SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Indenture Funds and Payment of Debt Service-Disbursements from Revenue Fund From and After the Transition Date."
Purpose and Funding of the 2016C Senior Lien Bond PFC Revenue Deposit Account. The Fifty-Fourth Supplemental Indenture provides that, through Fiscal Year 2018, 2016C Pledged PFCs in the PFC Capital Fund will be withdrawn therefrom and deposited into the 2016C Senior Lien Bond PFC Revenue Deposit Account (a special account within the Revenue Fund established under the General Airport Revenue Bond Ordinance to be held by the Trustee) and used to (i) pay the debt service on the 2016C Senior Lien Bonds, (ii) satisfy any deficiency in the 2016C Senior Lien Debt Service Reserve Account (as herein defined) and (iii) pay all fees and expenses with respect to the 2016C Senior Lien Bonds. The
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moneys on deposit in the 2016C Senior Lien Bond PFC Revenue Deposit Account are held in trust by the Trustee for the sole and exclusive benefit of the Registered Owners of the 2016C Senior Lien Bonds and will not be used or available for the payment of any other Senior Lien Obligations, including the 2016A Senior Lien Bonds and the 2016B Senior Lien Bonds.
The 2016C Senior Lien Bond PFC Revenue Deposit Account will be funded by the City as
follows:
On each June 20 of each Fiscal Year through Fiscal Year 2018, the City shall withdraw from the PFC Capital- Fund and'pay to the Trustee for deposit into the 2016C Senior Lien Bond PFC Revenue Deposit Account an amount equal to the 2016C Deposit Requirement
... with-respect-to-the-ncxt-ensuing-July-l-Deposit-Datej-as deterniined-pursuant-to-the provisions-of -
the Fifty-Fourth Supplemental Indenture as described under "-Payment of Debt Service on the 2016 Senior Lien Bonds-2016C Senior Lien Bonds" below.
On each December 20 of each Fiscal Year through Fiscal Year 2018/ the City shall withdraw from the PFC -Capital Fund arid'pay to the Trustee for deposit1 into the 2016C Senior Lien Bond PFC Revenue Deposit Account an amount equal to the greater of (a) the 2016C Deposit Requirement with respect to the next ensuing January 1 Deposit Date, as determined pursuant to the provisions of the Fifty-Fourth' Supplemental ¦ Indenture as described under "-Payment! of Debt Service oh the 2016 Senior Lien B6nds-20i6'C Senior Lien Bonds" below,
and (b) the; amount-required sothat the aggregafesum withdrawn from the PFC Capital Fund and
deposited in the 2016C Senior Lieri Bbrid PFC Revenue Deposit Account during the then current Fiscal Year will be not less than one and ten-hundredths times the Net Debt Service with respect to the 2016C Senior Lieri Bonds for the Bond Year commencing during such Fiscal Year.
Each deposit to the 2016C Senior Lien Bond PFC Revenue Deposit Account as required by paragraphs (i) and (ii) of this Section shall be made by the City on the required date-or as soon thereafter as moneys in the PFC Capital Fund arc legally available to satisfy such deposit requirement. If the available amount in the PFC Capital! Fund is less than the' amount needed to meet any deposit requirement, then the City shall deposit the maximurii arho'uht then available for withdrawal from the PFC Capital Fund and the City's obligation to make the required deposits to the 2016C Senior Lien Bond PFC Revenue Deposit Account shall continue until the 2016C Deposit Requirerrient under the Senior Lien Indenture, as described under "-Payment of Debt Service on the 2016 Senior Lien Bonds-2016C Senior Lien Bonds" below, has been fully satisfied.
Any moneys held in' the 2016C Seriior Lien Bond PFC Revenue Deposit Account shall be withdrawn by the Trustee and paid over to the City free from the lien of the Fifty-Fourth Supplemental Indenture on the earliest date in each Fiscal Year through Fiscal Year 2018, after January 5 and prior to June 20 of each Fiscal Year, provided that each prior 2016C Deposit Requirement, as determined under "-Payment of Debt Service on the 2016 Senior Lien Bonds-2016C Senior Lien Bonds" below, has been fully satisfied.
The tables on the following page set forth, in simplified form, the flow of funds described above.
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Payment of Debt Service on the 2016 Senior Lien Bonds
General. The moneys in the Debt Service Fund are to be disbursed and applied by the Trustee as required by the provisions of the Senior Lien Indenture, or by the provisions of any Supplemental Indenture creating a Series of Senior Lien Obligations (including the applicable 2016 Supplemental Indenture creating each Series ofthe 2016 Senior Lien Bonds), or by any instrument creating Senior Lien Obligations. The Trustee shall segregate within the Debt Service Fund and credit to (i) the Common Debt Service Reserve Sub-Fund and to the debt service reserve fund for the 2016C Senior Lien Bonds through 2018, such amounts as may be required to be so credited under the Senior Lien Indenture and (ii) such Dedicated Sub-Funds, accounts and sub-accounts therein as may have been created for the benefit of such Senior-Lien Obligations- such- amounts-as may-bel;required:to be so-credited under-the provisions of such Supplemental Indenture or instrument creating: Senior Lie'n:Obligations, to pay the principal of and interest on such Senior Lien Obligations. See APPENDIX B ' SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Indenture'Funds arid Payment of Debt Service "
Each Series ofthe 2016 Senior Lieri Bonds will.be payable from Revenues allocated to the
Dedicated Sub-Fund established format Series by the.applicable 2016.Supplemental Indenture within the .
Debt Service Fund.' ;'- ' ¦¦ <"
The 2016C Senior Lien Bonds will be payable from 2016C Pledged PFCs through Fiscal Year 2018 and-from Revenues in accordarice with the provisions of the Fifty-Fourth ¦ Supplemental Indenture. The Fifty-Fourth Supplemental Indenture creates jind establishes with the Trustee the 2016C Senior Lien Dedicated Sub-Fund, which is a separate sub-fund withinrthe^Revenue'-Fund. - '-¦ -
2016A and 2016B Senior Lien Bonds. Ori.the business day imrriediately preceding each January 1 and July 1 of each year commencing January 1, 2017 (each such date referred to herein as the "Deposit Date")Kthere will be deposited into the 2016A Senior Lien Dedicated Sub-Fund and 2016B Senior Lien Dedicated Sub-Fund from amounts on deposit in the Debt Service Fund, an amount equal to the aggregate of the following amounts, which amounts shall have been calculated by the Trustee on the next preceding December 5 or June 5 (iri the case of/each January 1 or July 1, respectively) (such aggregate amount with respect to any Deposit Date being referred to herein as the-"2016 Deposit Requirement"):
for deposit .'into each respective Scries' "Senior Lien Principal and Interest Account," an amount equal to the aggregate of: (i) for the January' 1, 2017 Deposit Date, the Principal Installment due January 1, 2017, and thereafter, one half of the Principal Installment coming due on the respective 2016 Senior Lien Bonds on the January 1 next succeeding such'date of calculation and'(ii) the amount of interest due on' such 2016 Senior Lien Bonds on the current Deposit Date (reduced, in the case of each January 1 Deposit Date, by investment earnings credited as of the immediately prior calculation date to the Principal and Interest Account);
fof deposit into the "Senior Lien Program Fee Account," the amount estimated by. the City to be required as of the close of business on such Deposit Date to pay all fees and expenses with resrject to the. 2016 Senior Lien Bonds during the semiannual period commencing on such Deposit Date.
In addition to the 2016 Deposit Requirement, there shall be deposited into each 2016 Senior Lien Dedicated Sub-Fund any other moneys received by the Trustee under and pursuant to the Senior Lien Indenture or the applicable 2016 Supplemental Indenture, when accompanied by directions from the person depositing such moneys that such moneys are to be paid into such 2016 Senior Lien Dedicated Sub-Fund and to one or more accounts therein.
2016C Senior Lien Bonds. On each Deposit Date, commencing January 1, 2017, there will be deposited into the 2016C Senior Lien Dedicated Sub-Fund (i) through Fiscal Year 2018, first, from
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amounts on deposit in the 2016C Senior Lien Bond PFC Revenue Deposit Account and second, if needed, from amounts on deposit in the Debt Service Fund, an amount equal to the aggregate of the following amounts which amounts shall have been calculated by the Trustee on the next preceding December 5 or June 5 (in the case of each January 1 or July 1, respectively) (such aggregate amount with respect to any Deposit Date being referred to herein as the "2016C Deposit Requirement") and (ii) for Fiscal Year 2019 through maturity of the 2016C Senior Lien Bonds, from amounts on deposit in the Debt Service Fund equal to the 2016C Deposit Requirement:
for deposit into the "2016C Senior Lien Principal and Interest Account," an amount equal to the aggregate of: (i) for the January 1, 2017 Deposit Date, the Principal Installment due January 1, 2017 and thereafter, one-half of the Principal Installment, if any, coming due on the 2016C Senior Lien Bonds :on the January 1 next succeeding such date of calculation and (ii) the amount of interest due on the 2016C Senior Lien Bonds on the current Deposit Date (reduced, in the case of each January 1 Deposit Date, by investment earnings credited as of the immediately prior calculation date as to the Principal and Interest Account);
for deposit into the "2016C Senior Lien Debt Service Reserve Account," the amount, if any, required as of the close of business on such Deposit Date to restore the 2016C Senior Lien Debt Service Reserve Account to an amount equal to the Reserve Requirement (as herein defined with respect to the 2016C Senior Lien Bonds), including reimbursement of any Qualified Credit Provider; and
(c)- for deposit into the "2016G Senior Lien Program Fee Account," the- amount
estimated by the City to be required as of the close of business on such Deposit Date to pay
all fees and expenses with respect to the 2016C Senior Lien Bonds during the semi-annual period
commencing on such Deposit Date.
In addition to the 2016C Deposit Requirement, there shall be deposited into the 2016C Senior Lien Dedicated Sub-Fund any other moneys received by the Trustee under and pursuant to the Senior Lien Indenture or the Fifty-Fourth Supplemental Indenture, when accompanied by directions from the person depositing such moneys that such moneys are to be paid into the 2016C Senior Lien Dedicated Sub-Fund and to one or more accounts therein.
Debt Service Reserves
The 2016A Senior Lien Bonds and the 2016B Senior Lien Bonds are Common Reserve Bonds secured by the Common Debt Service Reserve Sub-Fund.
Common Debt Service Reserve Sub-Fund. Pursuant to the Senior Lien Indenture, the Common Debt Service Reserve Sub-Fund is a Dedicated Sub-Fund within the Debt Service Fund which is held and administered by the Trustee in accordance with the terms of the Senior Lien Indenture. The 2016A Senior Lien Bonds, the 2016B Senior Lien Bonds, as well as the Outstanding Senior Lien Bonds, other than the Series 2005C Bonds, the Series 2005D Bonds, the Series 2008A Bonds, the Series 2010D Bonds, the Series 2010F Bonds, the Series 2011A Bonds, the Series 2012A Bonds and the 2016C Senior Lien Bonds (which series of bonds are collectively referred to herein as the "Non-Common Reserve Bonds") arc entitled to the benefit of the Common Debt Service Reserve Sub-Fund (the "Common Reserve Bonds"). Non-Common Reserve Bonds, other than the Series 2005C Bonds and the Series 2005D Bonds, are each secured by a separate debt service reserve account established under the respective Supplemental Indenture authorizing their issuance. These individual debt service reserve accounts do not secure and arc not available for payment of debt service on the Common Reserve Bonds, and the Common Debt Service Reserve Sub-Fund does not secure and is not available for payment ofthe Non-Common Reserve Bonds. The Series 2005C Bonds and the Series 2005D Bonds are not secured by a reserve hind.
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The "Reserve Requirement" for the Common Debt Service Reserve Sub-Fund is an amount equal to the maximum'amount of Principal Installments and interest payable on the Common Reserve Bonds in the current or any succeeding Bond' Year; provided, however, that if upon the issuance of a series of Common Reserve Bonds such amount would require'that moneys be paid into the Common Debt Service Reserve Sub-Fund from the proceeds of such Common Reserve Bonds in an amount in excess of the maximum amount permitted under the Code, the Reserve Requirement shall be the sum of (a) the Reserve Requirement immediately preceding the issuance of such Common Reserve Bonds, and (b) the maximum amount permitted under the Code to be deposited from the proceeds of such Common Reserve Bonds, as certified by the Chief Financial Officer.
Additional Senior Lien Bonds issued by the City in the future pursuant to the Senior Lien Indenture may,. but.need not,.be designated as entitled
The Reserve Requirement for the Common Debt Service Reserve Sub-Fund may be satisfied by
the deposit with the Trustee of (i) cash, (ii) one Or more Qualified Credit Instruments, (iii) Qualified
Investments, or (iv) a combination thereof: - ¦ ,
The Senior Lien Indenture i provides, and the City covenants in the applicable Supplemental Indenture with respect to the 2016A Senior Lien Bonds and 2016B-Senior Lieri Bonds^ that (i) the City will maintain the Common Debt Service Reserve Sub-Fund in an amount equal to the Reserve Requirement, (ii) moneys held therein will be held and disbursed for the benefit.of all Common Reserve Bonds and such. rrioneys are* pledged'and assigned-for that purpose, and (iii) all Common Reserve Bonds are.on'a parity and.rank .equally,-without'preference,-priorityior.distinction. If oniany .valuation date under the Senior Lien Indenture the amount on deposit in the Common .Debt. Service Reserve. Sub-Fund is more than the Reserve Requirement, unless otherwise directed by a Certificate of the City to be withdrawn and deposited iritrust'topay orprovide for the payment of Senior-Lien> Obligations, the amount of such excess shall be transferred-to the Trustee for deposit into the Revenue Fund, provided, However, that immediately after such withdrawal, the amount on deposit in:the Common Debt Service Reserve Sub-Fund equals or exceeds the Reserve Requirement. ¦
If at any time the Common Debt Service Reserve Sub-Fund holds both Qualified Credit Instruments and Qualified Investments, the Qualified Investments shall be liquidated and the proceeds applied for the purposes for which Common Debt Service Reserve Sub-Fund moneys may be applied under the Senior Lien Indenture prior to any draw being made on the Qualified Credit Instrument. If the Common Debt Service Reserve Sub-Fund holds Qualified Credit Instruments issued by more than one issuer, draws shall be made under such credit instruments on a pro rata basis to the extent of available funds.
Deficiencies in the Common Debt Service Reserve Sub-Fund are required to be satisfied from Revenues. Amounts deposited in the Common Debt Service Reserve Sub-Fund shall be applied first to reimburse the Qualified Credit Provider and thereby reinstate the Qualified Credit Instrument and next to make deposits into the Common Debt Service Reserve Sub-Fund. The Common Debt Service Reserve Sub-Fund will be applicable only to the Common Reserve Bonds and will not be available to pay debt service on any other Senior Lien Obligations. See "Payment of Debt Service on the 2016 Senior Lien Bonds" above and APPENDIX B ' SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Indenture Funds and Payment of Debt Service:"
Subsequent to the issuance ofthe 20T6A Senior Lien Bonds and the 2016B Senior Lien Bonds, the Reserve Requirement for the Common Reserve Bonds will be $424,667,322.50, which will be fully funded with cash and Qualified Investments on deposit in satisfaction of the requirements ofthe Senior Lien Indenture. In addition to the cash and Qualified Investments on deposit, various Qualified Credit
Instruments remain on deposit in the Common Debt Service Reserve Sub-Fund. As a result of the widespread losses in the mortgage market and overall credit market challenges, among others, Qualified Credit Providers may experience claims and/or reductions in capital such that their capital resources may no longer be sufficient at their respective rating levels to meet their ongoing additional capital needs and/or to respond to claims, including claims under the Qualified Credit Instruments. In the event ofthe financial distress of any Qualified Credit Provider that has provided a Qualified Credit Instrument on deposit in the Common Debt Service Reserve Sub-Fund, the City is under no obligation to replace the applicable Qualified Credit Instrument with cash or another Qualified Credit Instrument so long as the Common Debt Service Reserve Sub-Fund remains fully funded with cash and Qualified Investments on deposit in satisfaction ofthe requirements of the Senior Lien Indenture. Except as may be required by the Undertaking described below under "SECONDARY MARKET DISCLOSURE," neither the City nor the Underwriters undertakes responsibility to bring to the attention of the owners of the 2016 Senior Lien Bonds any information regarding the financial condition of any Qualified Credit Provider or to take any action in connection therewith.
2016C Senior Lien Debt Service Reserve Account. The Reserve Requirement for the 2016C Senior Lien Bonds will be the maximum amount of principal of and interest on the 2016C Senior Lien Bonds payable in the current or any future Bond Year. In the Fifty-Fourth Supplemental Indenture, the City covenants that the City will maintain the 2016C Senior Lien Debt Service Reserve Account in an amount equal to the Reserve Requirement, which requirement may be satisfied with (i) one or more Qualified Reserve Account Credit Instruments, (ii) Qualified'Investments, or (iii) a combination thereof. Upon issuance of the 2016C Senior Lien Bonds, to satisfy the Reserve Requirement, the City intends to deposit into the 2016C Senior Lien-Debt Service Reserve Account (i) a portion of the proceeds from-the sale of the 2016C Senior Lien Bonds and (ii) amounts on deposit in the debt service reserve accounts for the Series 2008A Bonds refunded by the 2016C Senior Lien Bonds.
Debt Service Coverage Covenants
The City covenants in the Senior Lien Indenture to fix and establish, and to revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of O'Hare and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys deposited with the Trustee with respect to that Fiscal Year and any cash balance held in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in any Fund or Account, will be at least sufficient:
to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year; and
to provide for the greater of (A) the sum of the amounts needed to make the deposits required to be made pursuant to all resolutions, ordinances, indentures and trust agreements pursuant to which all Outstanding Senior Lien Obligations or other Outstanding Airport Obligations are issued and secured, and (B) one and ten-hundredths times the Aggregate Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during that Bond Year to pay principal of and interest on Senior Lien Obligations.
The City further covenants in the Senior Lien Indenture to fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of O'l hire and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys consisting solely of (a) any PFCs deposited with the Trustee for that Fiscal Year, and (b) any other moneys received by the City in the immediately prior Fiscal Year and deposited with the Trustee no later than the last day of the immediately prior Fiscal Year, will be at least sufficient:
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to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year; and
to provide for the payment of Aggregate Debt Service for the Bond Year commencing-during that Fiscal Year, reduced by any proceeds of Airport'Obligations held by the Trustee for disbursement .during the. Bond Year to pay: the principal of and interest on Senior Lien Obligations.
The 2016C Senior Lien Bonds are also payable through Fiscal Year 2018 from Pledged PFCs. Debt service on the 2016C Senior Lien Bonds through Fiscal Year 2018 will be payable first from Pledged PFCs to be withdrawn from the PFC Capital Fund and, as needed, from Revenues.
Within 90 days after the end: of each Fiscal Year, the City is required by, thdSenior Lien.
Indenture to furnish to the Trustee calculations of the required debt service coverage, as described above.
If either calculation for any Fiscal Year indicates that the City has not satisfied its obligations described
above, then as: soon as practicable, but in any-event no later than 45 days, after receipt by the Trustee of
such calculation', the City, must:employ an- Independent Airport' Consultant to 'review, and analyze the
financial status and the administration and operation.of O'Hare and to submit to the City, within.45 days
after.employment,of ithe Independent;Airport Consultant,.a written, report on the;-same, including the
action which the Independent Airport Consultant recommends should be taken by the City with respect to
the revision oLO'Hare rentals, fees and charges; .alteration of its methods ;of .operation or-.the: taking, of
other action that is projected to. result in producing the amount so required in the then current 'Fiscal Year
ori'ifless, -the maximum amount deemed, feasible by the Independent Airport .Consultant. Within 60 days
following its receipt of the recommendations,: ^thc City must revise-O'Hare: rentals, fees and; charges or
alter its methods of operation, which reyisionsior alterations ;neeso long as any revisions or alterations are projected by the City to result in compliance with the required
debt service coverage, as described above. If at any time and as, long, as-the City, is in full compliance;
with the provisions of the Senior Lien Indenture summarized in this paragraph, there shall be no event of
default, under the Senior Lien Indenture as .a consequence of the. City's .failure to satisfy the coverage
covenants described above. ¦ •
Covenants Against Lien on Revenues: .
The City covenants in the Senior Lien Indenture that it will not issue any indebtedness, other than Senior Lien Obligations, secured by the pledge of Revenues. The City also covenants not to create or cause to be created any lien or charge on Revenues, or on any other amounts pledged for the benefit of owners of the Senior Lien Obligations, including the 2016 Senior Lien Bonds, other than the pledge of Revenues contained in the Senior Lien Indenture.
Notwithstanding the covenants described in the prior paragraph, the City has the right to issue debt payable from or secured by a pledge of the Revenues to be derived on and after the discharge and satisfaction of all Senior Lien Obligations-and to issue debt payable from, or secured by, a pledge of amounts to be withdrawn from the Junior Lien Obligation Debt Service Fund so long as such pledge is expressly junior and subordinate to the pledge of Revenues to the payment of Senior Lien Obligations.
Issuance of Additional Senior Lien Bonds
Additional Senior Lien Bonds may be issued upon the satisfaction of certain conditions as set forth in the Senior Lien Indenture. These conditions include delivery to Trustee of:
(i) a Certificate of an Independent Accountant or a Certificate of the City, in either case stating that Revenues and Other Available Moneys in the most recent completed Fiscal Year for which audited financial statements have been prepared satisfied the first covenant described
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under "-Debt Service Coverage Covenants" above, assuming for such purpose that Aggregate Debt Service for the Bond Year commencing during such Fiscal Year includes the maximum Annual Debt Service on all Outstanding Senior Lien Obligations and the Series of Senior Lien Obligations proposed to be issued (disregarding any Airport Obligations that have been paid or discharged or will be paid or discharged immediately after the issuance of the Senior Lien Obligations proposed to be issued); or
(ii) a Certificate of an Independent Airport Consultant or a Certificate ofthe City, in either case stating that, based upon reasonable assumptions set forth in the Certificate, Revenues and Other Available Moneys are projected to be not less than that required to satisfy the first covenant described under "-Debt Service Coverage Covenants" above (disregarding any Airport Obligations that have been paid or discharged or will be paid or discharged immediately after the issuance of the Senior Lien Obligations proposed to be issued) for each of the next three Fiscal Years following the issuance of the Senior Lien Obligations or, if later, for each Fiscal Year from the issuance ofthe Senior Lien Obligations through the two Fiscal Years immediately following completion of the project or projects financed by the Senior Lien Obligations.
For the purpose of computing Revenues under either clause (i) or (ii) above, there must be taken
into account (x) any reduction in the rate of any PFCs, and (y) any increase in the rate of any PFCs
authorized by legislation if the City has taken all action required to impose those increased charges at
O'Hare pursuant to such legislation. For the purpose of computing Revenues and Other Available
Moneys under clause (ii) above, Other Available Moneys shall be projected only to the extent they have
been (x) paid over -to the Trustee and deposited in the Revenue Fund, or (y) irrevocably-pledged to the
payment of debt service on Airport Obligations. . t-
The City may issue Refunding Bonds and Completion Bonds (both as defined in the Senior Lien Indenture) either by satisfying the debt service coverage requirement described above, or by satisfying the applicable requirements described in APPENDIX B "SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Refunding Bonds" and "-Completion Bonds." After the issuance ofthe Senior Lien Bonds, the City plans to issue Additional Airport Obligations to fund the 2016 Airport Projects (as herein defined). Sec "PLAN OF FINANCE - 2016 Airport Projects."
Airport Use Agreements
Airport Use Agreements. Moneys deposited by the City in accordance with the Senior Lien Indenture include rentals, fees and charges imposed upon the Airline Parties under the several Amended and Restated Airport Use Agreements and Terminal Facilities Leases (collectively, the "Airport Use Agreements") between the City and the Airline Parties (as herein defined). The Airport Use Agreements provide that the aggregate of all rentals, fees and charges to be paid by the Airline Parties shall be sufficient to pay for the net cost of operating, maintaining and developing O'Hare (excluding the Land Support Area), including the satisfaction of all of the City's obligations to make deposits and payments under the Senior Lien Indenture and any other ordinance or resolution authorizing Airport Obligations in accordance with the Airport Use Agreements.
The City has entered into Airport Use Agreements with the airlines identified as signatories to the Airport Use Agreements in "AIR TRAFFIC ACTIVITY AT O'HARE-Airlines Providing Service at O'Hare." Those airlines, together with any additional airline that executes an agreement with the City substantially the same as the Airport Use Agreements, are referred to as the "Airline Parties." Sec "AIR TRAFFIC ACTIVITY AT O'HARE-Airlines Providing Service at O'Hare" and "CERTAIN INVESTMENT CONSIDERATIONS."
Flic City was not required to obtain funding approvals of the Airline Parlies for the issuance of the 2016 Senior Lien Bonds.
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Expiration of Airport Use Agreements. The expiration date of each of the Airport Use Agreements is May 11, 2018. A significant portion of the debt service on the 2016 Senior Lien Bonds and the Outstanding Senior Lien Bonds becomes due after such date. Upon the expiration of the Airport Use Agreements, the Gity may extend such agreements, enter into new agreements with the airlines, or impose rates and charges upon the airlines by City ordinance consistent with the requirements of federal law. Regardless of which of these options is pursued, the City has covenanted in the Senior Lien Indenture (which extends beyond the expiration ofthe Airport Use Agreements) to establish rentals, rates and other charges for the use and operation of O'Hare such that Revenues (including rentals, fees and charges imposed on the airlines), together with certain other moneys deposited with the Trustee, are sufficient to pay the Operation and Maintenance Expenses at O'Hare arid to satisfy the debt service coverage covenants contained'in the'Senior Lieri Indenture. See ' "-Debt Service Coverage Covenants" above! Thus, while it is not possible' to predict whether any airline will be contractually'obligated to make payments, including, among other things, for debt service on the 2016 Senior Lien Bonds, the Outstanding Senior Lien Bonds or any other Senior Lien Bonds after the expiration date of the Airport Use Agreements in 2018, the City is obligated under-1 the Senior Lien Indenture to impose' fees and charges on the airlines for use of O'Hare that will enable' the City to satisfy the Senior Lien Indenture debt service coverage covenants.
Nonpayment of Rentals, Fee's and Charges. The Airport Use Agreements provide that if an Airline Party defaults on; the'payment of-its rentals; fees or :cha'rges, and if the City--has: undertaken appropriate'collection efforts arid has exhausted certain^ other specific funds available'under the Airport Use Agreements to pay the unpaid rentals, fees or charges, the City then is entitled to include the unpaid rentals, fees or charges in the landing fees payable by the other; non-defaulting Airline Parties. See APPENDIX C-'SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS."
Issuance of Additional Senior Lien Obligations Secured by Pledged PFCs
The Fifty-Fourth Supplemental Indenture'provides that 'the Pledged PFCs pledged to the payment of principal and interest on the 2016C Senior Lien Bonds are subject to the'City's right to issue additional Airport Obligations that are also secured by'Pledged PFCs on ^parity with the 2016C Senior Lien Bonds. Certain Series of the 2016 New Money Bonds shall be secured by Pledged PFCs on parity with the 2016C Senior Lien Bonds.
Within the first six months of 2017, the City plans to issue the 2017 PFC Bonds to pay the costs of certain projects included in the OMP, fund the related reserve requirements, refund certain outstanding PFC Obligations and pay the related costs of issuance of the 2017 PFC Bonds, as more fully described under "PLAN OF FINANCE" herein. The 2017 PFC Bonds shall be secured solely by PFCs and are senior to the pledge of PFCs for Senior Lien Obligations. If issued, the City will offer the 2017 PFC Bonds pursuant to a separate official statement.'
Proposed Amendment to the Senior Lien Indenture
The City has proposed an amendment (the "2010 Amendment") to the Senior Lien Indenture that would remove the restrictions described under "Restrictions on Sales or Transfer of Airport" in APPENDIX B. The 2010 Amendment will not take effect unless and until (among other things) the 2010 Amendment is consented to by the Owners of more than 50% in principal amount of the then Outstanding Senior Lien Obligations and the City determines to present such amendment to the Trustee. Pursuant to the 2016 Supplemental Indentures authorizing each Series ofthe 2016 Senior Lien Bonds, the Owners of the 2016 Senior Lien Bonds shall be deemed to have consented to the 2010 Amendment by purchasing such 2016 Senior Lien Bonds. Such consent of any Owner may be revoked in writing as provided in the Senior Lien Indenture. Currently and continuing after the issuance of the 2016 Senior Lien Bonds, Owners of the required percentage of the Outstanding Senior Lien Obligations have consented to the
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20JO Amendment and the City thus may elect to implement the 2010 Amendment by presenting it to the Trustee for execution.
Remedies
There is no provision for the acceleration of the maturity of the 2016 Senior Lien Bonds if any default occurs in the performance of any other obligation of the City under the Senior Lien Indenture, or if interest on the 2016 Senior Lien Bonds becomes includible in the gross income of the Owners thereof for federal income tax purposes. See APPENDIX B - "SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE-Remedies."
Certain Provisions of the PFC Indenture
As described in "-General" and "-Pledge of Revenues and PFCs" above, the 2016C Senior Lien Bonds are also payable from a subordinate pledge of PFC Revenues as well as Revenues. The description ofthe PFC Indenture is included within this Official Statement for the benefit of the 2016C Senior Lien Bonds to the extent the 2016C Senior Lien Bond are payable from .the Pledged PFCs. While the 2016C Senior Lien Bonds will be payable through Fiscal Year 2018 from certain Pledged PFCs, the 2016C Senior Lien Bonds are being issued pursuant to the Senior Lien Indenture and not pursuant to the PFC Indenture.
Flow of Funds. Under the PFC Indenture, PFC Revenues are required to be promptly deposited into, the PFC Revenue Fund. The.PFC Revenuc.Eund is.held.and administered by the City, subject to the provisions ofthe PFC Indenture providing that the City is required to transfer all moneys and securities in the PFC Revenue Fund to the PFC Trustee (i) upon an Event of Default (as such term is defined in the, PFC Indenture) under the PFC Indenture or (ii) to the extent and for the period of time required by the PFC Act, the PFC Regulations or the PFC Approvals.
Application of PFC Revenues under the PFC Indenture. Under the PFC Indenture, the City has covenanted and agreed to pay from the PFC Revenue Fund, not later than the 20th day of each calendar month, the following amounts in the following order of priority:
First: to the PFC Trustee for deposit into the PFC Bond Fund the sum required to make all of the sub-fund deposits and other required deposits to be disbursed from the PFC Bond Fund in that calendar month pursuant to a Supplemental Indenture creating a Series of PFC Obligations;
Second: to make any payments required for the calendar month with respect to Subordinated PFC Obligations; and
Third: all moneys and securities remaining in the PFC Revenue Fund will be transferred by the City (or the PFC Trustee if it then holds such fund pursuant to the PFC Indenture) to the PFC Capital Fund.
The PFC Capital Fund is held and administered by the City, subject to (a) the PFC Indenture providing that the PFC Capital Fund be held and administered by the PFC Trustee upon an Event of Default under the PFC Indenture or (b) to the extent and for the period of time required by the PFC Act, the PFC Regulations or the PFC Approvals. When amounts on deposit in the PFC Revenue Fund are insufficient to make the payments described in the first subparagraph under "-Application of PFC Revenues under the PFC Indenture" above, amounts on deposit in the PFC Capital Fund shall be used whenever necessary to make such payments. As the City may from time to time determine, amounts in the PFC Capital Fund may also be used for any lawful purposes as shall be authorized by the FAA and permitted by the PFC Act, the PFC Regulations and the PFC Approvals. See "-Compliance with Noise Act, PFC Act, PFC Regulations and PFC Approvals," below, for a description of certain limitations imposed on the expenditure of funds held in the PFC Capital Fund.
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Issuance of PFC Obligations. The PFC Indenture provides that in order to provide sufficient funds for the financing or refinancing of Projects (as defined in the PFC Indenture to include Approved Projects (as defined herein under "PFC PROGRAM AT O'HARE"), PFC Obligations arc authorized to be issued on a parity basis as to the lien on the PFC Revenues with PFC Obligations outstanding from time to time, without limitation as to amount except as may be limited by law and, subject to the satisfaction by the:City:of certain conditions regarding the issuance of additional PFC Obligations, for the purpose of (a) the payment, or the reimbursement for the payment of, the Costs of Projects, (b) the refunding of any PFC Obligations or other obligations issued to finance or refinance Costs of Projects, including, without limitation, any revenue bonds or commercial paper notes issued by the City to finance or refinance the Costs of Projects or (c) the funding of any Fund or Account as specified :in the PFC Indenture, for the purposes set forth therein. Any PFC Obligations issued pursuant to the authorization described in this paragraph for the purpose of the refunding of PFC Obligations are referred to herein as "Refunding PFC Obligations" and any PFC Obligations issued for any other authorized purpose are referred to herein as "Project PFC Obligations."
Prior to issuing any Project PFC Obligations and Refunding PFC Obligations, the City is required to satisfy an additional bonds test that is set-forth'-in! the'PFC Indenture. For a description of additional requirements regarding- the use of PFC Revenues under the PFC Indenture, see "-Plan of Finance Compliance Certificate," below.
Compliance with Noise Act, PFC Act, PFC Regulations and PFC Approvals. The City covenants in the PFC Indenture that (i) it will comply with all'provisions of the PFC Act and the PFC Regulations applicable to the City and all provisions of the PFC Approvals, and that it will not take any action or omit to take any action with respect to the PFC Revenues; the Projects of otherwise if such'actioh or omission would,-pursuant to the PFC Regulations, cause the termination ofthe City's authority to impose PFCs or prevent the use of the PFC Revenues as contemplated by the PFC Indenture; (ii) it will not impose any noise or access restriction at O'Hare not in compliance with the Noise Act (as defined in "PFC PROGRAM AT O'HARE—Termination of Authority to Impose PFCs"), if the imposition of such restriction may result in the termination or suspension ofthe City's authority to impose PFCs at O'Hare prior to the charge expiration date or the date total approved passenger facility charge revenue has been collected; and (iii) all moneys in the PFC Revenue Fund and' the PFC Capital Fund will be used in compliance with all provisions of the PFC Act and the PFC Regulations applicable to the City and all provisions of the PFC Approvals.
Plan of Finance Compliance Certificate. The City covenants in the PFC Indenture that it will use PFC Revenues to ensure that' a Plan of Finance Compliance Certificate can be delivered annually with respect to PFC Obligations. In order to deliver such Certificate, the City must be able to certify that PFC Revenues for which the City has impose arid use authority in the PFC Capital Fund, when added to (i) the available moneys held pursuant to the PFC Indenture in the PFC Bond Fund and (ii) projected PFC Revenues based upon any period of 12 consecutive months out of the preceding 18 months at O'Hare, after giving effect to other projected uses of PFC Revenues through the date on which all Outstanding PFC Obligations (including any proposed Series of PFC Obligations being issued at the time of delivery of such Certificate) are expected to be paid in full, are equal to or greater than 105 percent of all Aggregate PFC Debt Service (including any proposed Series of PFC Obligations being issued at the time of delivery of such Certificate) through the date of such payment. To date, the City has been in compliance with the covenants described within this paragraph.
See "PFC PROGRAM AT O'HARE-Termination of Authority to Impose PFCs" and "CERTAIN INVESTMENT CONSIDERATIONS-Availability of PFC Revenues."
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Plan of Finance
General
The City is issuing the 2016 Senior Lien Bonds to: (i) refund certain outstanding Airport Obligations; (ii) fund the related reserve requirements for the 2016 Senior Lien Bonds; and (iii) pay costs and expenses incidental thereto and to the issuance of the 2016 Senior Lien Bonds. The 2016 Senior Lien Bonds are payable from and secured by a pledge of the Revenues and certain Funds and Accounts held under the Senior Lien Indenture.
Refunding Plan
The City intends to redeem the Refunded Bonds with proceeds of the Senior Lien Bonds. The table in APPENDIX H - "BONDS TO BE REFUNDED" sets forth the series designation, maturities, principal amounts, interest rates, and redemption dates for the Refunded Bonds. On the date of issuance and delivery of the 2016 Senior Lien Bonds the City will give the Trustee irrevocable instructions to call the Refunded Bonds on their applicable redemption dates. Notices of the call for redemption of the Refunded Bonds will be given by the Trustee in the manner required by the Senior Lien Indenture and the applicable Supplemental Indentures.
To provide for the refunding of the Refunded Bonds, certain proceeds of the 2016 Senior Lien Bonds and other available funds will be deposited in an escrow account (the."Escrow Account") pursuant to the provisions of a Refunding Escrow Agreement (the "Escrow Agreement"), dated as of December 1, 2016, between the City and U.S. Bank National Association, as trustee under the Senior Lien Indenture, to provide for the defeasance of the Refunded Bonds and their redemption at par plus accrued interest to the date of redemption. The moneys so deposited in the Escrow Account will be invested in "Federal Obligations" pursuant to Section 1101 of the Senior Lien Indenture, and the principal of and the interest on such Federal Obligations (without reinvestment) shall be sufficient to pay when due the interest on. the Refunded Bonds to and including the applicable redemption date thereof and the redemption price of each Refunded Bond on its redemption date.
The accuracy of the mathematical computations regarding the adequacy ofthe moneys deposited in the Escrow Account to pay the debt service described above on the Refunded Bonds will be verified by . Robert Thomas, CPA LLC.
2016 Airport Projects
The 2016 New Money Bonds are expected to be issued in the fourth quarter of 2016 and will be used to fund certain capital projects at O'Hare. These projects include construction of Runway 9C-27C, and enabling projects including airline facility relocation, centralized deicing pad, and the cross-field taxiway system and relocation of Taxiways A and B (the "2016 Airport Projects"). For a discussion of the 2016 Airport Projects, see APPENDIX E-' REPORT OF THE AIRPORT CONSULTANT-The Airport Facilities, Capital Programs, and 2016 Projects." If issued, the City will offer the 2016 New Money Bonds pursuant to a separate official statement.
Other Future Financings for O'Hare
In addition to the 2016 New Money Bonds and the 2017 PFC Bonds, the City expects to issue additional Airport Obligations, including Senior Lien Bonds, PFC Obligations, CP Notes and Credit Agreement Notes, from time to time, to continue implementation and funding of capital projects at O'l tare and refunding Outstanding Airport Obligations. For a discussion of future financing needs for O'Hare, see "CAPITAL PROCRAMS-OMP Airfield Projects" and APPENDIX E "REPORT OF THE AIRPORT CONSULTANT-The Airport Facilities, Capital Program, and 2016 Projects."
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v
Sources and Uses of Funds
The following table sets forth the estimated sources and uses of funds in connection with the issuance of 2016 Senior Lien Bonds.
¦ , . 2016A ¦¦¦ ' 2016B , 2016C
Sources of Funds Senior, Senior . Senior
Lien Bonds Lien Bonds Lien Bonds Total'"
Par Amount $27,335,000.00 $461,945,000.00 $525,055,000.00 $1,014,335,000.00
Net Premium 3,825.843.95 54,913.257.55 84.437,096.25 143,176,197.75
Total $31.160.843.95 S516.858.257.55 $609.492.096.25 Sl.157.511.197.75
Uses of Funds"'' -' ~>. "— '•"•"-"' ' :-y fitj-...' :>hft^M'ty.!bf!,i,*5^ •:<'. ^'Trjj~'^yrr^~^y~y7:~r:~;:. n
Deposit to Refund & Defease Refunded Bonds $30,992,142:50' ' ^14,29 f.010.75 ' $565,071,054.38 $1,110,354,207.63
Deposit to Debt Service Reserve Accouhts • 0 00 0.00 4 l',246,25o!oO 41,246,250.00
Costs of Issuance® 168.701.45, , . . 2.567.246.80. . 3.174.791.87 5.910.740.12
Total ., : , .. . , S31.160.843.95 . . --.S516.585.257.55' ', $609.492.096.25 . $1.157-511.197.75
(1) Totals may not add due to rounding.
(2) Includes Underwriters' Discount and other costs of issuance.
Chicago O'Hare International Airport
General ' ' :i! ';_'
O'Hare is the primary commercial airport for the-City, as well as an important connecting point for • numerous- domestic and international flights. Located 18 miles northwest of the City's central business district, O'Hare occupies approximately 7,272 acres of land and is directly linked to the central business district by a rapid transit rail'system; 'O'Hare 'is;by far the busiest aiiport-serving the Chicago Region (as Herein'defined). O'Hare serves'nearly'all'of 'me'tfiicSgb #egibn's! mterriatibhaTair' traffic'ana is the predominant airport for nonstop/business travel to the Chicago Region's top 50 origin and destination ("O&D") markets.
Based on preliminary data from ACI, for the ^month period ended December 2015, O'Hare ranked second both worldwide and in the United States in total aircraft operations, and fourth worldwide and second in the United States in terms of total passengers. According to the CDA, O'Hare had approximately 70.0 million total passengers in 2014 and approximately 76.9 million in 2015.
Both United Airlines and American Airlines,' two of the world's four largest air carriers (in terms of revenue passenger miles), operate major hubs at O'Hare. United Airlines (including its regional affiliates) operated 571 daily departures from O'Hare as of August 2016 and accounted for 44.2 percent of the enplaned passengers at O'Hare in 2015. American Airlines (including US Airways with which American Airlines merged in 2015 and its regional affiliates)'operated 479 daily departures from O'Hare as of August 31, 2016 and accounted for 35.8 percent of the'enplaned passengers at O'Hare in 2015: See "CERTAIN INVESTMENT CONSIDERATIONS-Uncertainties of the Airline Industry" herein for additional information regarding the airlines serving O'Hare.
For more complete and detailed information regarding historical and projected air traffic at O'Hare, see "Air Traffic" in APPENDIX E "REPORT OF THE AIRPORT CONSULTANT."
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The Air Trade Area
The primary air trade area that O'Hare serves consists of 10 counties in Illinois (Cook, DeKalb, DuPage, Grundy, Kane, Kankakee, Kendall, Lake, McHenry and Will), four counties in Indiana (Jasper, Lake, Newton and Porter) and one county in Wisconsin (Kenosha). These 15 counties comprise the "Chicago Region" and include two Metropolitan Statistical Areas that contain four adjoining major metropolitan areas. This area (the "Air Trade Area") is depicted on the map below.
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Map of Chicago Region
Other Commercial Service Airports Serving the Chicago Region
Midway. In addition to O'Hare, Midway is owned by the City and operated through the CDA.
Midway, located 15 miles south of O'Hare arid nine miles southwest of the .central .business district of the
City, also provides scheduled commercial passenger service. 'Based upon CDA management records,
total enplaned passengers at Midway were 11,003,697 for 201'5 and 10,497,727 for 2014. As of August
2016, Midway provided nonstop service to 75 markets (nine of which are international destinations) with
a total of 272 daily nonstop flights whereas O'Hare has approximately 1,097 daily nonstop flights to 231
markets (64 of which are international destinations). In 2015, Midway had 4,227,590 connecting
cripTariemerits and 6,890,633originating"en^ represented approximately
25.5 percent of Chicago originating passenger traffic and approximately 18.8 percent of Chicago connecting passenger traffic, whereas O'Hare's originating and connecting percentages of Chicago passenger traffic for 2015 were approximately 74.5 percent and 82.2 percent, respectively.
O'Hare and Midway are operated as separate and distinct enterprises for financial purposes and the 2016 Senior Lien Bonds are not secured by any revenues generated, or property located, at Midway.
General Mitchell International Airport. The nearest commercial service airport outside the
Chicago Region is General Mitchell International Airport ("Mitchell"), located approximately 70 miles
north of O'Hare. Mitchell serves the commercial air service needs of Milwaukee, southeast Wisconsin,
and portions of northern Illinois. Total enplaned passengers at Mitchell were approximately 3.3 million
in each of the years 2015 and'2014. Although Mitchell-isi in,close proximity to O'Hare (their overlapping
service areas include three counties in the northem/Ghieag6':R'egi6h area, which represent approximately
12 percent of the population in the Chicago Region), the higher-frequency nonstop service to top O&D
markets from O'Hare attracts a greater portion qfpraffi^ Wisconsin to
O'Hare. On average in 2015, Mitchell had-approximately 107;daily nonstop flights to'38 markets (5 of
which were international). '• .««--.* „,".....
Gary/Chicago International Airport. Gary/Chicago International Airport, which is owned by the City of Gary, Indiana, is also located in the ChicagoRegion.': Currently, no commercial passenger service is provided at Gary/Chicago International Airport.
Existing Airport Facilities
O'Hare currently has eight active runways, which allow for operations in good and poor weather conditions. A network of aircraft taxiways, aprons and hold areas supports the runways. The runways range from 7,500 feet to 13,001 feet. All runways have electronic and other navigational aids that permit aircraft landings in most weather conditions. For more information regarding the existing airfield facilities at O'Hare, see "The Airport Facilities, Capital Program, and 2016 Projects-Airport Facilities-Airfield" in APPENDIX E "REPORT OF THE AIRPORT CONSULTANT."
The airlines serving O'Hare operate out of four terminal buildings. Three terminal buildings, having a total of 170 aircraft gates, serve domestic flights and certain international departures. A fourth terminal building, the International Terminal, with 19 aircraft gates and four hardstand positions, serves the remaining international departures and all international arrivals requiring customs clearance. The ATS serves the three domestic terminals, the International Terminal and the remote long-term parking areas. For more information regarding the existing terminal facilities at O'Hare, see APPENDIX E-"REPORT OF THE AIRPORT CONSULTANT-The Airport Facilities, Capital Development Program, and 2015 Projects-Airport Facilities-Terminal Area."
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Currently, of the 170 domestic gates and related facilities at O'Hare, 10 are common use gates and eight are preferential use gates. The remaining domestic gates and related facilities are exclusively leased by the City to the Airline Parties pursuant to the Airport Use Agreements. The common use gates are being used by the following low-cost carriers: Frontier, JetBlue, Spirit and Virgin America, along with Air Choice One, which is an Essential Air Service carrier. The preferential use gates arc leased to American Airlines. All 19 international gates are operated on a common use basis.
A hotel, an elevated parking structure, and the heating and refrigeration plant serving O'Hare are located adjacent to the terminal buildings. The hotel, currently leased and operated by Hilton Hotels Corporation, provides 860 guest rooms as well as restaurants and meeting facilities. The six-story parking structure located next to the terminal has approximately 9,300 parking spaces and is supplemented by an adjacent surface lot with approximately 2,800 additional spaces. Public and employee ground level parking spaces located elsewhere at O'Hare total approximately 10,700 and 20,600 parking spaces, respectively.
With 16 air cargo buildings and nine aircraft maintenance hangars leased by airlines, O'Hare is a major center for other aviation-related activity such as aircraft maintenance and domestic and international air cargo shipment. In addition, two flight kitchens, four buildings used for airline ground equipment maintenance, one United States Postal Service facility and an airport, equipment maintenance complex that stores and services snow removal and other equipment are located at O'Hare.
Airport Management
O'Hare is owned by the City and operated through the CDA, which oversees planning, operations, safety and security, and finance and administration. The CDA also oversees such activities at Midway. The CDA is headed by the Commissioner of Aviation and as of September 30, 2016 had approximately 1,484 employees (1,285 at O'Hare and 199 at Midway).
Regional Authority
In 1995, the City and the City of Gary, Indiana, entered into the Compact, which established the Chicago-Gary Regional Airport Authority (the "Chicago-Gary Authority") to oversee and support Midway, O'Hare, Meigs Field and the Gary/Chicago International Airport, to evaluate jointly the bi-state region's need for additional airport capacity and to coordinate and plan for the continued development, enhancement and operation of such airports and the development of any new airport serving the bi-state region. Subject to the power of the Chicago-Gary Authority to approve certain capital expenditures and other actions, the City continues to manage, own and operate Midway and O'Hare. Meigs Field was closed by the City on March 30, 2003. The approval of the Chicago-Gary Authority is required for implementation of capital projects at O'Hare. The City has obtained all required approvals from the Chicago-Gary Authority for the OMP, the Multi-Modal Facility and the 2016 Airport Projects.
O'Hare Noise Compatibility Commission
The O'Hare Noise Compatibility Commission (the "O'Hare Noise Commission") was formed to
determine certain noise compatibility projects to be implemented in a defined area surrounding O'Hare,
oversee a noise monitoring system operated by the City, and (iii) advise the City concerning other O'Hare noisc-rclatcd issues. As of September 1, 2016, the City had spent approximately $505.6 million on residential and school noise compatibility projects since the establishment of the O'Hare Noise Commission in 1997.
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Budget Procedures .....
- : The,City is requirecLby .law-to.pass an annual appropriation ordinance! and.budget prior to the beginning of each Fiscal Year. The CDA submits its proposed' budget for the following Fiscal Year, including the proposed budget for O'Hare, to the City's Budget Director for inclusion in the proposed City budget. The Budget Director includes a proposed budget for the CDA in the City's budget proposal for approval by the Mayor who submits the City budget to the City Council for approval. O'Hare's budget, as proposed by CDA, may be modified by the Budget.Director, the Mayor or the City Council. On October li ;-2016, theMayo'r submitted a'proposedTis^
Air Traffic Activity at O'Hare
Recent O'Hare Operations
For over '40 years, O'Hare has been and continues to be one of the principal components in the
national airspace system, providing riot only the primary origin and destination, service to the third largest
metropolitan area in the United States, but also serving as an important connecting: bub for two of the
world's four largest air-carriers (in terms of revenue passenger miles)' - United Airlines and American
Airlines. Preliminary statistics, from ACT indicate that for 2015 O'Hare ranked second worldwide and in
the United States in total aircraft operations with 875,136 takeoffs and landings, and seventh worldwide
and third in the United States in total passengers. O'Hare served approximately 38;38; million enplaned
and deplaned passengers in 2015, an increase of 9.9% from the previous year. Through the first seven
months' of 20.16,' passenger activity at O'Hare' has; increased: 2-.7% 'frbrir the record volume over the same
period in 2015. •' ¦¦.-¦<¦¦• .w-.' ¦
As of August 2016, nonstop service was provided '< from O'Hare to each of 0:1 fare's top 50 domestic O&D markets. Scheduled service in August 2016 included an average of 1,233 nonstop departures from O'Hare, including 1,108 domestic departures and 128 international departures:
Passenger Activity at O'Hare ':
The table on the following page shows the total enplaned passenger activity for a 10-year period from 2006 through 2015. Total enplaned passengers at O'Hare reached a record high of approximately 38.381 million total enplaned passengers in 2015 and increasing significantly; from a low in 2009 of 32.035 million total enplaned passengers.' These decreases'in total enplaned passengers in 2009 (as compared to prior years), which were similar: to those experienced nationally,- were primarily due to cutbacks in capacity by the airlines in response to record high fuel costs and a nationwide economic recession, which impacted demand for air travel. From 2010 through 2013;'0'Hare experienced relatively stable activity with approximately 33 million in enplaned passengers annually. Enplaned passenger activity for 2015 rose 9.9% over 2014. For the first seven months of 2016 passenger activity increased 2.7% from the same period in 2015 lo approximately 27.3 million enplaned passengers:
As set forth in the following table, O'Hare supports substantial international service. Between 2006 and 2015, the percent of international enplaned passengers ranged from 14.38 to 16.18 percent of the total enplaned passengers.
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TOTAL ENPLANED PASSENGERS' CHICAGO O'HARE INTERNATIONAL AIRPORT
2006-2015
INTERNATIONAL
ENPLANED PASSENGERS
ANNUAL GROWTH
ENPLANED PASSENGERS
ANNUAL GROWTH
ENPLANED PASSENGERS
ANNUAL GROWTH
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
COMPOUND ANNUAL GROWTH RATE
2006-2011
2011-2015
2006-2015
32,116,629 32,109,607 28,378,531 26.851,150 28,087,634 28,293,579 28,275.113 28,182,287 29,546,907 32,863,551
(2.5%) 3.8% 0.3%
(0.9%) (0.0%) (11.6%) (5 4%) 4.6% 0.7% (0.1%) (0.3%) 4.8% 11.2%
5.647,815 5,653,455 5,632,655 5,184,005 5,131,768 4,901,129 4,956,088 5,102,501 5,392,787 5.517,938
(2.8%) 3.0% (0.3%)
1.9% 0.1% (0.4%) (8.0%) (1.0%) (4.5%) 1.1% 3.0% 5.7% 2.3%
37,764,444 37,763,062 34,011,186 32,035,155 33,219,402 33,194.708 33,231,201 33,284,788 34,939,694 38,381,489
(2.5%) 3.7% 0.2%
(0.5%) (0.0%) (9.9%,) (5.8%) 3.7% (0.1%) 0.1% 0.2% 5.0% 9.9%
NOTE-
1 Excludes general avimton, military, helicopter, and miscellaneous passengers included in the City of Chicago's Airport Activity Statistics
SOURCE- City ofChicago. Department of Aviation Management Records, August 2016.
Enplaned passenger traffic at O'Hare can be divided into two primary components: O&D and connecting. O&D enplaned passengers consist of two groups. The first group includes those travelers whose residence and/or place of employment are in the Chicago Region and surrounding communities and whose air trips originate at O'Hare. The second group includes travelers who are not residents of or employed within the Chicago Region and surrounding communities, but who visit for business, personal or pleasure-related activity. Connecting passengers include those passengers traveling from a destination outside the Chicago Region to a destination outside the Chicago Region, who board one aircraft at O'Hare after having arrived on another aircraft at O'Hare. The number of connecting enplaned passengers at O'Hare reflects airline operating decisions, which are in part dictated by the size ofthe local air passenger market, the profitability of O'Hare to the airlines, and the geographic location of O'Hare relative to heavily traveled air routes.
The following table shows total enplaned passengers, total originating enplaned passengers and total connecting enplaned passengers at O'Hare for a 10-year period from 2006 through 2015. As shown, O'Hare has a strong O&D market with the percent of originating passengers ranging from 47.8% to 52.4% of total enplaned passengers over the 10-year period.
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ORIGINATING AND CONNECTING ENPLANEMENTS CHICAGO O'HARE INTERNATIONAL AIRPORT
.2006-2015
YEAR
2006
2007. ,
2008"
2009
2010
2011
2012
2013
2014
2015
TOTAL ORIGINATING
ENPLANED PASSENGERS
18,051,404 ,J 8,20j;.796 ¦ 1,694" 15,697,226 17,406,914 15,966,655 16.S4S.2I9 17,041,811 17,102,467 20,081.775
ORIGINATING ENPLANED PASSENGER ANNUAL GROWTH
3.0% .
rJ>$%
"-4 9% -9 3% 10.9% -8.3% 5.5% 1.1% 0 4% 17 4%
TOTAL CONNECTING
ENPLANED PASSENGERS
19,713.040 9;561,266-16,699,492" 16.337,929 15,812.388 17,228,053 16,382,982 16,242.977 17,837,227 18,299,714
CONNECTING ENPLANED PASSENGER ANNUAL GROWTH
-3 4%
_-0JS% . "l 4 6% -2.2% -3.2% 9.0% -4.9% -0.9% 9.8% 2.6%
TOTAL ENPLANED PASSENGERS
37,764.444 . 37(763.062. 34,011,186 32,035,155 33.219,302 33,194,708 33,231,201 33.284,788 34,939,694 38,381,489
TOTAL ENPLANED PASSENGER ANNUAL GROWTH
-0.5%
;,0:0%
?;9~9% ^5 8% 3.7% -0 1% 0.1% 0.2% 5.0%, ¦9.9%
ORIGINATING ENPLANED PASSENGER
PERCENTAGE
8%
•48:2%
50.9% 49 0% 52.4%
1% 50.7% 51.2% 48.9%, 52.3%
COMPOUND ANNUAL GROWTH RATE
2006 - 2011 (2.4%) 2011- 2015 5.9% 2006-2015 '1.2%
(2.7%,) 1 5% (0 8%)
(2 5%) 3.7% 0 2%
NOTE Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's Comprehensive Annual Financial Report.
SOURCES' City of Chicago, Department of Aviation Management Records (historical enplaned passengers); August 2016: Ricondo'& Associates. Inc. (November 3, 2016), analysis of passenger components
Aircraft Operations
The following table shows total aircraft operations at O'Hare for the 10-year period 2006 through 2015. From 2006 through 2009, the number of aircraft operations steadily decreased, to 827,899. After increasing to 882,617 in 2010, the number of aircraft operations decreased slightly to 878,108 in 2012, and increased to 883,287 in 2013 with a slight decrease to 881,933 in 2014. Prior to 2015, United and American shifted domestic passenger service from their mainline service to their regional affiliates, shown by the increase in regional affiliates over the period. Mainline aircraft operations increased from 267^044 in 2014 to 306,670 in 2015. The national economic recession and the recent trend of operating capacity with larger aircraft were the primary cause of total operations at O'Hare decreasing from 958,643 in 2006 to 875,136 in 2015.
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TOTAL AIRCRAFT OPERATIONS CHICAGO O'HARE INTERNATIONAL AIRPORT
2006-2015
INTERNATIONAL
MAJORS/ REGIONALS/ NATIONALS COMMUTERS
DOMESTIC TOTAL
U.S. FLAG CARRIERS
FOREIGN
FLAG CARRIERS
INTERNATIONAL TOTAL
TOTAL PASSENGER AIRLINES
GENERAL AVIATION 1
ALL MILITARY CARGO
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
398,633 387,663 366,143 318,513 283,194 279,466 274,841 267,838 267,044 306,670
422,953 415,270 396,848 402,656 488,376 493,249 498,295 504,491 513.552 458,210
821,586 802,933 762,991 721,169 771,570 772,715 773,136 772.329 780,596 764,880
49,230 51,531 45,378 42,074 41,452 41,492 38,560 41,959 32.697 33,873
34,750 35,512 35,833 32.768 30,702 28,212 28,432 29,899 35,863 36,855
83,980 87,043 81,211 74,842 72,154 69,704 66,992 71,858 68,560 70,728
905,566 889,976 844,202 796,011 843,724 842,419 840,128 844,187 849,156 835,608
31,912 16,295 19.802 17,900 21,645 19,230 21,103 22,774 17,344 21,828
21,165 20,702 17,562 13,988 17,248 17,149 16,877 16,326 15,433 17,700
958,643 926,973 881,566 827,899 882,617 878,798 878,108 883,287 881,933 875,136
COMPOUND ANNUAL GROWTH RATE
2006-2015 (2.9%) 0.9% (0 8%) (4 1%) 0.7% (1.9%) (0 9%) (4.1%) (2.0%) N/A (1.0%)
Note: N/A ~ not applicable.
1 Includes general aviation, helicopter, and other miscellaneous operations.
Source City of Chicago, Department of Aviation Management Records, August 2016.
Airlines Providing Service at O'Hare
As of August 2016, O'Hare had scheduled air service by 21 U.S. flag carriers, 36 foreign flag carriers, 5 non-scheduled/charter airlines and 22 scheduled all-cargo carriers. The following tables show the airlines that currently provide service at O'Hare and the respective airline share of enplaned passengers at O'Hare from 2011 to 2015. For more information, see "Air Traffic-Airlines Serving the Airport" in APPENDIX E "REPORT OF THE AIRPORT CONSULTANT."
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37
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Additional Airline Information. The Airline Parties (including the corporate parents of United Airlines and American Airlines) and certain other airlines operating at O'Hare (or their respective parent corporations) file reports and other information (collectively, the "SEC Reports") with the SEC. Certain information, including financial information, as of particular dates concerning each of the Airline Parties (or their respective parent corporations) is included in the SEC Reports. The SEC Reports can be read and copied at the SEC's Public Reference Rooms, which can be located by calling the SEC at 1-800-SEC-0330. In addition, electronically filed SEC Reports can be obtained from the SEC's web site at www.sec.gov . Each Airline Party and certain other airlines are required to file periodic reports of financial and operating statistics with the . U.S. Department of Transportation. Such reports can be ""inspect^^t-tKc""0'ffice 6f^ifluie~Information, Bureau of Transportation Statistics^ Department of" Transportation, Room 4201, 400 Seventh Street S.W., Washington, DC 20590, and copies of such reports can be obtained from the Department of Transportation at prescribed rates. Non-U S. airlines also provide certain information concerning their operations and financial affairs, which may be obtained from the respective airlines. Neither the City nor any of the Underwriters undertakes any responsibility for, or makes any representations as to the accuracy or completeness of or the content of information.available from, the SEC including, but not limited to, updates of such information or links to other internet sites accessed through the SEC web site.
O'Hare Financial Information
Operating Results
The following is a summary of O'Hare's operating revenues and Operation and Maintenance Expenses for the five-year period 2011 through 2015. O'Hare's fiscal year corresponds with the calendar year. See also APPENDIX D-'AUDITED FINANCIAL STATEMENTS" as of and for i'the years-ended December 31, 2015 and 2014 (the "Financial Statements").
[Remainder of page intentionally left blank]
40
Historical Operating Results Chicago O'Hare International Airport 2011-2015 (In Thousands)
2011
Operating Revenues
Landing Fees $ 179,924
Rental Revenues
Terminal rental and use charges 246,912
Other rentals and fueling system fees 40,530
Sub-Total Rental Revenues 279,373
Concessions:
Auto parking 93,557
Auto rentals 25,445
Restaurants 41,330
News and gifts 16,579
Other 41.197
Sub-Total Concessions 21L886
Reimbursements 8,219
Total Operating Revenues $679.402
2012
2013
2014
$ 189,997 $169,323 $211,982
287,972 273,611 340,449
40.468 44.813 44.330
287.442 318.424 385.779
93,430 95,614 97,834
22,643 26,274 27,863
35,669 42,662 45,432
14,495 18,367 24,086
30.377 40.337 45.082
218,108 223.254 240.297
7.017 6.679 6.466
$702.564 $717.680 $844.524
2015
$253,347
292,706 48.199 340.905
99,210 29,176 49,366 24,355 41.908 244,015 6,961 $845.228
Operation and Maintenance Expenses
Salaries and Wages'0 $190,830 $191,677 $192,744 $212,576 $229,015
Pension Expense 339,546(1)
Repairs and Maintenance 94,519 88,784 85,484 110,928 98,945
Energy 31,777 31,775 32,895 34,519 34,090
Materials & Supplies 14,288 9,797 8,961 10,573 9,876
Engineering & Other Professional Services. 65,382 74,307 81,070 88,142 83,265
Other Operating Expenses 34.254 53.839 24.895 38.268 10.973
Total Operation and Maintenance Expenses
Before Depreciation and Amortization.. $431.050 $450.179 $426.049 $495.007 $805.710
Net Operating Income Before
Depreciation and amortization $248.352 $252.385 $391.631 $349.517 $ 39.518
(1) Pension Expense is included in 2015 as a separate category due to implementation of Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions - An Amendment of GASB Statement No. 27 ("GASB 68"). GASB 68 requires inclusion of certain expenses that are not payable in that year but required to be recorded in the City's Airport financial statements. Prior to GASB 68 (from 2011 through 2014 in the above table), Salaries and Wages included the Pension Expense due and payable in each year.
DrscussiON of Financial Opera tions
The "Historical Operating Results" tabic above summarizes O'Hare's audited financial results for the years 2011 through 2015. Operating revenues in the table are comprised of landing fees, terminal area rental/use charges, other rentals/fueling system fees and concessions. Operation and Maintenance Expenses are comprised of salaries and wages, repairs and maintenance, energy, materials and supplies, engineering and other professional services and other operating costs which include insurance premiums, equipment rentals, vehicles and various miscellaneous costs.
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The City charges the Airline Parties based on a projection of, and recognizes revenues from the Airline Parties only to the extent required to fund, the net airline requirement (equal to Operation and Maintenance Expenses, net debt service requirements and fund deposit requirements less non-airline revenues and credits). Accordingly, landing fees and terminal area rental/use charges increased $3.6 million in 2015 compared to 2014, due to an increased net airline requirement, driven by an increase in cash Operation and Maintenance Expenses and an increase in net debt service requirements, which were not completely offset by increased non-airline revenues.
The increase in total Operation and Maintenance Expenses before depreciation and amortization of "approximately $310 million-from 201'4^
from the implementation of GASB 68 and increases in salaries and wages.
Ofthe $339.5 million of Pension Expense recorded for 2015, $25.8 million is the portion ofthe , City's pension contribution payable in 2015 to the Retirement Funds (as herein defined) and allocable to O'Hare. The remaining portion. of the Pension Expense for 2015 ($313.7 million) is recognized on the income statement of O'Hare for 2015 pursuant to GASB 68 but is not due and payable by the City during 2015; accordingly, that portion is not included in Operating Expenses for purposes of calculation of the debt service coverage ratios.
The increase in non-airline revenues and reimbursements of $3 million from 2014 to 2015 was primarily due to increases in auto parking, restaurants and auto rentals of $3.9 million, $1.3 million," and $1.3 million, respectively.
Cash Balances
As of December 31, 2015, O'Harc's unrestricted cash and investments balance in the O'Hare Land Support Fund, Revenue Fund and O&M Fund was $143.5' million and its restricted cash and investments balance was $2,498 billion compared to December 31, 2014 balances of $99.6 million in the O'Hare Land Support Fund, Revenue Fund and O&M Fund and $2,463 billion in restricted cash and investments. The December 31, 2015 restricted cash and investments balance was comprised of construction funds of $650.5 million; $79.6 million of capitalized interest, $1,105 billion from debt service reserve and debt service funds, $133.8 operation and maintenance reserve, $93.9 million customer facility charge funds, $342.5 million in the Airport Development Fund, $42.6 million in other funds, and $126.3 in the passenger facility fund. The restricted cash and investments balance includes approximately $650.5 million in construction funds that the City expects to spend through 2018.
Insurance . .
The City maintains property and liability insurance coverage for both O'Hare and Midway and allocates the cost of the premiums between the two airports. The City's property and liability premiums for both O'Hare and Midway are approximately $9 million per year. The property coverage renewed on December 31, 2015 with a limit of $3.5 billion total for both airports and includes terrorism, and the liability coverage renewed on May 15, 2016 with a limit of $1 billion total for both airports and includes $750 million in war and terrorism liability coverage.
Pension Costs
Determination of Pension Contributions
Each O'Hare employee participates in one of four single-employer defined-benefit pension plans for City employees: the Municipal Employees' Annuity and Benefit Fund of Chicago (the "MEABF"),
42
the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago (the "LABF," and together with the MEABF, the "Municipal and Laborers' Funds"), the Policemen's Annuity and Benefit Fund (the "PABF"), or the Firemen's Annuity and Benefit Fund (the "FABF," and together with the PABF, the "Public Safety Funds," which, together with the Municipal and Laborer's Fund, are referred to herein as the "Retirement Funds"). For additional information on the O'Hare's portion of the net pension liability to the Retirement Funds, see Appendix D-"AUDITED FINANCIAL STATEMENTS- NOTES 7 and 8." The Report of the Airport Consultant in Appendix E sets forth projected Personnel Expenses which incorporate O'Hare's projected contributions to the Retirement Funds from 2016 through 2025.
Members of each Retirement Fund are eligible (individually, an "Eligible Member," and collectively, "Eligible Members") for an annual annuity payment (the "Annuity Benefits") if they meet certain age, years of service and prior service credit requirements (the "Eligibility Factors"). Benefits to each Eligible Member are statutorily established based on a combination of the Eligibility Factors and the Eligible Member's average annual salary for certain years prior to retirement (the "Annuity Factors").
Annuity Benefits for each of the Retirement Funds are funded from three sources: (i) contributions from the City (the "City Contributions") which are funded from the proceeds of a property tax levy on all taxable property located within the City or other available funds, including payments from O'Hare on behalf of the O'Hare employees, (ii) contributions from Eligible Members (the "Employee Contributions," and together with the City Contributions, the "Contributions"), and (iii) investment returns, O'Hare has historically contributed its pro rata share of City Contributions to the Retirement Systems (the "O'Hare Portion") based on the Annuity Factors for the number of O'Hare employees who are Eligible Members.
The City Contributions and Employee Contributions are each established by the Illinois Pension Code (the "Pension Code"). Except as described below under "-Public Safety Funds," the Contributions required under the Pension Code do not relate to, and in recent years have been substantially less than, the contribution amounts that would have been required if the Retirement Funds were funded based on actuarial determinations of the contribution amounts necessary to fully fund the Annuity Benefits to Eligible Members of each Retirement Fund over an extended period. See "CERTAIN INVESTMENT CONSIDERATIONS-Financial Condition of the City and Other Overlapping Governmental Bodies" herein. In an effort to improve the funded status ofthe Public Safety Funds, the Illinois General Assembly passed Public Act 96-1495 ("Act 1495"), which modified provisions of the Pension Code with respect to PABF and FABF.
The City's proposed Fiscal Year 2017 budget includes the following contributions to the Retirement Funds (as indicated by total annual contribution and O'Hare proportional share): (i) $267 million for MEABF, of which $18 million, or less than 7 percent, is O'Hare's proportional share; (ii) $36 million for LABF, of which $2,275 million, or 6.4 percent, is O'Hare's proportional share; and (iii) $727 million for FABF and P ABF, of which $ 18.3 million, or 2.5 percent, is O'Hare's proportional share.
Public Safety Funds
The Pension Code establishes the Employee Contributions to PABF at 9.0 percent of the salary of each employee on an annual basis and Employee Contributions to FABF at 9.125 percent ofthe salary of each employee on an annual basis and establishes Annuity Benefits for Eligible Members of the Public Safety Funds hired prior to January 1, 2011 based on the Annuity Factors, subject to 3.0 percent automatic annual increases after each member's first full year of retirement. Prior to the effectiveness of Act 1495, the Pension Code established the City Contribution to PABF at an amount based upon a fixed multiplier of 2.00 times the annual employee contributions to PABF and the City Contribution to FABF at an amount based upon a fixed multiplier of 2.26 times the employee contributions to FABF.
43
Act 1495 provided for the Gity to contribute the actuarially determined amounts necessary to achieve a 90 percent funded ratio in the Public Safety Funds by 2040, but made no changes to the Annuity Benefits for Eligible Employees hired before 'January 1, 2011 and established Annuity Benefits for Eligible Members hired on or:after January 1, 2011 based'on the Annuity Factors; but; with theiaverage annual salary capped at a certain amount, and the annual increases to< the Annuity Benefits tied to the lesser of 3.0 percent or the consumer price index. Additionally, Act 1495 reduced a survivor's Annuity Benefit equal to 2/3: of the Annuity Benefits that the deceased Eligible Member was receiving at the time of his or her death for Eligible Members hired on or after January 1, 201:1
Beginning'' with' mer cbntributi'bn: to ;be: niade:-"t6 r the"' Retirement Funds in 2016, the City's contributions ito PABF and FABF ;will be determined pursuant to P.A. 99-506("Act'506") (which modified the funding approach, for unfunded liabilities set forth in Act 1495), rather than the multiplier funding formula. Act 506 (i) extends the period by which the unfunded liabilities of the Public Safety Funds are amortized, on a leveh percentage of payroll basis, to a 90 percent funded ratio from" 2040 to 2055 and (ii) institutes a phase-in period during 2016-2020 to allow for a more gradual increase in the City Contributions to the Public Safety Funds than originally required by Act 1495;
Municipal and Laborer's Funds
The current Pension Code establishes Annuity Benefits for Eligible Members of the Municipal and Laborers'Funds hired prior to January. 1, 2011 based on the Annuity Factors, subject;to 3 percent automatic annual increases: after the members' first, full year of retirement and Annuity Benefits for Eligible Members hired on or after January 1, 2011 based on the Annuity Factors, but.with the; average annual salary capped at a certain amount, and the annual increases to the Annuity Benefits are tied to the consumer price index.' Furthers the Pension Code establishes the Employee Contribution at 8.5 percent of the*salary-"of 'each cmployee»'6ii:"an:annual basis* and; the Gity;Gbntributiori is established !ati anramdunt' based on a fixed multiplier of 1.25 times the annual employee*contributions for:the MEABF and L00 for the LABF. Without significantly higher contributions or investment returns, the'LABF and the MEABF are currently estimated to become insolvent in'2025 and'2027; respectively. -
• On May 23, 2016, the City announced an agreement-in principle with unions' for employees participating in LABF (the "LABF Plan") pursuant-to which the:City would begin contributing to LABF on an actuarial basis and certain employees participating in LABF would contribute an increased percentage of their salaries to LABF. Similarly, on August 3, 2016, the City announced an agreement in principle with unions for employees participating in MEABF (the "MEABF Plan" and, together with the LABF Plan, the "Stabilization Plans") pursuant to which the City would begin contributing to MEABF on an actuarial basis and certain employees participating in MEABF would contribute an increased percentage of their salaries to MEABF.
Pursuant to the Stabilization Plans, Eligible Members of the Municipal and: Laborers' Funds hired on or after January 1, 2017 ("New Members") would contribute an additional three percent of their salaries to their respective Retirement Funds and would be eligible for benefits at age 65 (as opposed to age 67 for Eligible Members hired between January 1, 2011 and January 1, 2017 ("Tier II Members")). In addition, Tier II Members ofthe Municipal and Laborers' Funds would be eligible to receive benefits at age 65 provided that such Tier 11 Members agree to contribute an additional three percent of their salaries to their respective Retirement Funds.
The Stabilization Plans further provide for the City to contribute the actuarially determined amounts required to achieve a 90 percent funded ratio in the Municipal and Laborers' Funds by; 2057, following a phase-in of certain increased City Contributions ending in 2022. The City expects that legislation will be introduced in the Illinois General Assembly in the fall of 2016 to amend the Pension
44
Code to incorporate the provisions of the Stabilization Plans, and the City intends to support the adoption of such legislation. The City makes no prediction as to whether any such amendments will become law. The City intends to continue to make City Contributions to the Municipal and Laborers' Funds in accordance with the Pension Code in effect when such City Contributions are payable.
Outstanding Indebtedness at O'Hare
General
The City has financed capital improvements at O'Hare through various sources including City financings, federal grants, airline contributions, and available airport funds. The City has issued obligations secured by Revenues, including the Senior Lien Obligations (secured by the Revenues on a senior lien basis) and CP Notes (secured by the Revenues on a junior lien basis). Certain of the Senior Lien Obligations are secured by revenue sources which are separate and apart from the Revenues, such as LOI, PFCs and CFCs.
In addition, the City has issued PFC Obligations secured by PFC Revenues (as herein defined), CFC Obligations (as herein defined) secured by customer facility charges ("CFCs") paid by customers of the rental car companies operating at O'Hare, and Special Facility Revenue Bonds secured by payments made by individual airlines and other tenants and licensees pursuant to separate special facility agreements with the City. Sec also APPENDIX D-"AUDITED FINANCIAL STATEMENTS-Note 4."
Airport Obligations
Outstanding Senior Lien Bonds. The City has issued and has outstanding Senior Lien Bonds (including the Third Lien Bonds issued prior to 2012) in the outstanding aggregate principal amount of $6,400,885,000 (which amount includes Outstanding Senior Lien Bonds anticipated to be refunded with a portion of the proceeds of the 2016 Senior Lien Bonds). The 2016 Senior Lien Bonds are secured on a parity basis with the Outstanding Senior Lien Bonds and all other Senior Lien Obligations.
Debt Service Schedule for Outstanding Senior Lien Bonds. The Senior Lien Indenture secures on a parity basis as to Revenues the 2016 Senior Lien Bonds, the Outstanding Senior Lien Bonds and any additional Senior Lien Obligations issued or incurred by the City from time to time. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-General." The debt service on the Outstanding Senior Lien Bonds (excluding the Refunded Bonds) and the 2016 Senior Lien Bonds is shown in the following table (which does not include projections of debt service for the 2016 New Money Bonds):
45
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Issuance of Additional Airport Obligations. Subject to certain conditions set forth in the Senior Lien Indenture, the City may also in the future issue Additional Senior Lien Bonds or incur other Senior Lien Obligations that will be secured on a parity basis with the 2016 Senior Lien Bonds and the Outstanding Senior Lien Bonds. The 2016 New Money Bonds are Additional Senior Lien Bonds expected to be issued in the fourth quarter of 2016 and will be used to fund the 2016 Airport Projects. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Issuance of Additional Senior Lien Bonds" and "CAPITAL PROGRAMS."
The City may issue, from time to time, additional Airport Obligations to fund additional capital projects under the CIP and to fund certain runway projects, all as described under "CAPITAL PROGRAMS." Such additional Airport Obligations may include, without limitation, Senior Lien Bonds. Issuance of any such Senior Lien Bonds would require compliance with the requirements of the Senior Lien Indenture for the issuance of additional debt.
Obligations Subordinate to Senior Lien Bonds. As described under "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Covenants Against Lien on Revenues," the City has the right, at any time, to issue debt payable or secured by amounts to be withdrawn from the Junior Lien Obligation Debt Service Fund so long as such pledge is expressly junior and subordinate to the pledge of Revenues to the payment of Senior Lien Obligations. Indebtedness of the type described in the preceding sentence can be issued without limit as to nature or amount.
The City previously authorized the issuance of Chicago O'Hare International Airport Commercial Paper Notes (the "CP Notes") and Chicago O'Hare International Airport Credit Agreement Notes (the "Credit Agreement Notes"), respectively, in a combined aggregate principal amount outstanding at any one time of up to $1 billion. Pursuant to this authority, the City recently established a $420 million CP Notes program and intends to establish a $180 million program for Credit Agreement Notes. The CP Notes and the Credit Agreement Notes (if and when issued) will be Junior Lien Obligations and subordinate to the 2016 Senior Lien Bonds and all other Senior Lien Obligations with respect to their claim on Revenues. As of the date of this Official Statement, there are no outstanding CP Notes or Credit Agreement Notes.
Letter of Credit Facilities Securing Indebtedness at O'Hare
The City has issued from time to time certain variable rate bonds and notes that are supported by letter of credit facilities provided by banks for the payment of debt service and/or tender prices for such obligations. The City is obligated to reimburse the banks for any payments or draws under the letter of credit facilities. Set forth in the following table is information about the City's letter of credit facilities supporting Senior Lien Obligations at O'Hare. As reflected in such table, a reduction in the City's debt rating for the related debt below the level that is shown in the "Ratings Thresholds" column would constimte an event of default under the related bank agreement.
If an event of default is triggered due to a ratings downgrade of the City or for any other reason, the subject bank would have the right to provide the bond trustee with a notice directing a mandatory tender of the related bonds. For such mandatory tender, the bond trustee would draw upon the letter of credit facility to fund the purchase price for such bonds. In such case, the bonds would be owned by the bank and would be immediately repayable at the option ofthe bank.
47
Letter of Credit Facilities
($ in thousands)
Series
2005C 2005 D
Amount'
Outstanding
(9/30/16)
$140,600 100,000
Expiration/
Termination Date Bank
8/15/2017 Citibank
8/15/2017 Barclays
Ratings Thresholds(l)
Fitch Moody's S&P
BBB , Baa2 • BBB-(2)' (2) (2)
Source: Gity of Chicago,'Departincnt of Finance. ;r/ r: '.;;:!! ! IVi^ r; J") • ••>-,:•.*¦-
(1) An underlying rating by any rating agency for the related debt (or lowest rated lien of the related credit) below what is
shown in the chart in the "Ratings Threshold" column would constitute an event of default .under the agreements with the
related banks.
(2) The reimbursement agreement with Barclays provides that it is an event of default if (A) any two Rating Agencies then
rating the debt of the City payable from or secured by Revenues and moneys and securities held from time to time by the
Trustee under the Senior L:ien Indenture ("Pledged Revenues") which is senior to orWparity with''the'Series 2005D
Senior Lien Bonds shall have downgraded their rating oh such debt to or below "Baa2" (or its equivalent) or "BBB"- (or- its
equivalent), respectively, or (B) any Rating'Agency shall have downgraded its rating of any. debt of the City payable from
or secured by Pledged Revenues which is senior to or on a parity with-the Series 2005D Bonds to below "Baa3" (or.its
equivalent), or "BBBt" (or its equivalent), respectively, or suspended or withdrawn its;rating of the same and such
downgrade, suspension or withdrawal shall remain for a period of 180 days.
Airport PFC Obligations :
Existing PFC Obligations. The City has previously issued various series of PFC Obligations, pursuant to the'PFC Master Indenture. There are currently $5,95 !630 million aggregate principal amount of PFC. Obligations outstanding'under the PFC'Indenture.', PFC Obligations are1 secured separately' from; the Senior Lieri Bonds,"solely by PFCs collected by me City at
Issuance of Additional PFC Obligations. The City has the authority to issue an additional $500 million of PFC Obligations. The City may issue, from time to time, additional PFC Obligations to fund projects under the 2016-2020 CIP and to fund the OMP Completion Phase 2B (including additional costs ofthe OMP Completion Phase Noise Program), as described, under "CAPITAL PROGRAMS." See "CERTAIN INVESTMENT CONSIDERATIONS-Future Indebtedness" and "-Availability of PFC Revenues." Within the first six months of 2017, the City plans to issue the,2017 PFC Bonds to pay the costs of certain projects included in the OMP, fund the related reserve requirements, refund certain outstanding PFC Obligations and pay the related costs of issuance of the 2017 PFC Bonds, as more fully described under "PLAN OF FINANCE" herein.
Obligations Subordinate to Pledge of PFC Revenues. The City has the right to issue debt payable from or secured by PFC Revenues remaining after the discharge and satisfaction of all PFC Obligations and to issue debt payable from, or secured by a pledge of amounts to be withdrawn from the PFC Bond Fund so long as such pledge is expressly junior and subordinate to the pledge of PFC Revenues to the payment of PFC Obligations. Indebtedness ofthe type described in the preceding sentence can be issued without limit as to nature or amount.
Airport CFC Obligations
The City has previously issued its $248,750,000 Customer Facility Charge Senior Lien Revenue Bonds, Series 2013 (the "CFC Bonds") pursuant to an Indenture of Trust, dated as of August 1, 2013, as supplemented and amended (the "CFC Indenture"). In addition, the City has entered into a Transportation Infrastructure Finance and Innovation Act of 1998 loan with the U.S. Department of Transportation, which will provide funding in an aggregate principal amount up to $272,100,000 (the "TIFIA Loan" and
48
together with the CFC Bonds, the "CFC Obligations"), and which constitutes a subordinate bond under the CFC Indenture. The proceeds of the CFC Obligations, together with other moneys, arc being used to finance the construction of the Multi-Modal Facility, and the CFC Obligations arc secured separately from the Senior Lien Obligations, solely by CFCs collected from customers of rental car companies operating at O'Hare and certain other charges payable by rental car companies operating from the CRCF.
Special Facility Revenue Bonds
The City has previously issued Special Facility Revenue Bonds on behalf of numerous airlines, as well as certain non-airline parties, to finance or refinance a portion of the capital improvements at O'Hare. These Special Facility Revenue Bonds are secured separately from the Senior Lien Bonds, solely by amounts received from such airlines and non-airline parties pursuant to the terms of related Special Facility Financing Arrangements. See "CERTAIN INVESTMENT CONSIDERATIONS-Uncertainties ofthe Airline Industry."
PFC PROGRAM AT O'HARE
The description of the PFC Program at O'Hare is included within this Official Statement for the benefit of the 20J6C Senior Lien Bonds to the extent the 2016C Senior Lien Bonds are payable from Pledged PFCs. The PFCs collected at O'Hare are not included within the Revenues.
General
The United States Congress enacted the PFC Act in 1990, authorizing a public agency, such as the City, which controls a commercial service airport to charge each paying passenger enplaning at such airport (subject to limited exceptions) a PFC of $1.00, $2.00 or $3.00. The purpose of the PFC "is to provide additional capital funding for the expansion of the national airport system. The proceeds from PFCs are to be used to finance eligible airport-related projects that preserve or enhance safety, capacity or security of the national air transportation system; reduce noise from an airport that is part of such system; or furnish opportunities for enhanced competition between or among air carriers.
PFCs are collected on behalf of airports by air carriers and their agents (the "Collecting Carriers "j and remitted to the City on a monthly basis. On September 1, 1993, pursuant to a PFC Approval, the City began to impose PFCs at O'Hare at the rate of $3.00 per eligible enplaned passenger.
The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century ("AIR 21"), among other things, authorizes eligible public agencies, such as the City, to impose PFCs of $4.00 or $4.50 to finance PFC eligible projects, including the payment of debt service on indebtedness incurred to finance such projects, that cannot be paid for from funds reasonably expected to be available through the federal Airport Improvement Program (the "AIP"). On April 1, 2001, pursuant to authorization contained in AIR 21 and amended PFC Approvals (as herein defined) received from the FAA, the City began imposing PFCs at O'Hare at the rate of $4.50 per eligible enplaned passenger. Regardless ofthe number of PFC applications which have been approved by the FAA, eligible public agencies, such as the City, only can collect a maximum of $4.50 from each eligible enplaning passenger.
Collection of the PFCs
A PFC may be collected from a passenger for no more than two boardings (i) on a one-way trip or (ii) in each direction of a roundtrip. The public agency may request exemption from the requirement to collect PFCs for a class of air carriers if the number ol'passengers enplaned by the carriers in the class constitutes no more than one percent ofthe total enplaned passengers annually at the airport at which the
49
PFC is imposed. The City has requested and received an exemption from the collection of PFCs for air taxi operators at O'Hare. Air taxi operators have historically accounted for less than one percent of all PFC eligible enplanements at O'Hare.
Treatment of PFCs in Airline Bankruptcies. The PFC Act provides that PFCs collected by; the Collecting Carriers constitute a trust fund held for the beneficial interest ofthe eligible public agency (i.e., the City) imposing the PFCs, except for any handling fee or retention of interest collected onunremitted proceeds. In addition, federal regulations require airlines to account for PFC collections separately and to disclose the existence and amount of funds regarded as trust funds for financial statements. However, the ~C3llectWg: Gamere ^
to retain interest earned on PFC collections until such PFC collections are remitted.
In the event of a bankruptcy, :the PFC Act, as amended in December 2003 by the Vision 100— Century of Aviation Reauthorization Act ("Vision 100"), provides certain statutory protections5 to eligible public agencies imposing PFCs, including the City, with respect to PFC collections. It is unclear, however, whether the City would be able' to 'recover the full amount of PFC trust funds collected or accrued with respect to a Collecting Carrier in the event of a liquidation or cessation of business. Vision 100 requires an airline' that files for bankruptcy protection; or that has 'an- involuntary bankruptcy proceeding commenced against it, to segregate passenger facility revenue in' a separate account for the benefit of the eligible public agencies entitled' to such revenue. Prior to-the amendments made'by Vision 100 allowing PFCs collected by airlines to constitute a trust fund, at least one bankruptcy court indicated that PFC revenues held by an airline in bankruptcy would not be treated as a trust fund and would instead be subject to the general claims of the unsecured creditors of such airline. In connection with another bankruptcy proceeding prior to Vision 100, a different bankruptcy court entered a stipulated order establishing a PFC trust'fund for'the benefit "of various airports' to-which thVbarilcrupt' airline' was'iiot current on PFC payments'. While'Visioh 100 should provide sdrte'protectiohfo'r'clig^ble public agencies in connection with PFC revenues collected by an airline in bankruptcy, no assurances can be given as to the approach bankruptcy courts will follow in the future. See "CERTAIN INVESTMENT CONSIDERATIONS—Effect of Airline Bankruptcy ."
The City also cannot predict whether a Collecting Carrier operating at O'Hare that files for bankruptcy would have properly accounted for PFCs' owed to the City or whether the bankruptcy estate would have sufficient moneys to pay the City in full for PFCs owed by such Collecting Carrier. Based on Vision 100, it is expected, although no assurance is given, that the City'would be treated as a secured creditor with respect to PFCs held by a Collecting Carrier which becomes involved in a bankruptcy proceeding. Sec "CERTAIN INVESTMENT CONSIDERATIONS—Effect of Airline Bankruptcy."
The City's PFC Approvals
Since 1993, the FAA has approved several PFC applications and amendments submitted by the City authorizing the City to use PFCs to pay (i) allowable costs of projects approved by the FAA for PFC funding ("Approved Projects"), including those Approved Projects financed or refinanced by the issuance of the Series 2001 PFC Bonds, the Series 2008 PFC Bonds, the Series 2010 PFC Bonds, the Series 2011 PFC Bonds (each series as defined in APPENDIX A-"GLOSSARY OF TERMS") and the planned 2017 PFC Bonds, together with debt service on the Series 2001 PFC Bonds, the Series 2008 PFC Bonds, the Series 2010 PFC Bonds, the Series 201 1 PFC Bonds and the planned 2017 PFC Bonds, and (ii) allowable costs of certain Approved Projects on a "pay as you go" basis.
As ofthe date of this Official Statement, the City has authority to impose and use at O'Hare up to $6.55 billion in PFCs. Based upon the City's current PFC authority, the FAA estimates the PFC collection expiration date lo be February 1, 2039. See Exhibit 5-7 in APPENDIX E-"REPORT OF
50
THE AIRPORT CONSULTANT" for a description of PFC Revenues anticipated to be received by the City through 2025. Although the City expects that it will obtain new PFC Approvals before its current authority expires, no assurance can be given that the City will be able to do so. Regardless, the 2016C Senior Lien Bonds are also payable from and secured by a pledge of Revenues. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS."
The City is in the process of submitting to the FAA an application for PFC authority for the International Terminal expansion project. This will support the issuance ofthe 2017 PFC Bonds in the approximate principal amount of $188.6 million to fund the International Terminal expansion project. Additional International Terminal Expansion project costs, if determined to be PFC-eligible based upon project refinements, could be funded with PFC Revenues.
Termination of Authori ty to Impose PFCs
The FAA may terminate the City's authority to impose PFCs, subject to procedural safeguards, if the FAA determines that (i) the City is in violation of certain provisions of the federal Airport Noise and Capacity Act of 1990 (the "Noise Aci") relating to airport noise and access restrictions, (ii) PFC collections and investment income thereon are not being used for Approved Projects in accordance with the PFC Approvals or with the PFC Act and the PFC Regulations, (iii) implementation of any Approved Projects does not commence within the time period specified in the PFC Act and the PFC Regulations or (iv) the City is otherwise in violation of the PFC Act, the PFC Regulations or the PFC Approvals. As provided by the PFC Regulations, a formal termination process that would last a minimum of 100 days would be required before the FAA could terminate the City's authority to impose a PFC for a violation of the PFC Act. The City has not received notice of any such determination by the FAA and has no reason to believe that it is in violation ofthe PFC Act or the PFC Regulations. See "SECURITY FOR THE 2016 Senior Lien BONDS-Certain Provisions of PFC Indenture-Compliance with Noise Act, PFC Act, PFC Regulations and PFC Approvals."
In the event the FAA were to terminate or reduce the City's ability to impose PFCs at O'Hare, such action would have the resultant effect of limiting the amount of PFC Revenues available for payment of the 2016C Senior Lien Bonds and the other Senior Lien Bonds to the extent such Senior Lien Bonds are payable from Pledged PFCs. The 2016C Senior Lien Bonds and any Senior Lien'Bonds payable from Pledged PFCs are also payable from and secured by a pledge of Revenues in the event insufficient PFCs are available for payment of these bonds. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS."
Capital Programs
General
The Capital Programs are organized into the OMP, the 2016-2020 CIP and other recently announced capital projects. In addition to the Capital Programs, the City, in accordance with criteria established by the O'Hare Noise Commission, participates in an ongoing program of providing sound insulation to eligible schools and residences in the vicinity of O'Hare (the "OMP Noise Program"). See "CHICAGO OMFIARE INTERNATIONAL AIR PO RT-O 'Hare Noise Compatibility Commission."
OMP Airfield Projects
Overview. The OMP Airfield Projects were designed to enhance both O'Hare and system-wide airport capacity. The FAA's final Environmental Impact Statement ("EIS") defines the purpose and the need for the OMP development as addressing the projected needs of the Chicago Region by reducing delays at O'Hare, thereby enhancing capacity ofthe National Airspace System ("NAS"), and ensuring that
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existing and future terminal facilities and supporting infrastrticture can-efficiently accommodate airport users. See APPENDIX E- 'REPORT OF THE AIRPORT CONSULTANT" for a more detailed discussion of the OMP'.
OMP Airfield Projects are changing the airfield from a layout with intersecting runways to a modern parallel runway system. The OMP, which includes the construction of one new runway, the relocation of three existing runways and the extension of two existing runways, is being undertaken in phases that, began in 2005. To date, three ofthe four runways have been completed and one of the two runway extensions has-been completed The Airport has experienced a reduction in operational delays andTaTFihCTca^^^ complefiori'^
Airfield Projects include one runway (9R-27C) (under, construction), and an extension to an existing runway (R-27L), which is expected to further reduce delays and increase capacity. Funding for the OMP Airfield Projects has been undertaken in phases. OMP Phase 1-,- a $3.21 billion project; included two runways and an extension and was completed in 2013. A $1.07 billion funding agreement with the Airline iBartiesifor .OMP; Phase: -2A included a runway sand; enabling projects for !a< ramre/runway. This phase is fully funded; the runway project was completed in October 2015 and the remaining, projects^ are anticipated to remain within budget... >
¦Projected Sources and Uses- of Funds for ' OMP. Airfield: Projects.- • The City is using a
combination of (i)iGARBs,. including. Senior; Lien Bonds, ,(ii) PFC. secured GARBs ("PFC-Backed
GARBs"); .(iii) FAA Letter of Intent Grants ("FAA LOI-Grants") on a pay-as-you-go ("PAYGO") basis,
(iv) FAA LOI Grant secured GARBs ("FAA LOI Grants-Backed GARBs"); (iv) PFCs on a PAYGO basis;
(vi) PFC Obligations,:(vii) .federal entitlement arid discretionary AIP grant receipts ("FAA AIP Grants"),
(viii) north airport traffic control1 tower lease-payments ("NATCT;Revenues"), and.(ix) federal equipment
arid facilities grant receipts ("FAA F&E-,Grants"),-all as described on the.following pages, to/fund,the
OMP Airfield iProjccfs. ¦•>,-¦'¦¦ ; so I' ¦ .h t- ' ¦ •>';•:¦.¦"' ..: r : •
2016 Airport Projects
Proceeds from the 2016 New Money Bonds, if issued, will be used to fund the 2016 Airport Projects which include, construction of Runway 9C-27C and enabling projects, including airline facility relocation (these projects are part of the OMP); a centralized deicing pad, and a cross-field- taxiway system; and relocation of Taxiways A and B. PFCs and grant receipts from FAA LOI Grants, both used on a .PAYGO .basis,-, arc anticipated to fund the portions ofthe 2016 Projects not funded with the 2016 New Money Bonds. For a discussion of the 2016 Airport Projects, see APPENDIX E-"REPORT OF THE AIRPORT CONSULTANT-The Airport Facilities, Capital Program, and 2016 Projects."
Capital Improvement Program
. The 2016-2020 CIP addresses ongoing capital needs at O'Hare. In .general, ithe 2016-2020 CIP provides for rehabilitation of airfield pavement, lighting and mechanical upgrades for the terminals, mechanical and electrical upgrades to the heating and refrigeration plant and additional projects associated with the airfield and support facilities, parking and roadway projects, terminal area projects, and safety and security projects. The 2016-2020 CIP is expected to be funded through a combination of sources including federal grants, proceeds from previously issued GARBs and assumed proceeds from future Senior Lien Bonds. The 2016 Airport Projects do not include any projects that arc included in the 2016-2020 CIP. Certain projects, totaling approximately $991.5 million, were included in previous O'Hare five-year capital improvement programs.
The City is constructing a six-story, 4.5 million square foot Multi-Modal Facility which includes the CRCF with an Associated Quick Turn Around facility, an extension to O'Hare's existing ATS,
including the purchase of new ATS vehicles, and public parking. The Multi-Modal Facility is a major portion of the 2016-2020 CIP. The $784.5 million estimated cost of this project is fully funded and all approvals and waivers required from the rental car operators to operate in the CRCF have been received. Construction of the Multi-Modal Facility began in August 2015 and is expected to be complete in 2019.
For more information regarding the CIP, see "The Airport Facilities, Capital Program, and 2016 Projects-Overview of Capital Program-2016-2020 Capital Improvement Program" in APPENDIX E- 'REPORT OF THE AIRPORT CONSULTANT."
Other Recently Announced Capital Projects
The City recently announced a series of capital projects intended to bring the Airport facilities into the 21st Century. These projects will add gates at the domestic and international terminals, are expected to be completed over the next two to three years and do not require airline approval. The expansion ofthe International Terminal is expected to be funded using proceeds of the 2017 PFC Bonds. Additional long-term terminal development and redevelopment options as part of the TAP are being evaluated in coordination with airline representatives to address long-term terminal capacity. A redevelopment of the existing terminal hotel and the construction of two new hotels on Airport property are also planned and expected to be completed between 2020 and 2022. The feasibility of a future express rail third-party project connecting the Airport to the central business district is currently being studied..The expansion of Concourse. L.is under construction and will be funded by American Airlines. The $266.8 million International Terminal expansion is anticipated to be funded by PFC Revenue (PAYGO and PFC Revenue bonds) and Airport discretionary funds. The TAP is still in preliminary conceptual planning and discussion phases but expected to be funded with future bond proceeds. . For additional information on the recently announced capital projects, see "APPENDIX E-"REPORT. OF THE AIRPORT CONSULTANT-The Airport Facilities, Capital Program, and 2016 Projects- -Overview of Capital Program-Other Recently Announced Capital Projects."
Management Approach for Capital Programs
For the OMP, United Airlines and American Airlines established a tiered management structure with each tier having specific review and approval authority. The OMP Executive Working Group, comprised of three City representatives and two airline representatives, meets to review and discuss program scope, schedule, budgets and funding. A committee of the Airline Parties retains the right to approve increases in project component scope and budget of more than 10 percent, any financial commitment of over $5 million, and project delivery methods if construction value is greater than $20 million.
For all other Capital Programs, the City employs a construction manager to coordinate, supervise and inspect capital project construction. The construction manager prepares and maintains records on the progress of each capital project. The City and the construction manager oversee all work to ensure that each project is constructed in accordance with its plans and specifications within the timelines set forth in the construction schedule. In addition, the Airline Parties designate a construction representative to assess the construction and operational impact of capital projects and to participate in the evaluation of design and construction.
Federal Legislation, State Actions and Proposed South Suburban Airport
Federal Legislation. On July 15, 2016, President Obama signed the "FAA Extension, Safety and Security Act of 2016" into law. The law reauthorizes the Federal Aviation Administration ("FAA") operations and programs through September 30, 2017. On September 29, 2016, Public Law Number
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114-223, a continuing resolution extending funding for federal programs, was signed into law (the "Continuing Resolution"). The Continuing Resolution extends federal funding, including general funding for the FAA, including airport development grants and other non-trust funds, through December 9, 2016. As of the date of this Official Statement, the City has no assurance that the current FAA authorization-and' programs will be extended or that a new authorization or programs will be approved beyond September 30, 2017, or that no interruption of general federal funding, including FAA funding, will occur in connection with the current December 9, '2016 funding expiration date. ^ -See - "CERTAIN INVESTMENT CONSIDERATIONS."
O'HaFe'Modernization Act. The ~0'Hare"M611^
became law in August 2003, was created to expedite and facilitate the OMP. Specifically, the O'Hare Modernization Act 'states the Illinois General Assembly's intent that "all agencies'of this State and its subdivisions shall facilitate the efficient and expeditious completion" of the OMP. Among other things, the 0'Hate Modernization Act eliminates duplicative aeronautics review of the OMP under the Illinois Aeronautics' Act and grants quick-take authority to'the City for land acquisition associated with the OMP. The O'Hare Modernization Act also amends other laws to facilitate the OMP. '
Public Act"99-0202, which was effective on January 1,'2016,'was signed by Governor Rauner on July-30- 2015,:ahd- amended the O'Hare Modernization Act to increase from eight ;to¦ State* Approval of Federal Grants. ¦ ¦ Under, the Illinois. Aeronautics Acty-the City is. generally required to obtain the approval of Illinois Department of Transportation for all AIP:grant applications that the City submits to-the FAA.-i The O'Hare Modernization Act;provides that' this requirement does hot apply'to AlP'graht'applications* related to the<©MP)ariti further' provides-'that the; Oity> may'directly ''accept-receive and disburse AIP grant funds related to the OMP.
Proposed South Suburban Airport. Plans to build a third airport in the Chicago Region have been discussed for many years. The most likely site for such an airport is the proposed South Suburban Airport site located near Peotone, Illinois (in: Will County approximately 35 miles south of the City's central business district).
It is not possible at this time .to determine the viability of a new major commercial airport at the Peotone site or to .predict whether or when any new. regional airport would be constructed;, nor is at currently possible to predict what effect, if any, such an airport would have on'operations or enplanements at O'Hare.
Future Legislation. O'Hare is subject to various laws, rules and regulations adopted by the local, State and; federal governments and their agencies. The City is unable to predict The adoption or amendment of any such laws, rules or regulations, or their effect on the operations or financial condition of O'Hare;
Certain Investment Considerations
The purchase of 2016 Senior Lien Bonds involves certain investment risks and considerations. Prospective investors should read this Official Statement in its entirety. The factors set forth below, among others, may affect the security for the 2016 Senior Lien Bonds.
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General Factors Affecting Level of Airline Traffic and Revenues
The 2016 Senior Lien Bonds are payable from and secured by a pledge of the Revenues and certain Funds and Accounts held under the Senior Lien Indenture. Revenues are dependent primarily on the level of aviation activity and enplaned passenger traffic at O'Hare. Key factors affecting airline traffic at O'Hare include, among others, (i) population growth and the economic and political conditions of the region and the nation, (ii) the financial health of the airline industry and of individual airlines, (iii) airline service and route networks, (iv) capacity of the national air traffic control system and of O'Hare and other competing airports, (v) national and international disasters and hostilities, (vi) safety concerns arising from international conflicts, the possibility of terrorist or other attacks, and (vii) various other local, regional, national and international economic, political and other factors. Many of these factors, most of which are outside the City's control, are discussed in detail in APPENDIX E- 'REPORT OF THE AIRPORT CONSULTANT." If aviation activity at O'Hare does not meet forecast levels, a corresponding reduction may occur in Revenues (absent an increase in O'Hare rentals, fees and charges).
Uncertainties of the Airline Industry
General. The City's ability to collect Revenues is affected by the dynamics ofthe airline industry, which also affect the ability ofthe Airline Parties, individually and collectively, to meet.their respective obligations under the Airport Use Agreements and other arrangements.
Historically, the financial performance of the airline industry generally has correlated with the strength of the national and global economy. Certain factors that may materially affect O'Hare and .-the airlines include, but are not limited to, (i) growth of population and the economic health of the region and the nation, (ii) airline service and route networks, (iii) national and international economic and political conditions, (iv) changes in demand for air travel, (v) service and cost competition, (vi) mergers and bankruptcy of any airlines, (vii) the availability and cost of aviation fuel and other necessary supplies, (viii) levels of air fares, fixed costs and capital requirements, (ix) the cost and availability of financing, (x) the capacity of the national air traffic control system, (xi) national and international disasters and hostilities, (xii) public health concerns, such as the spread of influenza and severe acute respiratory syndrome, (xiii) the cost and availability of employees and labor relations within the airline industry, (xiv) regulation by the federal government, (xv) environmental risks, noise abatement concerns and regulation, (xvi) acts of war or terrorism, (xvii) aviation accidents, and (xviii) other risks. As a result of these and other factors, many airlines have operated at a loss in the past and many (including some that served O'Hare) have filed for bankruptcy, ceased operations and/or merged with other airlines. In addition, the so-called legacy carriers have taken many actions to restructure and reduce costs including reducing their workforce, renegotiating their labor agreements, reducing routes served, consolidating connecting activity and replacing mainline jets with regional jets.
Financial Condition of Airlines Serving O'Hare. Many of the airlines serving O'Hare were impacted by the global economic downturn and recession that occurred between 2008 and 2009, and most major domestic airlines suffered significant financial losses. While the U.S. and global economies generally have rebounded, there can be no assurances that any such rebound will continue, or that other national or international fiscal concerns will not have an adverse effect on the airline industry. Current and future financial and operational difficulties encountered by the airlines serving O'Hare (most notably United Airlines and its regional affiliates, which accounted for approximately 44.2 percent of the enplaned passengers at O'Hare in 2015, and American Airlines and its regional affiliates and US Airways, which accounted for approximately 35.8 percent of the enplaned passengers at O'Hare in 2015), could have a material adverse effect on operations at, and the financial condition of, O'Hare. If either United Airlines or American Airlines were to cease operations at O'Hare for any reason or eliminate or reduce
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O'Hare's status as a connecting hub, the current level of activity of such airline may not be replaced by other airlines.
¦ Cost of-Aviation Fueh Airline earnings' are significantly affected by the price of aviation fuel:
Any increase in fuel prices results in an increase of airline operating costs. Fuel prices continue to be
impacted by, among, other things, political unrest in oil-producing parts ofthe world, increased demand
for fuel'caused by rapid growth in certain global economies, such, as China and India, currency
fluctuations'and changes in demand for and supply .of oil worldwide. Significant fluctuations and
prolonged periods of increases'in the cost of aviation fuel have had material'adverse effects on airline
profitability, causing airlines to reduce capacity,-fleet and personnel'asrwell! as increase fares and institute
additional fees,- such as-checked baggagefees, all of which may decrease demand for air travel. Although,
at present, aviation fuel prices have stabilized^ no assurance can be given that such fuel prices will not
increase in the-future, thereby negatively impacting airline earnings and operations. • ; ' • •
Airline Mergers, Acquisitions and Alliances. In response to competitive pressures and increased
costs, airlines have merged and acquired competitors in an attempt to combine operations in order to
increase cost synergies and become more competitive. In 2009, Delta merged with Northwest Airlines.
In'2010, United Air-lines and Continental Airlines merged. In April 2015, American and US Airways
completed their.merger which; crcate'd the largest-airline1 in the world in- terms'of Operating revenue'and'
revenue passenger miles. In addition; all of the large U.S. airline's are members-;of alliances with foreign-
flag airlines, which alliances, and other marketing arrangements, provide airlines with many of the
advantages of mergers; -Aliiarices-typically involve marketing; code-sharirig,: arid scheduling arrangements
to facilitate the transfer of pas'sengersbetween the;airlines. , ¦¦, :
Effect of AiRiiiNE Bankruptcy '¦¦-.'.• • ,: ;
• - American Airlines, United Airlines and other airlines operating at O'Hare have emerged from bankruptcy reorganization over the last several years. U.S. airlines may file for bankruptcy:protection in the future: See "-Uncertainties of the Airline Industry" above.: The cessation of operations: by an Airline Party with significant operations at O'Hare, such as United Airlines'or American Airlines, could have, a'matcrial adverse effect on:operations, Revenues (with the resultant effect on repayment of the 2016 Senior Lien Bonds) and the cost to the other airlines of operating at O'Hare.
In the event of bankruptcy proceedings involving an Airline Party, the debtor, or its bankruptcy trustee must determine within a time period determined by the court whether to assume or reject the applicable Airport Use Agreement. -In the event of assumption, the debtor.would be required to cure1 any prior defaults and to provide adequate assurance of firiure performance. .
Rejection of an Airport Use Agreement by any Airline Party that is a debtor in a bankruptcy proceeding would result in the termination of that Airport Use Agreement. Such rejection of an Airport Use Agreement would give rise to an unsecured claim of the City against the debtor's estate for damages, the amount of which is limited by the Bankruptcy Code. After application of certain , reserve funds, the amounts unpaid by the Airline Party as a result of its rejection of an Airport Use Agreement in bankruptcy would be included in the calculation of the fees and charges ofthe remaining Airlines Parties under their Airport Use Agreements. See APPENDIX C "SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE ACREEMENTS-General Commitment to Pay Airport Fees and Charges."
Capacity of National Air Traffic Control and Airpor t System
Capacity limitations ofthe national air traffic control systems continue.to cause aircraft delays and restrictions, both on the number of aircraft movements in certain air traffic routes and on the number
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of landings and takeoffs at certain airports. These restrictions affect airline schedules and passenger traffic nationwide. The FAA has made certain improvements to the computer, radar and communications equipment of the air traffic control system in recent years, but no assurances can be given that future increases in airline and passenger traffic will not again adversely affect airline operations.
Expiration of Airport Use Agreements
The expiration date ofthe Airport Use Agreements is May 11, 2018. Most ofthe debt service on
the 2016 Senior Lien Bonds and the Outstanding Senior Lien Bonds becomes due after such date. It is
not possible to predict whether any airline will be contractually obligated to make payments, including,
among other things, for debt service on the 2016 Senior Lien Bonds, the Outstanding Senior Lien Bonds
or any other Senior Lien Bonds after the expiration date ofthe Airport Use Agreements in 2018. Upon
the expiration of the Airport Use Agreements, the City may enter into extensions of such agreements with
the airlines, enter into new agreements with the airlines, or impose rates and charges upon the airlines by
City ordinance. The City has covenanted in the Senior Lien Indenture (which extends beyond the
expiration of the Airport Use Agreements) to establish rentals, rates and other charges for the use and
operation of O'Hare such that Revenues (including rentals, fees and charges imposed on the airlines),
together with certain other moneys deposited with the Trustee, are sufficient to pay Operation and
Maintenance Expenses at O'FIare and to satisfy the debt service coverage covenants contained in the
Senior Lien Indenture. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Debt Service
Coverage. Covenants."
Capital Programs Costs and Schedule
The estimated costs of, and the projected schedule for, the projects in the Capital Programs for O'Hare depend on various sources of funding, and are subject to a number of uncertainties. The ability of the City to complete these projects within the current budgets and on the current schedules may be adversely affected by various factors including: (i) estimating errors, (ii) design and engineering errors, (iii) changes to the scope of the projects, (iv) delays in contract awards, (v) material and/or labor shortages, (vi) delays due to airline operational needs, (vii) unforeseen site conditions, (viii) adverse weather conditions, (ix) contractor defaults, (x) labor disputes, (xi) unanticipated levels of inflation, (xii) litigation and (xiii) environmental issues. No assurance can be given that the costs of the projects will not exceed the current budget for these projects or that the completion will not be delayed beyond the currently projected completion dates. At present, the City is unable to estimate the costs associated with each of the risks identified above and the total impact of these risks if such events were to occur. In addition, the City may ultimately decide not to proceed with certain capital projects or may proceed with them on a different schedule, resulting in different results than those included in the projections shown in the Report ofthe Airport Consultant.
Future Indebtedness
As described under "CAPITAL PROGRAMS-OMP-Airfield Projects" and "CAPITAL PROGRAMS-Capital Improvement Program," the City expects that it will need to incur additional indebtedness, including the issuance of Senior Lien Bonds and PFC Obligations, to finance the Capital Programs. Also the City's plans of finance for the Capital Programs assume that PFC Revenues would be available in certain amounts and at certain times for the payment of a portion ofthe anticipated costs of such capital projects on a "pay as you go" basis and for the payment of a portion ofthe debt service on the Senior Lien Bonds, including without limitation the 2016C Senior Lien Bonds and PFC-Backed GARBs issued to pay the costs of the Capital Program. See "CAPITAL PROGRAMS." No assurance can be given that these sources of funding actually will be available in the amounts or on the schedules assumed. For a discussion ofthe availability of PFCs, see "-Availability of PFC Revenues" below.
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The City's plans of finance with respect to the Capital Programs also include certain assumptions with respect to FAA LOI Grants and FAA AIP Grants. . FAA LOI Grants and FAA AIP Grants are subject to congressional appropriation, as well as automatic spending cuts, known as sequestration as described below in'"^Additional Federal Authorization and- Funding Considerations."1 Although the City considers such assumptions in its plans of finance to be reasonable, such assumptions are inherently subject to certain uncertainties and contingencies. Actual FAA LOI Grant Receipt and FAA AIP Grant Receipt funding levels and timing may vary and such differences may be material. See "CAPITAL PROGRAMS-OMP Airfield Projects" and APPENDIX E "REPORT OF THE AIRPORT CONSULTANT."
.\:n'.r::'.:jr,i .rjjnofnvsn o>Sflro *rt n s • iia f i o ^. y j i f:;; j-v." t ri o o *,i '\i:: omlTP '/nr. •foriM* <<'¦>¦>'!*: of •i\t'.-sW>(! »on
In addition to the Capital Programs, the City may, from time to time, determine to fund additional
capital projects at O'Hare prior to the maturity of the 2016 SeniorLien Bonds; the funding of which is not
reflected in the Projections set forth in the Report of the Airport Consultant. Such''additional capital-
projects may have separate plans of finance1 which-assume various sources of funding; deluding;'without
limitation, Additional Senior Lien Bonds; and the amount of such future;Senior Lien Bonds1 way be'
material. ; '¦' ¦ '•' •• ¦ • ¦¦¦••"¦.!¦¦.¦ •. <\>
To the1 extent that any portion of the funding fa'ssumed-in'the plan of finance for''capital'projects-at: O'Hare is not available as'anticipated, the City may be acquired to issue Additional Senior Lien Bonds to pay 'the-costs- of'sucli capital 'projects -and' to-- increase air line/rates'and charges to pay "debt: service on-such' Additional Senior Lien Bonds and to fund the required coverage thereon. As ah alternative'1 to; issuing Additional Senior Lien Bonds, the City may ultimately decide not to proceed with certain capital projects or may proceed with them on a different schedule, producing different results than those ineluded in the projections shown in the Report of the Airport Consultant.
AVA'ILABIfcPFY-OF-PFG!R^EVENUES^"»Ji« ¦¦ - ;¦¦¦¦<¦ :'-'- -':- ::.-'•• '-'r'-: :-'''.-.-: v. '•" ¦
'¦•¦¦' As discussed !above under the subheading ^'-'-Future; Indebtedness," the plans of finance-for the OMP and the 2016-2020 CIP' assume-that PFC Revenues would be available in certain amounts and at certain'times'for the'payment of a portion ofthe anticipated costs of such capital projects on a "pay-as-you-go" as well as to secure additional Airport Obligations needed to fund such projects. In addition, the Report of the Airport Consultant, which sets forth'certain Projections regarding O'Hare^ assumes' that certain available PFC Revenues not otherwise pledged to pay PFC Obligations, Senior Lien Bonds (including the'2016C Senior Lien Bonds from Fiscal Year 2019 through maturity); and other payment obligations, will be applied by the City on a year-to-year basis as Other Available Revenues to pay debt service on such obligations. No assurance can be given that PFC Revenues will be available i in the amounts or on the schedules assumed.
The ability of the City to collect sufficient PFC Revenues depends upon a number of factors, including, without limitation, the number of enplanements at O'Hare, the use of O'Hare by the Collecting Carriers and the efficiency and ability ofthe Collecting Carriers to collect and remit PFCs to the City. The City relics on the Collecting Carriers' collection and remittance of PFCs* and both the City and the FAA rely upon the airlines'reports of enplanements and collections.
Under the terms of the PFC Act, the FAA may terminate the City's authority to impose a PFC if the City's PFC Revenues are not being used for approved projects in accordance with the FAA's approval, the PFC Act or the regulations promulgated thereunder, or if the City otherwise violates the PFC Act or regulations. The FAA may also terminate the City's authority to impose a PFC for a violation by the City of the Airport Noise and Capacity Act. The PFC termination provisions contained in the regulations provide both informal and formal procedural safeguards.
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The PFC Act provides that PFCs collected by the airlines constitute a trust fund held for the beneficial interest ofthe eligible agency (i.e., the City) imposing the PFCs, except for any handling fee or retention of interest collected on unremitted proceeds. Furthermore, the FAA's PFC regulations require Collecting Carriers to account for PFC collections separately, and further indicate that such funds are to be regarded as trust funds held by the Collecting Carriers for the beneficial interest of the public agency imposing the PFC. Recent bankruptcy court decisions, however, indicate that in a bankruptcy proceeding involving a Collecting Carrier, it is likely that PFCs will not be treated as trust funds and that airports are not entitled to any priority over other creditors of the Collecting Carrier as to such funds. For more detailed information on treatment of PFCs in bankruptcy, see "PFC PROGRAM AT O'HARE-Collection of the PFCs."
ADDITIONAL FEDERAL AUTHORIZATION AND FUNDING CONSIDERATIONS
The City receives federal funding for O'Hare not only in connection with FAA AIP Grants and PFC authorizations, but also in the form of funding for the Transportation Security Administration ("TSA"), air traffic control and other FAA staffing and facilities. On July 15, 2016/ President Obama signed the "FAA Extension, Safety and Security Act of 2016" into law. This law reauthorizes FAA operations and programs through September 30, 2017. Th the event that the FAA Extension, Safety and Security Act of 2016 were to expire without a long-term reauthorization or another short-term extension, during such period FAA programs would be unauthorized, including FAA programs providing funding for: O'Hare. The City is unable to predict whether legislation to extend or reauthorize this statute or otherwise continue FAA programs will be adopted prior to the scheduled expiration date, if not so adopted, the duration of any resulting period of de-authorizatiori, and the impact on O'Hare finances which might result therefrom.
Federal funding is also impacted by sequestration, a budgetary feature first introduced under the federal Budget Control Act of 2011. Unless changed by the United States Congress from time to time, sequestration is a multi-year process and could continue to affect FAA, TSA and Customs and Border Control ("CBP") budgets and staffing, resulting in staffing shortages and traffic delays and cancellations at airports across the United States. The full impact of sequestration on the aviation industry and O'Hare, generally, resulting from potential layoffs or further furloughs of federal employees responsible for federal airport security screening, air traffic control and CBP, is unknown at this time.
Regulations and Restrictions Affecting O'Hare
The operations of O'Hare and its ability to generate revenues are affected by a variety of contractual, statutory and regulatory restrictions and limitations, including, without limitation, the provisions of the Airport Use Agreements, the PFC Act and other extensive federal legislation and regulations applicable to all airports in the United States. There is no assurance that there will not be any change in, interpretation of, or addition to any such applicable laws, regulations and provisions. Any such change, interpretation or addition may have a material adverse effect, either directly or indirectly, on O'Hare, which could materially adversely affect O'Hare's operations or financial condition.
In addition, following the events of September 11, 2001, O'Hare also has been required to implement enhanced security measures mandated by the FAA, TSA and the Department of Homeland Security. It is not possible to predict whether future restrictions or limitations on Airport operations will be imposed, whether future legislation or regulations will affect anticipated federal funding or PFC collections for capital projects for O'Hare, whether additional requirements will be funded by the federal government or require funding by the City or whether such restrictions or legislation or regulations would adversely affect Revenues.
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Climate change concerns have led; and may continue to lead, to new laws and regulations at the federal and state levels that could have a material adverse effect on the operations of O'Hare and on the airlines operating at O'Hare. The United States Environmental Protection Agency (the "EPA") has taken steps'toward regulation of'greenhouse gas ("GHG") emissions under, existing federal law;.- These steps' may lead to further regulation of aircraft GHG emissions. No assurances can be given as to what any EPA emissions standards governing O'Hare or the airlines could be or what effect those standards may have on the City or the airlines operating at O'Hare.-
Competition
O'Hare competes with other U.S. airports for both domestic and international passengers. Portions of O'Hare's Air Trade Area are serviced by Midway and Mitchell. In 2015, Midway had enplanements representing approximately 25.3 percent of Chicago originating passenger traffic and approximately 18':8'"percent of Chicago connecting passenger-traffic.'Midway is expected'to continue to be : International passengers are also significant'at O'Hare, making up approximately 14.4% of all
passenger enplanements! in-2015: International-air travel may be more easily disrupted by .political
instability, terrorist activities, cuiTency:fluctuations and other-factors outside'the cohtrohof the'City. iThe
City cannot predict whether the level of international passengers .will remain stable or will grow, nor what
events, domestic or. iinternational, may adversely affect such air traffic. See (APPENDIX ¦E-'.'.REPORT
OF THE AIRPORT CONSULTANT-Air Traffic-Factors Affecting Aviation, Demand at the
Airport-Regional Airports." : ' 1
. Any j increases! in'operating'costs: atO'Hare mayi increase coststo theiairlines, which could result in O'Hare being : put into.' a competitive disadvantage relative to other-airports and other types of transportation:' For a discussion of the costsitO the; airlines of operating at O'Hare, see APPENDLX E-"REPORT OF THE AIRPORT CONSULTANT-Financial Analysis "
Impactof Regional andNational Economic Conditions on O'Hare.'. . „
The demand for air transportation is, to a degree, dependent upon the demographic and economic
characteristics of an airport's air trade area. This relationship is particularly true for O&D passenger
traffic, which has historically accounted for approximately 50 percent of demand at O'Hare. Although
O'Hare's Air Trade Area has a large, diverse economic base that supports business and leisure travel and
is projected by the Airport- Consultant to. experience continued growth,, there can be>no assurances that
any negative economic or political conditions affecting the Air Trade Area would not have an adverse
effect on demand for air transportation at O'Hare. See APPENDIX E-"REPORT OF THE AIRPORT
CONSULTANT-Demographic and Economic Analysis." . . . . . .
See "-Financial Condition of the City and Other Overlapping Governmental Bodies" below for a discussion of the implications for O'Hare of the current financial challenges faced by the City and other public bodies located within the Air Trade Area.
Financial Condition of the City and Other Overlapping Governmental Bodies
The 2016 Senior Lien Bonds are limited obligations ofthe City payable solely from the Revenues (and the 2016C Senior Lien Bonds are also payable from a subordinate pledge of PFC Revenues), and do not constitute an indebtedness or a loan of credit ofthe City and neither the faith and credit nor the taxing power ofthe City nor any property ofthe City is pledged as security for the 2016 Senior Lien Bonds. The
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City is the issuer of the 2016 Senior Lien Bonds and the information under this heading regarding the City's financial condition and the financial condition of other governmental bodies sharing a common tax base is provided as information regarding certain factors that could impact the level of enplaned passenger traffic and aviation activity at O'Hare.
Unfunded Pensions. The Retirement Funds have significant unfunded liabilities and low funding ratios. The City's contributions to the Retirement Funds in accordance with the Pension Code have not been sufficient, when combined with employee contributions and investment returns, to offset increases in the Retirement Funds' liabilities, which has contributed to the significant undcrfunding of the Retirement Funds. Moreover, the contributions to the Retirement Funds in accordance with the Pension Code have had the effect of deferring the funding of the Retirement Funds' liabilities, which increases the costs of such liabilities and the associated financial risks, including the risk that each Retirement Fund will not be able to pay its obligations when due. Furthermore, increases in the City's contributions to the Retirement Funds (such as those scheduled to occur under Act 1495, as modified by Act 506) caused the City to increase its revenues and may require the City to further increase its revenues, reduce its expenditures, or some combination thereof, which may impact the services provided by the City or limit the City's ability to generate additional revenues for other purposes in the future.
In addition, the actuaries for MEABF and LABF project that such Retirement Funds will not have sufficient assets on hand to make payments to beneficiaries beginning in 2025 and 2027, respectively, based on the provisions of the Pension Code currently in effect. The City makes no prediction as to the impact of the insolvency of MEABF or LABF on the amount of the City's contributions to these Retirement Funds. However, should the City be required to contribute the amounts necessary to fund directly such payments to beneficiaries on a pay-as-you-go basis upon the insolvency of such Retirement Funds, the amount of the City's contributions to MEABF and LABF would substantially increase.
Overlapping Taxing Districts. A number of governmental units and other public bodies share in varying degrees a common tax base, including property taxes, with the City. The City does not control the amount or timing of the taxes levied by these overlapping taxing districts. Depending on the amount of such increase(s), an increase in the amount of taxes by these overlapping taxing districts could potentially be harmful to the City's economy and/or may make it more difficult for the City to increase taxes and maintain essential or necessary City services.
Municipal Bankruptcy
State Law Authorization. Municipalities, such as the City, cannot file for protection under the U.S. Bankruptcy Code unless specifically authorized to be a debtor by state law or by a governmental officer or organization empowered by state law to authorize such entity to be a debtor in a bankruptcy proceeding. State law docs not currently permit municipalities to be a debtor in a bankruptcy proceeding. However, from time to time, legislation has been introduced in the Illinois General Assembly which, if enacted, would permit Illinois municipalities to be a debtor in bankruptcy under the U.S. Bankruptcy Code. The Governor ofthe State recently proposed legislation to allow for municipal bankruptcy, and legislation has been introduced in the General Assembly to that effect. Further, on January 22, 2016, legislation was introduced in the Illinois General Assembly (House Bill 4499), specifically addressing the City, that would authorize the City to become a debtor in bankruptcy under either of two circumstances: (i) after the completion of a neutral evaluation process by the City as described in the legislation, or (ii) declaration by the City of a fiscal emergency and adoption of a resolution by the City Council that includes findings that the financial state of the City jeopardizes the health, safety, or well-being ofthe residents ofthe City absent the protections of Chapter 9 ofthe U.S. Bankruptcy Code. The City is unable to predict whether the Illinois General Assembly may adopt any such legislation or the form of such legislation if enacted.
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Special Revenues. Although the City can provide no assurances, the City believes that Revenues and Other Available Moneys currently pledged by the City under the Senior Lien Indenture constitute "special revenues," as defined in Section 902(2) of the U.S: Bankruptcy Code, and 'therefore; pursuant-to; Section 928(a) ofthe U.S. Bankruptcy Code, any and all of such pledged Revenues and Other Available Moneys currently pledged by the City under the Senior Lien Indenture acquired by the City after the commencement of a case by the City under Chapter 9 of the U.S. Bankruptcy Code would remain subject to the lien of the Senior Lien Indenture and could not lawfully be used by the City other than in compliance with the Senior Lien Indenture. Under Section 922(d) of the U.S. Bankruptcy Code,' the application5 'by> th'e'-Gity :of'"specidl*reve'nues " 'under-* the 'terms' of'the- Senior 'Lien1 Indenture1 would'not be subject to stay after the commencement-by the City of a case under Chapter 9 of the U.S. Bankruptcy Code. See "SECURITY FOR THE SERIES 2016 BONDS-O'Hare Revenues Must Be Used For Airport Purposes."
Forge Majeure Events Affecting the City and O'Hare ¦ ; ¦ - ;
There are' certain unanticipated events beyond' the City's control that could- have a material adverse effect on the City's operations and financial condition, or on O'Hare's operations and financial condition, if they were to occur. These events'include fire, flood,: earthquake, epidemic,: adverse health conditions or other unavoidable casualties or acts of God,: ¦ freight embargo, labor strikes or work stoppages, civil-commotion, .new acts of war or escalation-of^existing war. conditions, sabotage, enemy action, pollution, unknown subsurface on concealed conditions affecting the environment, and any similar causes No-assurance: can;.be provided'that such, events will not occur, and, if any such events, were to occur, no'prediction can be .provided as to the actual impact;or severity of the impact on-the City's operations-and financial condition or-ori O'Hare's operations-and financial condition,: as applicable:
Enforcement Actions
The remedies available to bondholders upon nonpayment of principal of or interest on the 2016 Senior Lien Bonds are in many respects dependent upon judicial enforcement actions which are often subject to discretion and delay. See APPENDIX B "SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE - Remedies."
Limited Obligations
The 2016 Senior Lien Bonds are limited obligations of the City and do not constitute an indebtedness or a loan of credit of the city within the meaning of any constitutional or statutory limitation, and neither the faith and credit nor the taxing power of the state of illinois, the city or any other political subdivision of the state of Illinois is pledged to the payment of the principal of or interest on the 2016 Senior Lien Bonds. The 2016 Senior Lien Bonds are not payable in any manner from revenues raised by taxation. No property of the City (including property located at O'Hare) is pledged as security for the 2016 Senior Lien Bonds.
The 2016 Senior Lien Bonds are secured on a parity basis with the Outstanding Senior Lien Bonds and all other Senior Lien Obligations. Subject to certain conditions set forth in the Senior Lien Indenture, the City may in the future issue Additional Senior Lien Bonds or incur other Senior Lien Obligations that will be secured on a parity basis with the 2016 Senior Lien Bonds and the Outstanding Senior Lien Bonds. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Issuance of Additional Senior Lien Bonds" and "CAPITAL PROGRAMS."
ASSUMPTIONS IN THE REPORT OF THE AIRPORT CONSULTANT
In connection with the offering of the 2016 Senior Lien Bonds described in this Official Statement, the Airport Consultant has prepared the Report of the Airport Consultant, a copy of which is included as APPENDIX E to this Official Statement. The Report of the Airport Consultant contains numerous assumptions as to the utilization of O'Hare and other matters and includes the Projections. Projections and assumptions are inherently subject to significant uncertainties. Inevitably, some assumptions may not be realized and unanticipated events and circumstances may occur. Actual results arc likely to differ, perhaps materially, from those projected. Accordingly, the Projections contained in Report of the Airline Consultant are not necessarily indicative of future performance, and neither the Airport Consultant nor the City assumes any responsibility for the accuracy of such Projections. In addition, the final maturity date of each Series of the 2016 Senior Lien Bonds extends beyond the period of the Projections. See "INTRODUCTION - Report of the Airport Consultant" and APPENDIX E-"REPORT OF THE AIRPORT CONSULTANT."
The Projections are based, in part, on historic data from sources considered by the Airport Consultant to be reliable, but the accuracy of these data has not been independently verified. The Projections are based on assumptions made by the Airport Consultant concerning future events and circumstances which the Airport Consultant believes are significant to the Projections but which cannot be assured. Therefore, the actual results achieved may vary from the Projections, and such variations could be material.
Limited Liability Subordination
As described under the caption "SECURITY FOR THE 2016,SENIOR LIEN BONDS,".the
2016C Senior Lien Bonds are also payable from and secured by a pledge of Pledged PFCs to be derived from a subordinate pledge of PFC Revenues, including moneys to be withdrawn from the PFC Capital Fund. The pledge of PFC Revenues and moneys in the PFC Capital Fund as the source of the Pledged PFCs is subject to (i) the prior and superior pledge of and lien on the PFC Revenues and the moneys in the PFC Capital Fund as security for the payment of the outstanding PFC Obligations: and any future Scries of PFC Obligations, (ii) the payments by the City pursuant to the Compact, (iii) the City's right to issue additional Senior Lien Obligations that are also secured by PFC Revenues, including moneys to be withdrawn from the PFC Capital Fund, on a parity with the 2016C Senior Lien Bonds, and (iv) the City's right to issue Subordinated PFC Obligations that are secured by a pledge of and lien on the PFC Revenues and the moneys in the PFC Capital Fund that are superior to the pledges and liens created by the Fifty-Fourth Supplemental Indenture. Subject to certain conditions set forth in the PFC Indenture, the City may in the future issue (a) additional PFC Obligations that will be senior and superior to the claim of the Pledged PFCs and (b) Subordinated PFC Obligations (including additional CP Notes) that may be secured by a pledge of and lien on the PFC Revenues and moneys in the PFC Capital Fund that is senior and superior to the pledge and lien on the Pledged PFCs securing the 2016C Senior Lien Bonds. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS—Certain Provisions ofthe PFC Indenture— Issuance of PFC Obligations."
Forward-Looking Statements
This Official Statement contains certain statements relating to future results that are forward-looking statements. When used in this Official Statement, the words "estimate." "intend," "expect" and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty and risks that could cause acnial results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur.
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Therefore, bondholders and potential investors should be aware that there are likely to be differences between forward-looking statements and actual results; those differences could be material. The City does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result-of new information, future events or otherwise.-1 See "INTRODUCTION - Regarding Use of the Official Statement."
Litigation
There is no litigation pending or threatened against the City relating to the City's operation of O'Hare, the issuance, sale, or delivery of .the 2016: Senior Lien Bonds, the validity or enforceability thereof;' or: the 'implementation/ construction' or' operation of the 'OMP, the'20l'6-2020 "CIP" projects; the' Multi-Modal Facility or the 2016 Airport Projects, other than various legal proceedings (pending or threatened) which may have arisen1 or may arise'out of the ordinary course of business of O'Hare. The City expects that the final resolution of such legal proceedings arising in the ordinary course of business will not have a material adverse effect on the financial positioner the: results['of Operation of O'Hare. " "
There are, from time to time, lawsuits2 that arise out of the various construction contracts entered into in connection with construction projects at; O'Hare. The City, however, does not believe that any sums that may be recovered would have a material adverse impact on the financial condition of O'Hare.
Tax Matters •
Summary of Co-Bond Counsel Opinion. Katten Muchin Rosenman LLP and Neal & Leroy, LLC,
Co-Bond Counsel, are of the opinion that under existing law, interest on the 2016 Senior Lien Bonds is;
not includable in the gross income of the owners thereof for federal income tax purposes. If there is
continuing compliance with the 'applicable requirements; of the Internal Revenue Code of 1986 (the
"Code"),"Co-Bbnd' Cbunselarebf the 'opinion''that- interest ori the 2016' Senior "Lien Bbrid's-will'cdntinUe tb
be excluded from the gross income ofthe owners thereof for federal income tax purposes, In addition, (i);
interest on the 2016A Senior Lien Bonds is an item of tax preference for purposes of computing1
individual and-corporate alternative minimum taxable income for purposes of the individual and corporate
alternative minimum' tax and (ii) interest on the 2016B Senior Lien Bonds and'the 2016C'Senior Lieri
Bonds is not an item of tax preference for purposes of computing individual Or corporate alternative
minimum taxable income but is includible in' corporate earnings and profits when computing, for
example, corporate alternative minimum taxable income for purposes of the corporate alternative
minimum tax. Co-Bond Counsel express no opinion as to the exclusion from gross'income for federal
income tax purposes of interest on any 2016A Senior Lien Bond-for any period during2 which such Bond
is held by a person "who is a "substantial user" of the facilities financed or refinanced with'the proceeds of
such Bond or & "related person" (each as defined in Section 147(a) ofthe Code). Interest on the 2016
Senior Lien Bonds is not exempt from Illinois income taxes. ! '
Exclusion from Gross Income: Requirements. The Code contains certain requirements that'must be satisfied from and after the date of issuance of the 2016 Senior Lien Bonds in order to preserve the exclusion from gross income for federal income tax purposes of interest on the 2016 Senior Lien Bonds. These requirements relate to the use and investment ofthe proceeds of the 2016 Senior Lien Bonds, the payment of certain amounts to the United States, the security and source of payment of the 2016 Senior Lien Bonds and the use of the property financed with the proceeds ofthe 2016 Senior Lien Bonds. Among these specific requirements are the following:
(a) Investment Restrictions. Except during certain "temporaiy periods," proceeds of the 2016 Senior Lien Bonds and investment earnings thereon (other than amounts held in a reasonably required reserve or replacement fund, if any, or as part of a "minor portion") may
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generally not be invested in investments having a yield that is materially higher than the yield on the 2016 Senior Lien Bonds.
Rebate of Permissible Arbitrage Earnings. Earnings from the investment of the "gross proceeds" of the 2016 Senior Lien Bonds in excess ofthe earnings that would have been realized if such investments had been made at a yield equal to the yield on the 2016 Senior Lien Bonds are required to be paid to the United States at periodic intervals. For this purpose, the term "gross proceeds" includes the original proceeds ofthe 2016 Senior Lien Bonds, amounts received as a result of investing such proceeds and amounts to be used to pay debt service on the 2016 Senior Lien Bonds.
Restrictions on Ownership and Use. The Code includes restrictions on the ownership and use of the facilities financed with the proceeds of the 2016 Senior Lien Bonds. Such provisions may restrict future changes in the use of any property financed with the proceeds of the 2016 Senior Lien Bonds.
Covenants to Comply. The City covenants in the Senior Lien Indenture to comply with the requirements of the Code relating to the exclusion from gross income for federal income tax purposes of interest on the 2016 Senior Lien Bonds.
Risk of Non Compliance. In the event that the City fails to comply with the requirements of the Code, interest on the 2016 Senior Lien Bonds may become includable in the gross income of the owners thereof for federal income tax purposes retroactively to the date of issue. In such event, the Senior Lien Indenture does not require acceleration of payment of principal of or interest on the 2016 Senior Lien Bonds or payment of any additional interest or penalties to the owners of the 2016 Senior. Lien Bonds.
Federal Income Tax Consequences. Pursuant to Section 103 of the Code, interest on the 2016 Senior Lien Bonds is not includible in the gross income of the owners thereof for federal income tax purposes. However, the Code contains a number of other provisions relating to the treatment of interest on the 2016 Senior Lien Bonds that may affect the taxation of certain types of owners, depending on their particular tax situations. Some of the potentially applicable federal income tax provisions are described in general terms below. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE PARTICULAR FEDERAL INCOME TAX CONSEQUENCES OF THEIR OWNERSHIP OF THE 2016 Senior Lien Bonds.
Cost of Carry. Owners of the 2016 Senior Lien Bonds will generally be denied a deduction for otherwise deductible interest on any debt that is treated for federal income tax purposes as incurred or continued to purchase or carry the 2016 Senior Lien Bonds. Financial institutions are denied a deduction for their otherwise allowable interest expense in an amount determined by reference to their adjusted basis in the 2016 Senior Lien Bonds.
Corporate Owners. As set forth in "Summary of Co-Bond Counsel Opinion" above, interest on the 2016 Senior Lien Bonds is taken into account in computing earnings and profits of a corporation and consequently may be subject to federal income taxes based thereon. Thus, for example, interest on the 2016 Senior Lien Bonds is taken into account in computing corporate alternative minimum taxable income, the branch profits tax imposed on certain foreign coq^orations, the passive investment income tax imposed on certain S corporations, and the accumulated earnings tax.
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Individual Owners. Receipt of interest on the 2016 Senior Lien Bonds may increase the amount of social security and railroad retirement benefits included in the gross income ofthe recipients thereof for federal income tax purposes.
Certain Blue Cross or Blue Shield Organizations. Receipt of interest on the 2016 Senior Lien Bonds may reduce a special deduction otherwise available to certain Blue Cross or Blue Shield organizations.
Property or Casualty Insurance Companies. Receipt of interest on the 2016 Senior Lien Bonds may reduce otherwise deductible underwriting losses of xproperty ror casualty insurance company.
(f) Foreign Personal Holding Company Income. A. United-States shareholder of a
-¦¦ ¦ foreign .personal holding company may realize taxable income to the extenti that interest on the
2016 Senior Lien Bonds held by such a company is properly allocable to the shareholder.
. 2016 Senior Lien Bonds Purchased at a. Premium or at a Discount.¦• The difference (if any) between the initial price afwhich a substantial-amount of each maturity of each Series of the 2016 Senior Lien Bonds is sold to the public (the "Offering Price") and the principal amount payable at :maturity of such 2016 Senior Lien Bonds is given special treatment for federal income tax purposes. If the Offering Price is higher than the maturity value of a Bond, the difference between the twO is known as "bond premium; " if the Offering Price is lower than the maturity value of a Bond, the difference between the 'two is'known as "original'issuediscount."¦>¦'¦
: Bond premium and1 original issue discount-are ;amortized over the term of a 2016 Senior Lien' Bond on the basis of the owner's yield from the date of purchase to the date of maturity, compounded at the end of each accrual-period of one year or less with straight-line interpolation between compounding dates, as provided'more specifically in the Income Tax Regulations. The amount of bond.premium accruing during each period is treated as an offset against interest paid on the 2016 Senior Lien-Bonds and is subtracted from the owner's tax basis in the 2016 Senior Lien Bond. The amount of original issue-discount accruing-during each^period is treated as interest that is excludable from the gross-income of the owner of such 2016 Senior Lien Bond for federal income tax purposes, to the same extent and with the same limitations1 as current interest, and is added to the owner's tax basis in the 2016 Senior Lien Bond. A 2016 Senior Lien Bond's adjusted tax basis is used to determine whether, and to what extent, the owner realizes taxable gain or loss upon the disposition of the 2016 Senior Lien Bond (whether by reason of sale, acceleration, redemption prior to maturity or payment at maturity ofthe 2016 Senior Lien Bond).
Owners who purchase 2016 Senior Lien Bonds at a price other than the Offering Price, after the termination of the initial public offering or at a market discount should consult their tax advisors with respect to the tax consequences of their ownership of the 2016 Senior Lien Bonds. In addition, owners of 2016 Senior Lien Bonds should consult their tax advisors with respect lo the state and local tax consequences of owning the 2016 Senior Lien Bonds. Under the applicable provisions of state or local income tax law, bond premium and original issue discount may give rise to taxable income at different times and in different amounts than they do for federal income tax purposes.
Change of Law. The opinions of Co-Bond Counsel and the descriptions of the tax law contained in this Official Statement are based on statutes, judicial decisions, regulations, rulings, and other official interpretations of law in existence on the date the 2016 Senior Lien Bonds are issued. There can be no assurance that such law or the inteipretation thereof will not be changed or that new provisions of law will not be enacted or promulgated at any time while the 2016 Senior Lien Bonds arc outstanding in a manner that would adversely affect the value or the tax treatment of ownership ofthe 2016 Senior Lien Bonds.
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Certain Legal Matters
Certain legal matters incident to the authorization, issuance and sale by the City ofthe 2016 Senior Lien Bonds are subject to the approving legal opinions of Katten Muchin Rosenman LLP, Chicago, Illinois and Neal & Leroy, LLC, Chicago, Illinois, who have been retained by the City and are acting as Co-Bond Counsel. Co-Bond Counsel have not been retained or consulted on disclosure matters and have not undertaken to review or verify the accuracy, completeness or sufficiency of this Official Statement or other offering material relating to the 2016 Senior Lien Bonds and assume no responsibility for the statements or information contained in or incorporated by reference in this Official Statement, except that in their capacity as Co-Bond Counsel, at the request of the City, they have reviewed the information in this Official Statement involving the description of the 2016 Senior Lien Bonds and the Senior Lien Indenture, the security for the 2016 Senior Lien Bonds and the description ofthe federal tax exemption of interest on the 2016 Senior Lien Bonds. This review did not include any obligation to establish or confirm factual matters set forth herein. The proposed forms of the opinions of Co-Bond Counsel are included as APPENDIX F.
Certain legal matters will be passed upon for the City by (i) its Corporation Counsel and (ii). in connection with the preparation of this Official Statement, Miller, Canficld, Paddock & Stone, P.L.C., Chicago, Illinois, and McGaugh Law Group, LLC, Chicago, Illinois, Co-Disclosure Counsel to the City. Certain legal matters will be passed.upon for. the. Underwriters by .Ice Miller LLP,. Chicago, Illinois . .
Underwriting
A group of underwriters, represented by Merrill Lynch, Pierce, Fenner & Smith Incorporated, has agreed, jointly and severally, to purchase the 2016 Senior Lien Bonds subject to certain-conditions set forth in the Contract of Purchase with the City. The Contract of Purchase provides that the obligations of the Underwriters to accept delivery of the 2016 Senior Lien Bonds arc subject to various conditions ofthe Contract of Purchase, but the Underwriters will be obligated to purchase all the 2016 Senior Lien Bonds if any 2016 Senior Lien Bonds are purchased. The Underwriters have agreed to purchase-all of the 2016 Senior Lien Bonds at an aggregate purchase price of $1,152,913,642.07 (reflecting an underwriters' discount of $4,597,555.68 and net original issue premium of $143,176,197.75).
The Underwriters reserve the right to join with dealers and other underwriters in offering the 2016 Senior Lien Bonds to the public. The 2016 Senior Lien Bonds may be offered and sold at prices other than the initial offering prices, including sales to dealers who may sell such 2016 Senior Lien Bonds into investment accounts.
The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage services. Certain ofthe Underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the City, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the Underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities, which may include credit default swaps) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments ofthe City.
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The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they, should acquire, long and/or short positions in such assets, securities and instruments. The Underwriters retained Underwriters' counsel based, in part, on the recommendation of the City.
Merrill. Lynch, Pierce, Fenner & Smith Incorporated is onc of the dealers of the City's CP Note
program for O'Hare, recently implemented in the par amount of $420 million. Bank of America, N A.
also provides a $ 180 million letter of credit to back this CP Note program. • ¦ ¦ ¦
Jefferies LLC, an underwriter of the 2016 Senior Lien Bonds, has entered into an agreement (the "Agreement") with E*TRADE: Securities LLC ("E*TRADE") for the. retail distribution of < municipal securities. Pursuant to the Agreement, Jefferies LLC will sell the Senior 2016 Lien Bonds to E^TRADE and will share apportion of its selling concession compensation with E*TRADE:
Secondary Market Disclosure .¦ .; ! .
The City will enter into a Continuing Disclosure Undertaking (the "Undertaking"): for the benefit
of the beneficiah owners of the: 2016 Senior Lien Bonds to isend--certain informatioh. annually and to
provide notice of certain eventsito the Municipal Securities Rulemaking rBoard (the "MSRB") pursuant to
the requirements of Section (b)(5)'of RiileT5c2-12 (the "Rule") adopted by the SEC under: the Securities'
Exchange Act, as amended (the "Exchange Act"). The MSRB has designated its Electronic Municipal
Market Access System, known as EMMA-,- as- the system to be used for continuing disclosures to
investors. The information to be provided on an annual basis, the events which will be noticed on an
occurrence basis;and a' summary of other, terms of the- Undertakings including termination, amendment
and remedies,'are-set forth below.-: '•¦-'-! n ! ' ¦¦' -• : ' ": ":'!! •¦< ': :¦.¦:•.;'
A failure by .the City to comply^with the Undertaking will not constitute a default-under the 2016 Senior Lien Bonds;-Senior Lien Indenture, or the/Bond;Ordinance, and beneficial owners of the 2016' Senior Lien Bonds are limited'to;the remedies described:in the;Undertaking. See "-Consequences-of Failure of the City to Provide Information" under this caption. A failure by the Cityto comply with the Undertaking must be reported in' accordance with the Rule and must be considered by any'broker, dealer or municipal securities dealer before recommending the purchase or sale ofthe 2016 Senior Lien Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity ofthe 2016 Senior Lien Bonds and their market price.
The following is a brief summary of certain provisions ofthe Undertaking of the City and does not purport to be complete. The statements made under this caption are subject to the detailed provisions ofthe Undertaking, copies of which are available from the City upon request.
Annual Financial Information Disclosure
The City covenants that it will disseminate its Annual Financial Information and its Audited Financial Statements (as described below) to the MSRB. The City is required to deliver such information so that the MSRB receives the information by the dates specified in the Undertaking.
United Airlines and American Airlines are at present the only Obligated Persons (as defined below) other than the City. United Airlines and American Airlines are each required to file SEC Reports with the SEC under the Exchange Act. The City has no responsibility for the accuracy or completeness of any SEC Report filed by United Airlines or American Airlines or by any future Obligated Person. Unless no longer required by the Rule, the City agrees to use its reasonable efforts to cause each Obligated
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Person other than the City (to the extent that such Obligated Person is not otherwise required to file SEC Reports under the Exchange Act), to file annual information substantially equivalent to that contained in the SEC Reports with the MSRB.
"Annual Financial Information" means (a) with respect to the City, financial and statistical data generally consistent with that contained in this Official Statement under "AfR TRAFFIC ACTIVITY AT O'HARE," "O'HARE FINANCIAL INFORMATION-Operating Results" and "OUTSTANDING INDEBTEDNESS AT O'HARE-Airport Obligations-Z^Ar Service Schedule for Outstanding Senior Lien Bonds" and (b) with respect to each Obligated Person other than the City, if such Obligated Person does not file SEC Reports, information substantially equivalent to that contained in the SEC Reports. If any of the City's Annual Financial Information that is published by a third party is no longer publicly available, the City shall include a statement to that effect as part of its Annual Financial Information for the year in which such lack of availability arises.
"Audited Financial Statements" means the audited basic financial statements of O'Hare prepared in accordance with generally accepted accounting principles applicable to governmental units as in effect from time to time.
"Obligated Person" means the City and each airline or other entity at any time using O'Hare (i) that is obligated under an Airport Use Agreement, lease or other agreement having a term of more than one year to pay a portion of the debt service on the Airport Obligations and (ii) has paid amounts equal to at least 10 percent of the Revenues at O'Hare for each of the prior two fiscal years.
Annual Financial Information exclusive of Audited Financial Statements will be provided to the MSRB not more than 210 days after the last day of the City's fiscal year, which currently is December 31. If Audited Financial Statements are not available when the Annual Financial Information is filed, unaudited financial statements will be included and Audited Financial Statements will be filed within 30 days of availability to the City.
Reportable Events Disclosure
The City covenants that it will disseminate in a timely manner, not in excess often (10) Business Days, in accordance with the Rule, to the MSRB the disclosure of the occurrence of a Reportable Event (as described below). Certain Reportable Events are required to be disclosed only to the extent that such Reportable Event is material, as materiality is interpreted under the Exchange Act. The "Reportable Events," certain of which may not be applicable to the 2016 Senior Lien Bonds, are:
principal and interest payment delinquencies;
non-payment related defaults, if material;
unscheduled draws on debt service reserves reflecting financial difficulties;
unscheduled draws on credit enhancements reflecting financial difficulties;
substitution of credit or liquidity providers, or their failure to perform;
adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the securities, or other material events affecting the tax status of the securities;
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modifications to rights of security holders, if material; bond calls, if material, and tender offers; defeasances;
release, substitution'or-sale of property securing-repayment of the securities; if
material; " • ,
rating changes;- " -
bankruptcy, insolvency, receivership, Or similar proceedings of an Obligated Person;*
'"'the' consummation of a merger,' consolidation, or acquisition involving an
Obligated Person or the sale of all or substantially all of the assets of ah
Obligated Person, other than in the ordinary course of business, the entry into a
definitive agreement to undertake such action or-the termination of a definitive
' agreement' relating ,to any such actions, other than'pursuant to" its terms, if
material; and '. t "
appointment of a successor or additional, trustee, or the change ofthe name of a
,,trustee,jfmaterial. . , '.'',; . . ',.
Consequences of Failure of the City to Provide Information
The City shall give notice in a timely manner, not in excess of ten (10) Business Days, to the MSRB of any failure to provide disclosure of Annual Financial Information and Audited Financial. Statements when the same are due under the Undertaking.
In the event of a failure of the Cityto comply with any provision of the Undertaking, the beneficial owner of any 2016 Senior Lien Bond may seek mandamus or specific performance by court order to cause the City to comply with its obligations under the Undertaking. The Undertaking provides that any court action must be initjated in the Circuit Court of Cook County, Illinois. A default under the Undertaking shall not be deemed a default under any 2016 Senior Lien Bond, the Bond Ordinance or the Senior Lien Indenture, and the sole remedy under the Undertaking in the event of any failure of the City to comply with the Undertaking shall be an action to compel performance.
* Note that, for purposes of the event identified in item 12, the event is considered to occur when any of the following occur: The appointment of a receiver, fiscal agent or similar officer for an Obligated Person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Obligated Person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business ofthe Obligated Person.
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Amendment; Waiver
Notwithstanding any other provision of the Undertaking, the City may amend the Undertaking, and any provision of the Undertaking may be waived, if:
(i) the amendment or the waiver is made in connection with a change in circumstances, that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the City or type of business conducted;
the Undertaking, as amended, or the provision, as waived, would have complied with the requirements of the Rule at the time of the primary offering, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
the amendment or waiver does not materially impair the interests of the beneficial owners of the 2016 Senior Lien Bonds, as determined by parties unaffiliated with the City (such as the Trustee or co-bond counsel), or by approving vote of the beneficial owners of the 2016 Senior Lien Bonds pursuant to the terms ofthe Senior Lien Indenture at the time ofthe amendment; or
the amendment or waiver is otherwise permitted by the Rule.
Termination of Undertaking
The Undertaking shall be terminated if the City shall no longer have any legal, liability for any obligation on or relating to repayment ofthe 2016 Senior Lien Bonds under the Bond Ordinance or the Senior Lien Indenture.
EMMA
All documents submitted to the MSRB through EMMA pursuant to the Undertaking shall be in electronic format and accompanied by identifying information as prescribed by the MSRB, in accordance with the Rule. All documents submitted to the MSRB through EMMA will be word-searchable PDFs, configured to permit documents to be saved, viewed, printed and electronically retransmitted.
Additional Information
Nothing in the Undertaking shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in the Undertaking or any other means of communication, or including any other information in any Annual Financial Information or Audited Financial Statements or notice of occurrence of a Reportable Event, in addition to that which is required by the Undertaking. If the City chooses to include any other information in any Annual Financial Information or Audited Financial Statements or notice of occurrence of a Reportable Event in addition to that which is specifically required by the Undertaking, the City shall have no obligation under the Undertaking to update such other information or include it in any future Annual Financial Information or Audited Financial Statements or notice of occurrence of a Reportable Event.
Corrective Action Related to Certain Bond Disclosure Requirements
The City failed to comply with certain continuing disclosure undertakings previously entered into by it pursuant to the Rule as described below. Such non-compliance may or may not be material.
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Annual Financial Information and Audited Financial Statements were not filed by the City in
for the Fiscal Year ended December 31, 2010, and in 2012 for the Fiscal Year ended December 31, 2011, with respect to the City of Chicago^ Chicago O'Hare Intcmational Airport General Airport Third Lien Revenue and Revenue Refunding Bonds, Series-201 OA'through Scries- 201'OF: Annual 'Financial' Information and Audited Financial Statements were not filed by the City in 2011 for the Fiscal Year ended December 31, 2010, and in 2012 for the Fiscal Year ended December 31, 2011, with respect to the City of Chicago Chicago O'Hare International Airport Passenger-Facilities Charge Revenue ahdRevenue Refunding Bonds, Series 2010A through Series 2010D. On October 12, 2016, the City filed with EMMA such Annual Financial Information and Audited Financial Statements with respect to such bonds.
Annual Financial--Information and Audited Financial Stateirients were hot filed by the City in
for the Fiscal Year ended December 31, 2011', with respect to the City of Chicago Chicago O'Hare
International Airport General Airport Third Lien Revenue Bonds, Series 201 IA through Series 2011C.
Annual Financial Information and Audited Financial Statements were hot filed in 2012 for the Fiscal Year
ended December 31, 201T;- with respect to the City of Chicago Chicago O'l la're International Airport
Passenger;Facility Charge Revenue Bonds, Series 201TA' arid(Sefies;2011B'/ OnOctoberT2,!:2016, the
City filed with EMMA such Annual Financial Information and Audited'Financial Statements with respect
to such bonds. - r.s
With respect to the City's Collateralized'Single Family Mortgage'Revenue Bonds, Series 2006A (the "Series 2006A Bonds"), S&P lowered its rating on the Series 2006A Bonds from "AA + " to "AA" and placed the Series 2006A Bonds on "Credit Watch with negative implications" effective December 16, 2011. The City did not cause the trustee as dissemination agent to file a notice of a reportable c.yent with EMMA at'that'time. Subsequently,'S&P u'p'graded the'ratihg on the'' Series '2006A Bonds from' "AA". to "AA + " effective1 March 12; 2012' Oif March 18;'2^12^S&P! removed
implications" characterization from the Series 2006A Bonds. The City caused "'the1 trustee^ as dissemination agent, for the Series 2006A Bonds to file a notice of a reportable event with EMMA ron March 26, 2012 disclosing the downgrade and subsequent upgrade of the Series 2006A Bonds by S&P.
With respect to multiple series of the City's Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, American Airlines is an "obligatedperson"' with respect to .such bonds. Oh November 29,' 2011, AMR'Corporation (the parent company of American Airlines' and Envoy Air (formerly American Eagle)) and certain of its United States-based subsidiaries (including American Airlines and American Eagle) filed voluntary petitions for Chapter 11 reorganization in the United States Bankruptcy Court for the Southern District of New York. The City filed a notice with EMMA with respect to this event on March 30, 2012 (not within the 10 business-day deadline imposed by the Rule). On December 9, 2013, American Airlines merged with US Airways. The City filed a notice with EMMA with respect to this event on August 25,. 2014 (not within the 10 business-day deadline imposed by the Rule).
With respect to the City's Outstanding Motor Fuel Tax Revenue Bonds, the City's pledge of Additional City Revenues to the payment of such bonds (in addition to the pledge of Motor Fuel Tax Revenues) became effective as of March 19, 2013. The City filed a notice with EMMA describing the pledge of this additional source of revenue on May 16, 2013.
With respect to the City's Outstanding O'Hare International Airport Customer Facility Charge Senior Lien Revenue Bonds, Series 2013, Simply Wheelz, LLC d/b/a Advantage Rent A Car ("Advantage") is an "obligated person" with respect to such bonds. Advantage filed a voluntary bankruptcy petition in the Southern District of Mississippi on November 5, 2013. The City filed a notice with EMMA with respect to this event on December 5, 2013.
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The rating agencies took certain rating actions with respect to the ratings of Ambac Assurance Corporation and Financial Security Assurance Inc. (collectively, the "Bond Insurers"). The Bond Insurers provided municipal bond insurance policies relating to certain scries of the City's Chicago Midway Airport revenue bonds. Event notices with respect to such rating changes were not filed with EMMA. The City made such filings on May 22, 2014.
. Ambac provided a municipal bond insurance policy relating to the City's Motor. Fuel Tax Revenue Bonds, Series 2003A and Assured Guaranty Corp. provided municipal bond insurance policies relating to the City's Motor Fuel Tax Revenue Bonds, Series 2008. Event notices with respect to the rating changes taken by the Rating Agencies with respect to these insurers were not filed. The City made filings with EMMA on June 3, 2014 and August 22, 2014 with respect to these rating changes.
The City failed to file timely material event notices with respect to certain rating changes affecting the City's bonds subject to the Rule and for which the City is an "obligatedperson" under the Rule (collectively, the "Prior Bonds") or affecting bond insurance companies which insured any Prior Bonds (collectively, the "Prior Bond Insurers"). The City filed with EMMA on August 29, 2014 a notice with respect to all rating changes known to the City and affecting the Prior Bonds (including certain Senior Lien Bonds and Second Lien Bonds) occurring over the last ten years. The City filed with EMMA on August 27, 2014 a notice with respect to all rating changes known to the City and affecting the Prior Bond Insurers occurring during the last seven years.
On January 15, 2016, S&P upgraded the rating of the City's Midway Second Lien Bonds from A-to A. On May 17, 2016, the City filed with EMMA an event notice relating to this rating upgrade.
Co-Financial Advisors and Independent Registered Municipal Advisor
The City has engaged Columbia Capital Management, LLC and Frasca & Associates, LLC as its financial advisors (the "Financial Advisors") in connection with the authorization, issuance and sale of the 2016 Senior Lien Bonds. Under the terms of their respective engagements, the Financial Advisors are not obligated to undertake, and have not undertaken to make, an independent verification of, or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement.
The City has retained Martin J. Luby as its independent registered municipal advisor (the "IRMA") as defined in SEC Rule 15Bal-l-(d)(l) to evaluate financing proposals and recommendations in connection with the City's various bond issuance programs and other financing ideas being considered by the City; however, the IRMA will not advise on the investment of City funds held by the Office of the City Treasurer. The IRMA's compensation is not dependent on the issuance ofthe 2016 Senior Lien Bonds.
Independent Auditors
The financial statements ofthe City of Chicago Illinois - Chicago O'Hare International Airport as of and for the years ended December 31, 2015 and 2014, included as APPENDIX D to this Official Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein.
Ratings
The 2016 Senior Lien Bonds have been assigned the ratings of "A" (stable outlook) by S&P Global Ratings and "A" (stable outlook) by Fitch Ratings. Certain information was supplied by the City to
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each of the rating agencies to be considered in evaluating the 2016 Senior Lien Bonds. The City has not sought a rating of the 2016 Senior Lien Bonds from any other rating agency.
A1 rating reflects only the¦ views < of the rating agency assigning such rating and an explanation-of the significance of such rating may be obtained from such rating agency. The City has furnished to the rating agencies certain information and materials relating to the 2016 Senior Lien Bonds and O'Hare, including, certain information and materials that have not been included in this Official' Statement. Generally, rating agencies base.their ratings on such information and materials and investigations, studies and assumptions by the respective rating agency. There is no assurance that any rating will continue for any givcn^peribd of time, or that any rating'will not" be1 revised'downward or withdrawn;entirely'by any such rating agency if, in its judgment, circumstances so warrant. Any such downward, revision or withdrawal of any such rating may have an adverse effect on the market price ofthe 2016 Senior Lien Bonds.- . ¦ 1 ¦ •
¦ Certain Verifications
Robert Thomas, CPA LLC, independent certified public accountants, upon the delivery of the 2016 Senior Lien Bonds, will deliver a report stating that the firm, at the request of the City and the Underwriters- has verified the mathematical accuracy of certain computations based on certain assumptions relating to the sufficiency of the principal and'interest'received from certain Federal-Obligations, together with an initial cash deposit, to meet the timely payment of principal of, redemption premium, if any, and interest on the'Refunded Bonds,'such computations with respect to such' yields to be used to support; the conclusion of Co-Bond-Counsel'that-the 201-6 Senior Lien Bonds are not "arbitrage bonds" under the Code. Robert Thomas, CPA LLC expresses no opinion on the attainability of any assumptions'or;the tax-exempt'status of the 2016 SenionLierrBdnds. -¦
Airport Consultant
The Report of the Airport Consultant, included as APPENDIX E, provides certain information with respect to O'Hare and its capital programs, evaluates aviation activity at O'Hare and presents the analysis undertaken by the Airport'Consultant to demonstrate the ability ofthe City to comply with the requirements of the Senior Lien Indenture on a pro forma basis for Fiscal Years 2016 through 2025 based on the assumptions set forth therein. The Projections are based, in part, on historic data from sources considered by the Airport Consultant to be reliable, but the accuracy of these data has not been independently-verified. The Projections (as defined under "INTRODUCTION-Report of the Airport Consultant") are based on assumptions made by the Airport Consultant concerning future events and circumstances which the Airport Consultant believes are significant to the Projections. The achievement of the results described in the Projections may be affected by fluctuating economic conditions and depends upon the occurrence of other future events which cannot be assured. Therefore, the actual results achieved may vary from the forecasts, and such variations could be material. In addition, the final maturity date of each Scries of the 2016 Senior Lien Bonds extends beyond the period ofthe Projections. See "CERTAIN INVESTMENT CONSIDERATIONS-Forward-Looking Statements."
Miscellaneous
The summaries or descriptions in this Official Statement of provisions in the Senior Lien Indenture and all references to other materials not purporting to be quoted in full arc only brief outlines of certain provisions and do not constitute complete statements of such documents or provisions. Reference is made to the complete documents relating to such matter for further information, copies of which will be furnished by the City upon written request delivered to the office of the Chief Financial Officer, 7lh Floor, 121 North LaSalle Street, Chicago, Illinois 60602.
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Authorization
The City has authorized the distribution of this Official Statement.
This Official Statement has been duly executed and delivered by the Chief Financial Officer on behalf of the City.
City of Chicago
Chief Financial Officer
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Appendix A GLOSSARY OF TERMS
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Appendix A
Glossary of Terms
The following are definitions of certain terms used in this Official Statement. This glossary is provided for the convenience of the reader and does not purport to be comprehensive or definitive. Certain capitalized terms used herein are defined elsewhere in this Official Statement. All references herein to terms defined in the Senior Lien Indenture and the Airport Use Agreements are qualified in their entirety by the definitions set forth in the Senior Lien Indenture and/or the Airport Use Agreements, as the case may be. Copies of the Senior Lien Indenture and the Airport Use Agreements are available for review prior to the issuance and delivery of the 2016 Senior Lien Bonds at the offices of the City and thereafter at the offices of the Trustee.
"Accounts" means the special accounts created and established pursuant to the Senior Lien Indenture.
"Aggregate Debt Service" means, as of any particular date of computation and'with respect to a particular Bond Year or other specified 12-month period, an amount of money equal to the aggregate amount required by the provisions of all Supplemental Indentures creating Series of Senior Lien Obligations, all instruments creating Senior Lien Section 208 Obligations and all Qualified Senior Lien Swap Agreements, to be deposited from Revenues in all Dedicated Sub-Funds (including the Common Debt Service Reserve Sub-Fund), accounts and subaccounts created under the Supplemental Indentures in the Bond Year or other specified 12-month period.
"Air Transportation Business" means the carriage by aircraft of persons or property as a common carrier for compensation or hire, or the carriage of mail, by aircraft, in commerce, as defined in the Federal Aviation Act of 1958, as amended.
"Airline" means, after the end of the term of the Airport Use Agreement, any person actively engaged in the Air Transportation Business at the Airport.
"Airline Party" means, at any time, any person actively engaged in the Air Transportation Business at the Airport who then has an Airport Use Agreement in effect with the City, either directly or through a valid assignment.
"Airport" or "O'Hare" means Chicago O'Hare International Airport, together with any additions thereto, or improvements or enlargements of it, later made, but any land, rights-of-way, or improvements which are now or later owned by or are part of the transportation system operated by the Chicago Transit Authority, or any successor thereto, wherever located within the boundaries of the Airport, are not deemed to be part of the Airport.
"Airport Development Fund" means the Airport Development Fund created pursuant to the Airport Use Agreements.
"Airport Development Fund Deposit Requirement" means for any Fiscal Year any amount required to be deposited in the Airport Development Fund from any source in such Fiscal Year under the Airport Use Agreements.
"Airport Fees and Charges" means, for any Fiscal Year, all rentals, charges and fees payable by all Airline Parties for such Fiscal Year, after adjustment pursuant to the Final Audit (as defined in the Airport Use Agreements) for such Fiscal Year, (a) pursuant to an Airport Use Agreement, and, if
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appropriate, (b) pursuant to a Special Facility Financing Arrangement to the extent rentals, charges and fees paid pursuant thereto are for the purpose of paying Special Facility Revenue Bond and Other Debt Service (as defined in the Airport Use Agreements).
"Airport Fund" means the Airport Fund created pursuant to the Airport Use Agreements.
"Airport General Fund" means the Airport General Fund to be established by the City pursuant to the Senior Lien Master Indenture.
"Airport Obligations" means• any bonds;- notes or other evidences of indebtedness'"of the'City, which bonds, notes or other evidences of'indebtedness arc payable from Revenue
"Airport Project" means any capital improvement at or related to the Airport or the acquisition of land or any interest in land beyond the then-current boundaries of the Airport, or any cost or expense paid or incurred in connection with or related to the Airport whether or not of capital-nature and whether or not related to facilities at the Airport, including, but not limited to, amounts needed to satisfy any judgment and the cost of any noise mitigation programs.
- "Airport Project Account" means any Account established for the payment of the costs of an Airport' Project-including, any Account-established for'the'disposition'of proceeds of insurance under the-Senior Lien Indenture. '"'
"Airport Use Agreements" means' (a) the Amended .and Restated:Airport Use Agreement and! Terminal Facilities Lease dated as of January 1, 1985, being agreements entered into between the 'City-and various companies engaged in the Air Transportation Business at the Airport; (b) each other airport use; agreement'and1 terminal'faeilitie^ lease, •wim^ife'spectf:tb''the:"fAirpor^' substantially'-the-- same (except with respect to the Exclusive Use premises !and;Airline's Aircraft Parking Area described therein) and having the same expiration date as the agreements referred to in (a) above, and (c) in the case of each air-cargo carrier, its airport use agreement, with respect to the Airport, substantially the same (except with respect to the Exclusive Use: Premises and Airline's Aircraft Parking Area described therein) and having the same expiration date as the agreement referred to in (a) above, together with a cargo facilities lease of no shorter duration than such airport use agreement; in each case as extended, amended or supplemented from time to time in accordance with their terms.
"Annual Debt Service" means, as of any particular date of computation and with respect to a particular Bond Year or other specified 12-month period, and Senior Lien Obligations of a particular Series or consisting of a particular Senior Lien Section 208 Obligation or Qualified Senior Lien Swap Agreement, an amount of money equal to the sum of (a) all interest payable during that Bond Year or other specified 12-month period on all Senior Lien Obligations ofthe Series or Senior Lien Section 208 Obligation Outstanding on the date of computation, (b) all Principal Installments payable during that Bond Year or other specified 12-month period with respect to all Senior Lien Obligations of the Series or Senior Lien Section 208 Obligation Outstanding on the date of computation, and (c) amounts due and payable during that Bond Year or other specified 12-month period on all Qualified Senior Lien Swap Agreements. Amounts determined pursuant to clause (a) and (b) above must be calculated on the assumption that Senior Lien Obligations will, after the date of computation, cease to be Outstanding by reason, but only by reason, of the payment when due and application in accordance with the Senior Lien Indenture and the Supplemental Indenture creating that Series or the instrument creating that Senior Lien Section 208 Obligation of Principal Installments payable at or after the date of computation.
"Authorized Officer" means (a) the Mayor, the Chief Financial Officer, the City Treasurer, the Commissioner, the City Comptroller or any other official of the City so designated by a Certificate signed by the Mayor and filed with the Trustee for so long as that designation is in effect, and (b) the City Clerk
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with respect to the certification of any ordinance or resolution of the City Council or any other document filed in his or her office.
"Available PFCs" means the amounts to be withdrawn from the PFC Capital Fund and deposited into the 2016C Senior Lien Bond PFC Revenue Deposit Account as described under the caption "SECURITY FOR THE 2016 SENIOR LIEN BONDS—Description of Available PFCs," in the Official Statement.
"Balloon Maturities" means, with respect to any Series of Senior Lien Obligations, 50 percent or more of the principal of which matures on the same date or within a Fiscal Year, that portion of such Series which matures on such date or within such Fiscal Year. For purposes of this definition, the principal amount maturing on any date shall be reduced by the amount of such Senior Lien Obligations scheduled to be amortized by prepayment or redemption prior to their stated maturity date. Commercial paper, bond anticipation notes or variable rate demand obligations shall not be Balloon Maturities.
"Bond Counsel" means a firm of attorneys having expertise in the field of law relating to municipal, state and public agency financing, selected by the City and satisfactory to the Trustee.
"Bondholder" or "holder" or "owner of the Bonds" or "registered owner" means the Registered Owner of any Senior Lien Bond.
"Bond Year" means a 12-month period commencing on January 2 of each calendar year and ending on January 1 of the next succeeding calendar year.
"Business Day" means any day other than a Saturday or Sunday or legal holiday or a day on which banking institutions in the State of Illinois are authorized by law or executive order to close.
"Capital Project" means a capital improvement at the Airport, or the acquisition of land beyond the current boundaries of the Airport for use as part of the Airport as set forth in the Airport Use Agreements.
"Capitalized Interest" means any amount included in the proceeds of any series of Airport Obligations for the payment of interest on any Airport Obligations.
"CDA" means the City of Chicago Department of Aviation.
"Certijicate" means a written instrument, certificate, statement, request or requisition of any person. In the case of the City, each Certificate shall be executed by an Authorized Officer Any Certificate and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined must be read and construed so as to form a single instrument. Any Certificate may be based, insofar as it relates to legal, accounting or engineering matters, upon the opinion or representation of counsel, accountants or engineers, respectively, unless the officer signing that Certificate knows, or in the exercise of reasonable care should have known, that the opinion or representation with respect to the matters upon which that Certificate may be based, as aforesaid, is erroneous. The same person, or the same counsel or accountant, as the case may be, need not certify to all of the matters required to be certified under any provision ofthe Senior Lien Indenture or any Supplemental Indenture, but different persons, counsel or accountants may certify to different facts, respectively. Every Certificate or opinion of counsel, accountants, engineers or other persons provided for in the Senior Lien Indenture or any Supplemental Indenture thereto must include:
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a statement that the person making that Certificate or opinion or representation has read the pertinent provision of the Senior Lien Indenture or the Supplemental Indenture to which that statement, Certificate, opinion or representation relates;
a brief statement as to nature and scope of the examination or investigation upon, which the statements, opinions or representations are based;
a statement that, in the opinion of that person, that person has made such examination or investigation as is necessary to-enable that person to express an' informed opinion
- with respect to the subject matter referreditoiinithe^instrumentsto'whichvthati person's signature is'
- affixed; and • ' * '¦¦ ¦ '
with respect to any statement .relating to compliance, with; any provision ofthe Senior .Lien Indenture, a,statement whether or not, in the. opinion of that person, that provision, has been complied with.
"ChiefFinancial Officer" means the Chief Financial Officer appointed bythe Mayor, or the City Comptroller ofthe City at any time a vacancy exists in the office of the Chief Financial Officer.
"City" means the City of Chicago, a municipal corporation and'home rule unit ;of local; government organized and existing under the laws of the State of Illinois.
"City Council" means the City Council of the City, or-any succeeding governing or legislative body of the City.
"Code"! meansthe: Internal/Revenue1Code*.of: 1-986;;;as:from"Commissioner" means the Commissioner of the Chicago Department of Aviation or any designee ofthe Commissioner, or any successor or successors to. the duties of any such official.
"Common Debt Service Reserve Sub-Fund" means the Common Debt Service Reserve Sub-Fund created by the Senior Lien Master Indenture.
"Common Reserve Bonds" means Senior Lien Obligations entitled to the benefits of the Common Debt Service Reserve Sub-Fund, including the Series 2016A Bonds and the Series 2016B Bonds.
'¦Completion Bonds" means any Senior Lien Obligations issued in accordance with the Senior Lien Indenture for the purpose of. defraying additional costs of one or more Airport Projects financed, by Airport Obligations.
"Concession Revenues" means, for any Fiscal Year, rentals, charges and fees of any kind or nature payable to the City during such Fiscal Year from tenants, licensees, permittees, or other operators at O'Hare, for the right to use premises at O'Hare to sell or lease merchandise, services or other intangibles, including, but not limited to, restaurants, bars, car rental agencies, newsstands, gift shops, specialty shops, advertising displays, insurance sales facilities, public telephones, facilities for the furnishing of ground transportation services, hotels and parking areas; provided, however, that Concession Revenues shall not include (a) any such rentals, charges or fees derived from the Land Support Area or the International Terminal Area, (b) Airport Fees and Charges, (c) terminal rentals or
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landing fees of non-Airline Parties, (d) fees and charges under fueling facility agreements, or (e) the proceeds of any tax levied at O'Hare.
"Consulting Engineer" means a registered or licensed engineer or engineers, or firm or firms of engineers, with expertise in the field of designing, preparing plans and specifications for, supervising the construction, improvement and expansion of, and supervising the maintenance of, airports and aviation facilities, entitled to practice and practicing as such under the laws ofthe State of Illinois, who, in the case of any individual, shall not be a director, officer or employee of either the City or any Airline Party.
"Cost-Revenue Centers" (sometimes abbreviated as "CRCs") means those areas of O'Hare grouped together for the purposes of accounting for Revenues, Operation and Maintenance Expenses and Debt Service, and for calculating Airport Fees and Charges. The CRCs named in the Airport Use Agreements, taken together, comprise all of O'Hare, and are the Terminal Area, the Airfield Area, the International Terminal Area, the Terminal Support Area, the Fueling System and the Land Support Area.
"Costs of Issuance" means any item of expense payable or reimbursable, directly or indirectly, by the City and related to the authorization, offering, sale, issuance and delivery of Senior Lien Obligations, including, but not limited to, travel and other expenses of any officer or employee of the City in connection with the authorization, offering, sale, issuance and delivery of the Senior Lien Obligations, printing costs, costs of preparation and reproduction of documents, filing and recording fees, initial fees and charges of any Fiduciary, legal fees and disbursements, fees and disbursements of any Independent Airport Consultant and any Independent Accountant, fees and disbursements of other consultants and professionals, costs of credit ratings, fees and charges for preparation, execution, transportation and safekeeping of Senior Lien Obligations, application fees and premiums on municipal bond insurance and credit facility charges and costs and expenses relating to the refunding of Senior Lien Obligations, Junior Lien Obligations, or other obligations issued to finance or refinance one or more Airport Projects.
"Counsel's Opinion" means a written opinion of Corporation Counsel for the City , or other counsel selected by the City. Any Counsel's Opinion may be based, insofar as it relates to factual matters (information with respect to which is in the possession of the City) upon a Certificate or opinion of, or representation by, an officer of the City, unless the counsel knows, or in the exercise of reasonable care should have known, that the Certificate, opinion or representation with respect to the matters upon which the counsel's opinion may be based, as aforesaid, is erroneous.
"CP Indenture" means any trust indenture entered into between the City and a bank or trust company that authorizes and secures CP Notes.
"CP Notes" means Commercial Paper Notes of any series to finance or refinance Airport Projects.
"Debt Service Fund" means the Debt Service Fund created by the Senior Lien Master Indenture.
"Debt Service Reserve Account" means (a) with respect to the Series 2016A Bonds and the Series 2016B Bonds, the Common Debt Service Reserve Sub-Fund, and (b) with respect to the Series 2016C Bonds, the Account designated as the "2016C Senior Lien Debt Service Reserve Account."
"Dedicated Sub-Fund" means a sub-fund within the Debt Service Fund including each sub-fund created by a Supplemental Indenture and the Common Debt Service Reserve Sub-Fund created by the Senior Lien Master Indenture.
"Deposit Requirements" means, with respect to any semi-annual deposit to the Debt Service Fund and any disbursement from the Debt Service Fund pursuant to the provisions ofthe Senior Lien Indenture as described in APPENDIX B—"SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURES—
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Indenture Funds and Payment of Debt Service", the aggregate of the "Sub-Fund Deposits" and the "Other Required Deposits" described under paragraphs (a) and (b) under the sub-caption "Disbursements from Debt Service Fund' under that caption that are required to be made at that time.
"DTC" means The Depository Trust Company, and its successors and assigns.
"Event of Default" means with respect to the Senior Lien Master Indenture, an Event of Default as described in APPENDIX B under "SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LlEN INDENTURE— Events of Default."
"Existing Senior.Lien-Bonds" means Third-Lien Bonds issued prior to the Liens Defeasance Date and Outstanding following the issuance of the 2016 Senior Lien Bonds.
"FAA " means the Federal Aviation Administration, or the successor :to its powers and authority.
"Federal Obligation'' means ,any direct obligation of,, or any,.obligation the full and timely payment of principal of and interest on which, is guaranteed by,:the United States of America.
.... "Fiduciary" means the, Trustee; or any Paying Agent or any or ah of them,.as may be appropriate.
"Fiscal Year" means January 1 through December 31 of any year, or such other fiscal year as the
City may adopt for the Airport. ^
"Fitch" means Fitch Ratings Ltd.
"Fifty-Fdurtli Supplemental Indenture dated as
of December 1, 201:6Trbm-therCify't6:'the:Tnistee'^
"Fifty-Second Supplemental Indenture" means the Fifty-Second Supplemental Indenture dated as of December 1, 2016 from the City to the Trustee, which supplements the Senior Lien Indenture. , ' '
"Fifty-Third Supplemental Indenture" means the Fifty-Third Supplemental Indenture dated as of December 1, 2016 from the City to the Trustee, which supplements the Senior Lien Indenture.
"Funds" means the special Funds created and established pursuant to the Senior Lien Indenture.
"Government Grants-in-Aid" means those moneys granted to the City by the United States of America or any of its agencies, or the State of Illinois, or any of its political subdivisions or agencies, to pay for all or a portion of the cost of one or more Airport Projects and does not include any payments made for services rendered at the Airport.
"Independent Accountant" means a certified public accountant selected by the City and licensed to practice in the State of Illinois, and who (a) in the case of an individual, is not an officer or employee of the City, (b) is satisfactory to the Trustee and (c) may be the accountant that regularly audits the books of the City or the Airport.
"Independent Airport Consultant" means a consultant selected by the City, with expertise in the administration, financing, planning, maintenance and operations of airports and their facilities, and who, in the case of an individual, is not an officer or employee ofthe City.
"Interest Payment Date" means any Payment Date on which interest on any Senior Lien Obligation is payable.
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"Junior Lien Obligations" means any bonds, notes or evidences of indebtedness secured by Revenues, other than Senior Lien Obligations, issued by the City as permitted by the Senior Lien Indcnhire.
"Junior Lien Obligation Debt Service Fund" means the Junior Lien Obligation Debt Service Fund created by the Senior Lien Master Indenture.
"Land Support Area" means (a) during the term of the Airline Use Agreements, the facilities, uses, leases, land and air rights, if any, identified as such in the Airport Use Agreements and (b) after the end ofthe term of the Airport Use Agreements, the facilities, uses, leases, land and air rights, if any, identified as the "Land Support Area" as of the last day of the term of the Airport Use Agreements, as the same thereafter may revised from time to time by the City as set forth in a Certificate filed with the Trustee, provided, however, that if such revision will likely result in a reduction of Revenues, then such revision shall not take effect until either (i) there is filed with the Trustee an Independent Airport Consultant's Certificate, based on reasonable assumptions, that the anticipated reduction of Revenues resulting from such revision will not constitute a material reduction of Revenues, or (ii) the City satisfies the requirements ofthe Indenture regarding Released Revenues.
"Landing Fee Rate" means the Landing Fee Rate established pursuant to the Airport Use Agreements.
"Landing Fees" means, with respect to each Airline Party, the Landing Fees calculated pursuant to such Airline Party's Airport Use Agreement.
"Liens Defeasance Date" means September 12, 2012.
"Maintenance Reserve Fund" means the Maintenance Reserve Fund created under the Airport Use Agreements.
"Moody's" means Moody's Investors Service.
"Net Debt Service" means with respect to the Scries 2016C Bonds for any Bond Year, the Annual Debt Service with respect to such Scries, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during that Bond Year to pay Principal Installments of and interest on such Series.
"Non-Common Reserve Bonds" means the Outstanding Series 2005C Bonds, Series 2005D Bonds, Series 2008A Bonds, Series 2010D Bonds, Series 201 OF Bonds, Series 2011A Bonds, Series 2012A Bonds and Series 2016C Bonds.
"Operation and Maintenance Expense Projection" means, for any Fiscal Year, the then current estimate of Operation and Maintenance Expenses prepared semi-annually by the City and filed with the Trustee and consisting of an initial projection made prior to the first day ofthe Fiscal Year and a mid-year projection made in June of the Fiscal Year which, (i) prior to the end of the term of the Airport Use Agreements, shall conform to the requirements of the Airport Use Agreements, as adjusted by the midyear projection prepared in accordance with the Airport Use Agreements and (ii) after the end of the term of the Airport Use Agreements, shall include a mid-year projection that may adjust the projection of the City.
"Operation and Maintenance Expenses" means, for any Fiscal Year, the costs incurred by the City in operating and maintaining the Aiiport (excluding the Land Support Area) during that Fiscal Year,
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ther directly or indirectly, including, without limitation (but exclusive of those expenses as may be ipitalized in connection with an Airport Project): •
(i) costs and expenses incurred by the City for employees of the City employed at
the Airport, or doing work involving the Airport, including, but not limited to, direct salaries and
wages (including overtime pay), together with paymcnts or costs incurred for associated payroll
expenses, such as union contributions, cash payments to pension funds, retirement funds or
unemployment compensation funds, life, health, accident' and unemployment insurance
premiums,' deposits for selfJinsurance, vacations and holiday pay, and: other fringe benefits;
.:-iHLt!\ M!) :>!!>>'. -';<;:.-i .-o. i ¦::' a'.' V.: >-.MT;:-'Uv'tr.'/- '¦>'¦'¦'¦ '¦ r\ri:)t\.n :n '7:', • -.: r j t ;;p-)
(ii) ¦ costs of'materials, supplies, machinery and' equipment and other similar
expenses;
costs of. maintenance, landscaping, decorating, repairs, renewals and alterations:
nonreimbursed by insurance; . >
costs of water, electricity, natural gas, telephone service and all other utilities, and services whether furnished by the City or purchased by the City and furnished by independent contractors at or for the Airport; - - ¦ ••'¦>'¦"':'•¦
costs of rentals of real property;
costs of rentals of equipment or other, personal property;
costs of premiums for insurance,, includingproperty damage, public , liability, burglary, bonds of employees, workers' compensation, disability, automobile, and all other insurance covering the Airport or its operations;
the amount of any judgment or settlement arising as a result of the City's ownership, operation and maintenance of the Airport payable by the City during that Fiscal Year, including, without limitation, the amount of any judgment or settlement arising as a result of claims, actions, proceedings or suits alleging a taking of property or interests in property without just compensation, trespass, nuisance, property damage, personal injury or similar claims, actions, proceedings or suits based upon the environmental impacts, including, without limitation, those resulting from the use of the Airport for the landing and taking off of aircraft;
costs incurred in collecting and attempting to collect any sums due the City in connection with the operation of the Airport;
costs of advertising at or for the Airport;
compensation paid or credited to persons or firms appointed or engaged, from time to time, to render advice and perform architectural, engineering, construction management, financial, legal, accounting, testing, consulting or other professional services in connection with the Airport;
any other cost incurred or allocated to the Airport necessary to comply with any valid rule, regulation, policy or order of any federal, state or local government, agency or court; and
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(xiii) all other direct and indirect expenses, whether similar or dissimilar, which arise out ofthe City's ownership, operation or maintenance ofthe Airport, including any taxes payable by the City which may be lawfully imposed upon the Airport.
"Operation and Maintenance Reserve Fund" means the Operation and Maintenance Reserve Fund established pursuant to the Airport Use Agreements.
"Operation and Maintenance Resei-ve Fund Deposit Requirement" means for any Fiscal Year the amount, if any, required to increase the balance in the Operation and Maintenance Reserve Fund (including amounts receivable from the Operation and Maintenance Fund) to an amount equal to one-fourth of such Fiscal Year's Operation and Maintenance Expense Projection as adjusted at mid-year pursuant to the Airport Use Agreements.
"Other Available Moneys" means for any Fiscal Year the amount of money determined by the Chief Financial Officer to be transferred by the City for that Fiscal Year from sources other than Revenues to the Revenue Fund.
"Outstanding" means with respect to the Senior Lien Obligations, as of any date, all Senior Lien Obligations before or on that date being issued or incurred under the Senior Lien Master Indenture except:
Senior Lien Obligations cancelled by the Trustee or the Owner of a Senior Lien Section 208 Obligation, as the case may be, at or before that date or delivered before that date to the Trustee or to the City, as the case may be, for cancellation;
Senior Lien Obligations (or portions of Senior Lien Obligations) for the payment or redemption of which there are held in trust and set aside for such payment or redemption (whether at, before or after the maturity or redemption date) moneys or Federal Obligations the principal of and interest on which when due or payable will provide moneys, together with the moneys, if any, deposited with the Trustee at the same time, in an amount sufficient to pay their principal or Redemption Price, as the case may be, with interest to the date of maturity or redemption date, and, if those Senior Lien Obligations are to be redeemed, for which notice ofthe redemption has been given as provided in the related Supplemental Indenture or provisions satisfactory to the Trustee have been made for giving the notice;
Senior Lien Obligations for the transfer or exchange of, in lieu of or in substitution for which other Senior Lien Obligations have been authenticated and delivered pursuant to the Senior Lien Master Indenture; and
Senior Lien Obligations deemed to have been paid as provided in the Senior Lien Master Indenture.
"Participant" when used with respect to any Securities Depository, means any participant of such Securities Depository.
"Paying Agent" means any bank or trust company designated as a paying agent for a Scries and its successor or successors later appointed in the manner provided in the Senior Lien Master Indenture.
"Payment Dale" means any date on which a Principal Installment or interest on any Series of Senior Lien Obligations is payable in accordance with its terms and the terms of the Senior Lien Master Indenture and the Supplemental Indenture creating the Series or, in the case of Senior Lien Section 208 Obligations or amounts payable under any Qualified Senior Lien Swap Agreement, in accordance with
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the terms ofthe instrument creating the Senior Lien Section 208 Obligations or the Qualified Senior Lien Swap Agreement.
"PFC Capital Fund" means the PFC Capital Fund of the City.
"Pledged Other Available Moneys" means (a), with respect to the Series 2016C Bonds, for each of
the Fiscal Years 2016, 2017 and 2018, the amounts to be withdrawn from the PFC. Capital Fund and
deposited into the 2016C Senior Lien Bond PFC Revenue Deposit Account that the Chief Financial
Officer has determined to be1 Other Available Moneys as evidenced by the Pledged Other Available
Moneys Certificate.'¦'¦w.- ¦•¦;,.:.:¦.:¦¦::<.¦: •••¦¦i -jr. n<; ; •. '¦¦<:::¦,¦¦¦':;¦¦
"Pledged Other Available Moneys Certificate" means the Other Available Moneys Certificate, substantially in the form attached to the Fifty-Fourth Supplemental Indenture, signed by the Chief Financial Officer and filed with the Trustee.
"Principal Installment" means as of any particular date of computation and with respect to .Senior Lien Obligations of a particular Series or consisting of a particular Senior Lien Section 208 Obligation, an amount of money equal to the . aggregate of (i) the principal amount of Outstanding Senior Lien Obligations, of that Series or Senior Lien Section 208 . Obligations which imature on a single future date, reduced by the aggregate principal amount of the Outstanding Senior Lien Obligations of that Series which would at or before that future date be retired by reason of the payment when due and the application in accordance with the-Senior Lien Master Indenture and the Supplemental Indenture creating the Series or the instrument creating those Senior Lien Section 208' Obligations of Sinking Fund Payments payable at or before that future date for the retirement of the Outstanding Senior Lien Obligation's of that1 Series, plus (ii) the amount of any Sinking Fund Payments payable on that future date for'ttie retirement of the' Outstanding Senior Lien Obligation's of that Series', and'that' future date is for all purposes of the Senior Lien Master Indenture, deemed to be the date when the Principal Installment is payable and the date of the'Principal Installment. '
"Qualified Collateral" means:
Federal Obligations;
direct and general obligations of any State of the United States of America or any political subdivision of the State of Illinois which are rated in one of the two highest rating categories by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise; and
public housing bonds issued by public housing authorities and fully secured as to the payment of both principal and interest by a pledge of annual contributions under an annual contributions contract or contracts with the United States of America, or project notes issued by public housing authorities, or project notes issued by local public agencies, in each case fully secured as to the payment of both principal and interest by a requisition or payment agreement
/ with the United States of America.
"Qualified Credit Instrument" means a letter of credit, surety bond or non-cancelable insurance policy issued by a domestic or foreign bank, insurance company or other financial institution whose debt obligations on the date of issuance thereof are rated in the highest rating category by S&P and Moody's and, if rated by A.M. Best & Company, is rated in the highest rating category by A.M. Best & Company. Any such letter of credit, surety bond or insurance policy shall be issued in the name of the Trustee and shall contain no restrictions on the ability of the Trustee to receive payment thereunder other than a
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certification of the Trustee that the funds drawn thereunder are to be used for purposes for which moneys in the Common Debt Service Reserve Sub-Fund may be used under the Senior Lien Indenture.
"Qualified Credit Provider" means the issuer of a Qualified Credit Instrument.
"QualifiedInvestments" means with respect to Senior Lien Obligations as follows:
Federal Obligations;
pre-refunded municipal obligations meeting the following conditions: (i) the municipal obligations arc not subject to redemption prior to maturity, or the trustee therefor has been given irrevocable instructions concerning their calling and redemption and the issuer thereof has covenanted not to redeem such obligations other than as set forth in such instructions; (ii) the municipal obligations are secured by cash and/or Federal Obligations, which Federal Obligations may be applied only to interest, principal and premium payments of such municipal obligations; (iii) the principal of and interest on the Federal Obligations (plus any cash in the escrow fund) are sufficient to meet the liabilities of the municipal obligations; (iv) the Federal Obligations serving as security for the municipal obligations are held by an escrow agent or trustee; (v) the Federal Obligations are not available to satisfy any other claims, including those against the trustee or escrow agent; and (vi) the municipal obligations are rated in the highest rating category by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise;
deposits in interest-bearing deposits or certificates of deposit or similar arrangements issued by any bank or national banking association, including the Trustee, which deposits, to the extent not insured by the Federal Deposit Insurance Corporation, shall be secured by Qualified Collateral having a current market value (exclusive of accrued interest) at least equal to the amount of such deposits, marked to market monthly, and which Qualified Collateral shall have been deposited in trust by such bank or national banking association with the trust department ofthe Trustee or with a Federal Reserve Bank or branch or, with the written approval of the City and the Trustee, with another bank, trust company or national banking association for the benefit of the City and the appropriate Fund or Account as. collateral security for such deposits;
direct and general obligations of any state of the United States of America or any political subdivision of the State of Illinois which are rated in one of the two highest rating categories by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise;
obligations issued by any of the following agencies: Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Flome Loan Banks System, Federal Land Banks, Export Import Bank, Tennessee Valley Authority, Government National Mortgage Association, Farmers Home Administration, United States Postal Service, Fannie Mae, Student Loan Marketing Association, Federal Farm Credit Bureau, Federal Home Loan Mortgage Corporation, Federal Housing Administration, any agency or instrumentality ofthe United States of America and any corporation controlled and supervised by, and acting as an agency or instrumentality of, the United States of America;
(1) any repurchase agreements collateralized by securities described in clauses (a) or (c) above with any registered broker/dealer subject to the Securities Investors' Protection Corporation jurisdiction or any commercial bank, if such broker/dealer or bank or parent holding company providing a guaranty has an uninsured, unsecured and unguaranteed rating in one ofthe
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three highest rating categories by any two Rating Agencies without regard to any refinement or gradation of rating category by numerical modifier or otherwise, provided: (i) a specific written agreement governs the transaction; (ii) the securities are held by a depository acting solely as agent for the Trustee, and such third party is (A)-a Federal-Reserve Bank; or (B) a'bank'which is a member of the Federal Deposit Insurance Corporation and with combined capital, surplus and undivided profits of not less than $25,000,000, and the Trustee shall have received written confirmation from such third party that it holds such securities; (iii) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 1 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq., in such securities, is created for the benefit of the Trustee; (iv) the 'repurchasei agreement has a term.b^'pn'e year'or'less,"or the collateral securities will be valued'no.less frequently than monthly and will be liquidated if any deficiency in the required collateral percentage is not restored within two business days of such valuation; (v) the repurchase agreement matures at least 10 days (or other, appropriate liquidation period), prior to a Payment Date; and (vi) the fair .market value of the securities in relation to the amount of the repurchase obligations, including principal and interest, is equal to at least 100 percent;
shares of an investment company, organized under the Investment Company Act
of T940, as amended, which invests its assets exclusively in Obligations of the type described in
clauses (a) to (e); _ _^ .L.l. ....... ..
investment agreements which represent the unconditional obligation of one or
more banks, insurance companies or other financial institutions,':br are'guaranteed by a'financial
institution,,in either case that has an unsecured rating, or which agreement is itself rated, as ofthe
date of execution thereof, in one of the three highest rating categories by any two Rating
Agencies without regard to any/refinement or gradatidn .bf rating category by''numerical: rnodifier
or otherwise;' ' ' ' '
(i) long-term or medium-term corporate debt instruments issued or guaranteed by
any corporation that is rated in the highest rating category by any two Rating Agencies without
regard to any refinement or gradation of rating category by numerical modifier or otherwise;
(j) prime commercial paper of a United States corporation, finance company or banking institution rated in the highest short-term rating category by any two Rating Agencies maintaining a rating on such paper; and
(k) any other type of investment in which the City directs the Trustee in writing to invest, provided that there is delivered to the Trustee a Certificate of an Authorized Officer stating that each Rating Agency has been informed of the proposal to invest in such investment and each Rating Agency has confirmed that such investment will not adversely affect the rating then assigned by such Rating Agency to any Senior Lien Obligations.
"Qualified Reserve Account Credit Instrument" means a letter of credit, surety bond or non-cancelable insurance policy issued by a domestic or foreign bank, insurance company or other financial institution whose debt obligations on the date of issuance thereof are rated in the highest rating category by S&P and Moody's and, if rated by A.M. Best & Company, is rated in the highest rating category by A.M. Best & Company.
"Qualified Senior Lien Swap Agreement" means an agreement between the City and a Swap Provider under which the City agrees to pay the Swap Provider an amount calculated at an agreed-upon rate or index based upon a notional amount and the Swap Provider agrees to pay the City for a specified period of time an amount calculated at an agreed-upon rate or index based upon the notional amount, where (a) each Rating Agency (if the Rating Agency also rates the unsecured obligations ofthe Swap
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Provider or its guarantor) has assigned to the unsecured obligations of the Swap Provider or of the party who guarantees the obligation of the Swap Provider to make its payments to the City, as of the date the swap agreement is entered into, a rating that is equal to or higher than the rating then assigned to the Senior Lien Obligations by the Rating Agency (without regard to municipal bond insurance or any other credit facility), and (b) the City has notified each Rating Agency (whether or not a Rating Agency also rates the unsecured obligations of the Swap Provider or its guarantor) in writing, at least 15 days before executing and delivering the swap agreement, of its intention to enter into the swap agreement and has received from each Rating Agency a written indication that the entering into ofthe swap agreement by the City will not in and of itself cause a reduction or withdrawal by the Rating Agency of its rating on the Senior Lien Obligations.
"Rating Agency" means any rating agency that has an outstanding credit rating assigned to any Senior Lien Obligations.
"Record Date" means June 15 and December 15 of each year.
"Redemption Price" means with respect to any Series of Senior Lien Obligations, their principal amount plus the applicable premium, if any, payable upon their redemption pursuant to the provisions of the Senior Lien Obligations or the Supplemental Indenture creating the Series of Senior Lien Obligations, or such other redemption price as may be specified in the Senior Lien Obligations or Supplemental Indenture.
"Refunding Bonds" means all Senior Lien Obligations, whether issued in one or more Series, authenticated and delivered on original issuance for the purpose ofthe refunding of Airport Obligations of any series, and all Senior Lien Obligations thereafter authenticated and delivered in lieu of or in substitution for the Senior Lien Obligations pursuant to the Senior Lien Master Indenture and the Supplemental Indenture creating the Series of Senior Lien Obligations.
"Registered Owner" or "Owner" means with respect to Senior Lien Bonds, the person or persons in whose name a Senior Lien Bond shall be registered on the books of the City kept for that purpose in accordance with the provisions ofthe Senior Lien Master Indenture.
"Regulations" means the Income Tax Regulations (26 C.F.R. Parti) promulgated under and pursuant to the Code.
"Released Revenues" means Revenues in respect of which the Trustee has received the following:
(a) a request of an Authorized Officer describing such Revenues and requesting that those Revenues be excluded from the pledge and lien of the Senior Lien Master Indenture on Revenues;
- (b) an Independent Airport Consultant's Certificate, based upon reasonable assumptions, to the effect that Revenues, after the Revenues covered by the Authorized Officer's request are excluded for each of the five full Fiscal Years following the Fiscal Year in which such Certificate is delivered, will be sufficient to enable the City to satisfy the coverage covenant set forth under paragraph (a) under the caption "Coverage Covenants" in APPENDIX B in each of those five Fiscal Years;
(c) a Counsel's Opinion to the effect that (i) the conditions set forth in the Senior Lien Master Indenture to the release of those Revenues have been met and (ii) the exclusion of those Revenues from the pledge and lien of the Senior Lien Master Indenture will not, in and of
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itself, cause the interest on any outstanding Senior Lien Obligations to be included in gross income from purposes of federal income taxation; and
(d) . written confirmation, from each of the Rating Agencies to. the effect. that the exclusion of those Revenues .from the pledge and lien of the Senior Lien Master Indenture will not cause a withdrawal or reduction in: any unenhanced rating then assigned to. any Senior Lien Obligations.
Upon the Trustee's receipt of those documents,, the Revenues.described in the Authorized Officer's request shall be excluded from the pledge and lien of the Senior Lien Master Indenture, and .the Trustee shall take all reasonable steps requested by the Authorized Officer to evidence or confirm the release of that pledge and lien on the Released Revenues.
"Reserve Requirement" means (a) with respect to the Common Debt Service Reserve Sub-Fund, an amount equal to the maximum amount .of Principal. Installments. of and interest payable on the Common Reserve Bonds in the current or any succeeding Bond Year; provided, however, that if upon the issuance of a Series of Common Reserve Bonds such amount would require that moneys be paid into the Common Debt Service Reserve Sub-Fund from the proceeds of such' Commbh Reserve Bonds in an amount; in. excess ofthe maximum amount permitted! under the Code; the: Reserve-Requirement shall be' the- sum of (i) the -Reserve Requirement immediately preceding the2 issuance; of such Common Reserve Bonds, and (ii) the maximum amount permitted under the Code to be deposited from the proceeds of such bonds, as certified by the Chief Financial Officer and (b) with respect to the Debt Service Reserve Account for the Series 2016C Bonds, the maximum amount of Principal Installments of'and interest on the Series12016C Bonds payable in the current or"any future Bond.
!i; • "Revenue'Fund" means the Revenue 'Fund maintained'under'the Senior Lien Master Indenture.
"Revenues" means and includes all amounts received or receivable directly or indirectly by the City for the use and operation of, or with'respect to, the Airport (excluding the Land Support Area), including,-without, limitation: all airline fees and charges'(excluding payments described in clause (i) below); all other rentals, charges and fees for the use of the Airport or for any service rendered by the City in the operation of the Airport; concession revenues; interest payments to the City; interest accruing on, and any profit realized from the investment of, moneys held or credited to all Airport funds and accounts of the City; provided, however, that Revenues does not include: (i) any amounts derived by the City from Special Facility Financing Arrangements entered into in connection with Special Facilities to the extent those moneys derived arc required to pay principal of, premium, if any, and interest on Special Facility Revenue Bonds and all sinking and other reserve fund, payments required by the ordinance or resolution. authorizing the issuance of the Special Facility Revenue Bonds; (ii) the proceeds of any passenger facility charge, customer facility charge or similar tax or charge levied by or on behalf of the City, including but not limited to, any cargo facility charge or security charge; (iii) the proceeds of any tax levied by or on behalf of the City; (iv) interest accruing on, and any profit resulting from the investment of, moneys in any fund or account of the Airport that is not available by agreement or otherwise for deposit into the Revenue Fund; (v) Government Grants-in-Aid; (vi) insurance proceeds which are not deemed to be revenues in accordance with generally accepted accounting principles; (vii) the proceeds of any condemnation awards; (viii) security deposits and the proceeds of the sale of any Airport property; and (ix) the proceeds of any borrowings by the City.
Unless otherwise provided in a Supplemental Indenture, there shall also be excluded from the term "Revenues" any Released Revenues in respect of which the City has filed with the Trustee the documents contemplated in the definition of the term "Released Revenues. "
"S&P" means Standard & Poor's Ratings Services.
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"Securities Depository" means DTC and any other securities depository registered as a clearing agency with the Securities and Exchange Commission pursuant to Section 17A of the Securities Exchange Act of 1934, as amended, and appointed as the securities depository for the Bonds.
"Senior Lien Bonds" means the Existing Senior Lien Bonds and any of the bonds issued by the City under and pursuant to Article II ofthe Senior Lien Indenture.
"Senior Lien Indenture" means the Senior Lien Master Indenture as originally executed and delivered by the City and the Trustee and constituting an amendment and restatement of the. 2002 Third Lien Indenture and as it may from time to time be amended or supplemented by Supplemental Indentures.
"Senior Lien Master Indenture" means the Master Indenture of Trust Securing Chicago O'Hare International Airport General Airport Revenue Senior Lien Obligations dated as of September 1, 2012 between the City and the Trustee.
"Senior Lien Obligations" means (a) any of the bonds, notes or evidences of indebtedness issued by the City under and pursuant to Article II of the Senior Lien Indenture, (b) any Senior Lien Section 208 Obligations and (e) obligations of the City under a Qualified Senior Lien Swap Agreement except to the extent those obligations are subordinated under the Senior Lien Indenture or under that agreement,.and in each case including 2002 Third Lien Obligations issued or incurred prior to the Liens Defeasance Date.
"Senior Lien Section 208 Obligations" means any obligations incurred by the City to reimburse the issuer or issuers of one or more instruments securing one or more Series of Senior Lien Obligations as described in Section 208 of the Senior Lien Indenture, including any fees or other amounts payable to the issuer of any such instrument, whether those obligations are set forth in one or more reimbursement agreements entered into between the City and the issuer of any such instrument, or in one or more-notes or other evidences of indebtedness executed and delivered by the City pursuant thereto, or any combination of them.
"Series" means all of the Senior Lien Obligations authenticated and delivered on original issuance pursuant to a Supplemental Indenture and designated in it as a series, but, unless the context clearly indicates otherwise, does not include Senior Lien Section 208 Obligations or obligations ofthe City under a Qualified Senior Lien Swap Agreement.
"Series 2005C Bonds" means (he Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 2005C.
"Series 2005D Bonds" means the Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 2005D.
"Series 2008A Bonds" means the Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 2008A.
"Series 2010D Bonds" means the Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 2010D.
"Series 2010F Bonds" means the Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 201 OF Bonds.
"Series 2011A Bonds" means the Chicago O'Hare International Airport General Airport Third Lien Revenue Bonds, Series 2011 A.
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"Series 2012A Bonds" means the Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2012A. ....
"Sinking Fund Payment" means as of any particular date of determination and with respect to the outstanding Senior Lien Obligations of any Series- or consisting of ;any Senior Lien Section 208 Obligations, the amount required by the Supplemental Indenture creating the Series or;the instrument creating the Senior Lien Section 208 Obligation to be paid in any event by the City on a single future date for the retirement of the Senior Lien Obligations which mature after that future date, but docs not include any amount payable by the City by reason only of the-maturity of a Senior Lien Obligation.1
<¦:;'¦'; V.'.'-Ui]: \h:'*\rt\VArV.\\'S. i'A \r...\iVj< V.s'f'.r-.'r. '!•¦) ! - • ¦ I ¦ ¦ r (i s. -.;.'! v>i!i.! -!J • '! : rtl'K: 7: '! •; ¦¦!: ' ¦¦¦¦li ;
"Special Capital Projects Fund" means the Special Capital Projects Fund created under the Airport Use Agreements.
"Special Facility" means a building, facility or improvement at the Airport,-or portion thereof, that has been or is to be constructed, installed, equipped or acquired with the proceeds of the sale of Special Facility1 Revenue Bonds or sources other than Revenues:
"Special. Facility Financing. Arrangement" means'any agreement creating or relating to-Special
Facility Revenue Bonds. : 112
"Special Facility Revenue Bonds" means obligations of the City with respect to which the principal, premium, if any, and interest are payable solcly'from proceeds of the sale of those obligations and from sources other'than Revenues,' and for- which the City has>no taxing-obligation.
... "Supplemental Indenture": means an indenture.supplemental to or amendatory,of the.2002 Third Lien<-;Indentureoor> the;.-Senior-Lien Indenture: executed ?and (.delivered1 by jthe .City and the Trustee-in accordance, with the Senior Lien Master Indenture.;, , ./.¦¦ ¦ -.: ¦.,.-•. . •.> /
"Swap Provider" means any counterparty with which the City enters into a Qualified Senior Lien
Swap Agreement. . , • ¦ :
"Terminal Area Rentals"means, with respect to-each. Airline Party, the Terminal Area Rentals calculated pursuant to Article V of such Airline Party's Airport Use Agreement.
"Terminal Area Use Charges" means, with respect to each Airline Party, the Terminal Area Use Charges calculated pursuant to Article V of such Airline Party's Airport Use. Agreement.
"Third Lien Bonds" means, any of.the Bonds, notes or evidences of indebtedness issued by the City pursuant to Article II of the 2002 Third Lien Indenture.
"Transition Date" means the first Business Day ofthe Trustee in the month of June, 2018 unless, prior to May 1, 2018, the City files with the Trustee a Certificate electing to select another date as the Transition Date in which case the Transition Date shall be the date selected by the City in a Certificate filed with the Trustee not less than 30 days prior to the date selected by the City.
"Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses of the Senior Lien Master Indenture and the Supplemental Indenture for which a series of Senior Lien Obligations are issued.
"Trustee" means U.S. Bank National Association, Chicago, Illinois, as trustee under the Senior Lien Master Indenture, or its successor as the trustee later appointed in the manner provided in the Senior Lien Master Indenture.
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"2016 Senior Lien Bonds" means the 2016A Senior Lien Bonds, the 2016B Senior Lien Bonds and the 2016C Senior Lien Bonds.
"2016A Senior Lien Bonds" or "Series 2016A Bonds" means the Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A.
"2016B Senior Lien Bonds" or "Series 2016B Bonds" means the Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B.
"2016C Senior Lien Bonds" or "Series 2016C Bonds" means the Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C.
"2002 Third Lien Indenture" means the Master Indenture of Trust Securing Chicago O'Hare International Airport Third Lien Obligations dated as of March 1, 2002, between the City and U.S. Bank National Association as successor trustee to LaSalle Bank National Association, as amended and supplemented to the Liens Defeasance Date.
"2002 Third Lien Obligations" means all "Third Lien Obligations", as defined in the 2002 Third Lien Indenture, that were Outstanding on the Liens Defeasance Date.
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Appendix B
SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE
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Appendix B
SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE
The following is a summary of certain provisions of the Senior Lien Master Indenture, as supplemented to date (the "Senior Lien Indenture"), to which reference is made for a complete statement of the provisions and contents of each of such documents. Certain words and terms used in this summary are defined in Appendix A—"Glossary of Terms."
Authorization of Senior Lien Obligations and Bonds
In order to provide sufficient funds for the financing or refinancing of Airport Projects, Senior Lien Obligations arc authorized by the Senior Lien Master Indenture to be issued from time to time in one or more Series, without limitation as to amount except as may be limited by law or the Senior Lien Master Indenture, for the purpose of (a) the payment, or the reimbursement for the payment of, the costs of one or more Airport Projects, (b) the refunding of Senior Lien Obligations (including 2002 Third Lien Obligations), or other obligations issued to finance or refinance one or more Airport Projects, including, but not limited to, the refunding of any Special Facility Revenue Bonds and any Junior Lien Obligations, or (c) the funding of any Fund, Account or Dedicated Sub-Fund as specified in the Senior Lien Master Indenture or the Supplemental Indenture under which any Senior Lien Obligations are issued; including, in each case, payment of Costs of Issuance. Senior Lien Obligations consisting of Senior Lien Section 208 Obligations and Qualified Senior Lien Swap Agreements are also authorized to be incurred from time to time as provided for in the Senior Lien Master Indenture for the purposes set forth therein.
The City reserves the right in the Senior Lien Master Indenture to provide one or more irrevocable letters of credit to secure the payment of the principal of, premium, if any, and interest on one or more Series of Senior Lien Obligations, and if the Owners of those Senior Lien Obligations have the right to require their purchase, to secure the payment of the purchase price of those Senior Lien Obligations upon the demand of their Owners through one or more letters of credit or bond purchase agreements. In connection therewith, the City may agree on a method to reimburse the issuer of the letter of credit or provider of a bond purchase agreement and any such obligation of the City may constitute a Senior Lien Obligation.
Source of Payment; Pledge of Senior Lien Revenues and Other Moneys
The Senior Lien Master Indenture provides that the Senior Lien Obligations are legal, valid and binding limited obligations of the City payable solely from Revenues and certain other moneys and securities held by the Trustee under the provisions of the Senior Lien Master Indenture and any Supplemental Indenture. The Senior Lien Obligations and the interest thereon do not constitute an indebtedness or a loan of credit of the City within the meaning of any constitutional or statutory limitation, and neither the faith and credit nor the taxing power ofthe City, the State of Illinois or any of its political subdivisions is pledged to the payment of the principal of or interest on the Senior Lien Obligations. The City makes a pledge ofthe Trust Estate, to the extent set forth in the Granting Clauses ofthe Senior Lien Master Indenture, and of all moneys and securities held or set aside or to be held or set aside by the Trustee under the Senior Lien Master Indenture or any Supplemental Indenture, to secure the payment of the principal and Redemption Price of, and interest on, the Senior Lien Obligations, subject only to the provisions ofthe Senior Lien Master Indenture or any Supplemental Indenture requiring or permitting the payment, setting apart or appropriation of such moneys and securities for or to the purposes and on the terms, conditions, priorities and order set forth in or provided under the Senior Lien Master Indenture or the Supplemental Indenture. Such pledge is valid and binding from the Liens Defeasance Date and continues the prior pledges under the 2002 Third Lien Indenture. The Revenues so pledged and then or thereafter received by the City and deposited in the Revenue Fund arc immediately upon that deposit subject to the lien ofthe pledge without any further physical delivery or further act; and the lien of
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the pledge is valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether the parties have notice of it.
Indenture Funds and Payment of Debt Service
The Revenue Fund, the Debt Service Fund and the Junior Lien Obligation Debt Service Fund are trust funds held and administered by the Trustee in accordance with the Senior Lien Master Indenture. The Common Debt Service Reserve Sub-Fund and each Dedicated Sub-Fund are held by the Trustee as part of the Debt Service Fund. Each Dedicated Sub-Fund'established by a Supplemental Indenture to the 2002 Third Lien Indenture shall continue to be administered as a Dedicated Sub-Fund within the Debt Service Fund.
The City has established and agrees to maintain an Operation and Maintenance Fund, an Operation and Maintenance Reserve Fund, and a Maintenance Reserve Fund. The City;has established and agrees to: maintain a Special Capital Projects Fund until the Transition' Date. During the term of the Airport Use Agreements, the Operation and'Maintenance Fund, the Special Capital Projects Fund, the Operation and Maintenance Reserve Fund and the Maintenance Reserve Fund shall be maintained in accordance with the Airport Use Agreerrients. The City may also maintain the Airport Development Fund pursuant to the Airport Use Agreements.
On the Transition Date (i) the City shall establish and thereafter maintain the Airport General Fund, (ii) the Special Capital Projects Fund and the Airport Development Fund shall,be discontinued and (iii) the moneys then held in the Special Capital Projects Fund and the Airport Development Fund shall be credited to the Airport General Fund.
- : •; The Trustee shall/at the written request of the;City; establish-such additional-sub-funds-within :the Funds and Accounts and subaccounts within any-such sub-funds, as shall'be specified in sUch written request, for the purpose of identifying more precisely the sources of payment's into and disbursements from the Funds or such sub-funds, Accounts and subaccounts.
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Additional sub-funds within the Funds (other than the Junior Lien Obligation Debt Service Fund) and Accounts and subaccounts within such sub-funds may also be created by any Supplemental Indenture; and any such Supplemental Indenture may provide that amounts on deposit in such sub-funds, Accounts and subaccounts shall be held by the Trustee for the sole and exclusive benefit of such Senior Lien Obligations as may be specifically designated in such Supplemental Indenture; provided, however, that prior to the end of the term of the Airport Use Agreements income derived from the investment of any moneys on deposit in a debt service reserve fund or account (including the Common Debt Service Reserve Sub-Fund) or pursuant to any sUch Supplemental Indenture shall,'upon receipt, be withdrawn from such fund or account by the Trustee and deposited into the Revenue Fund.
Any moneys and securities held in the Revenue Fund, the Debt Service Fund, the Junior Lien Obligation Debt Service Fund or any sub-fund, Account or subaccount created pursuant to the Senior Lien Master Indenture shall be held in trust by the Trustee, as provided in the Senior Lien Master Indenture or such Supplemental Indenture, and shall be applied, used and withdrawn only for the purposes authorized in the Senior Lien Master Indenture or Supplemental Indenture.
All moneys and securities held by the City in the Operation and Maintenance Fund, the Special Capital Projects Fund, the Operation and Maintenance Reserve Fund and the Maintenance Reserve Fund shall be accounted for and held separate and apart from all other moneys and securities ofthe City, shall be applied, used and withdrawn solely for the purposes authorized in the Senior Lien Master Indenture and, until so applied, used and withdrawn, shall be held in trust by the City for such purposes.
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All moneys and securities held by the City in the Airport Development Fund and the Airport General Fund may be applied, used and withdrawn by the City for any lawful corporate purpose ofthe City, free of any lien or security interest in favor of the Trustee and the owners of the Senior Lien Obligations.
Deposit of Revenues. All Revenues shall be collected by the City and promptly deposited to the credit of the Revenue Fund in the name of the Trustee with a depositary or depositaries, each fully qualified under the Senior Lien Indenture to receive the same as deposits of money held by the Trustee, designated by the City and approved by the Trustee, and statements giving the amount of each such deposit and the name of the depositary shall be forwarded promptly to the Trustee by the City and by such depositary. The Trustee shall be accountable only for moneys actually so deposited.
Disbursements from Revenue Fund Prior to the Transition Date. The moneys in the Revenue Fund shall be disbursed and applied by the Trustee as required to make the following deposits on the dates and in the amounts provided:
On the tenth day of each month the Trustee shall transfer to the City for deposit into the Operation and Maintenance Fund an amount equal to one-twelfth ofthe amount provided in the Operation and Maintenance Expense Projection for the current Fiscal Year; provided, however, that if the mid-year projection prepared in accordance with the Airport Use Agreements contains an adjustment of Operation and Maintenance Expenses (exclusive of Operation and Maintenance Expenses of the Land Support Area and required deposits in the Operation and Maintenance Reserve Fund and the Maintenance Reserve Fund), the amount required to be deposited in the Operation and Maintenance Fund each month of the second six-month period of each Fiscal Year shall be increased or decreased as appropriate by an amount equal to one-sixth of the amount of such adjustment.
On the business day of the Tnistee immediately preceding each January 1 and July 1, the Trustee shall make the following deposits in the manner and order of priority set forth:
First, The Trustee shall first deposit into the Debt Service Fund the amount necessary to increase the amount on deposit therein to an amount sufficient to fund the Deposit Requirements corresponding to that January 1 or July 1.
Second, The Trustee shall next transfer to the City for deposit into the Special Capital Projects Fund the amount specified by the City in a Certificate filed with the Trustee as the amount to be deposited at such time in such Fund.
Third, The Trustee shall next transfer to the City for deposit into the Operation and Maintenance Reserve Fund an amount equal to one-half of the Operation and Maintenance Reserve Fund Deposit Requirement, if any, for the Fiscal Year which includes such January 1 and July 1; provided, however, that if the mid-year projection prepared in accordance with the Airport Use Agreements contains an adjustment of Operation and Maintenance Expenses (exclusive of Operation and Maintenance Expenses of the Land Support Area and required deposits in the Operation and Maintenance Reserve Fund and the Maintenance Reserve Fund), then the amount required to be deposited in the Operation and Maintenance Reserve Fund with respect to each July 1 shall be increased or decreased as appropriate by an amount equal to the amount of such adjustment.
Fourth, The Trustee shall next transfer to the City for deposit into the Maintenance Reserve Fund an amount equal to the lesser of (i) $1,500,000 and (ii) the amount, if any, required to increase the amount on deposit therein to $3,000,000.
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Fifth, The Trustee shall next transfer to the City for deposit into the Airport,Development Fund an amount equal to one-half of the* Airport Development Fund Deposit Requirement, if any, for the Fiscal Year which includes such January 1 and July 1. ¦
Sixth, The Trustee shall next deposit into the Junior Lien Obligation Debt Service Fund an amount, if any, equal to the amount required:by any resolution or ordinance authorizing the issuance of Junior Lien Obligations to be deposited therein on suchdate-a'nd'without priority,, one • over the other, to any sub-funds or accounts within the Junior Lien Obligation Debt Service Fund; ;{ the amount specified by a Certificate filed with the Trustee.• • :
If at the time deposits are,required to be-made under, paragraphs (a).or (b) above the moneys held in the Revenue Fund are insufficient to make any required deposit, the deposit shall be made up on the next applicable deposit date after required deposits into all other Funds enjoying a higher priority shall have been made! in-full.
The City shall be mandatorily and irrevocably obligated to apply moneys in the
Maintenance Reserve Fund to make up'any deficiencies in the Debt Service Fund. In the event .moneys
are so applied; the'amount applied'shall'be restored on the next-applicable deposit date after'all-other
Fund deposits enjoying a higher priority shall have been-madc in full.": <• ^
(e) • The amount ofthe Airport Development Fund Deposit Requirement shall be stated in a Certificate .which shall be delivered to the Trustee. prior to such deposits.
' ;:::!;;(f). ; At. the end of each. Fiscal Year, .amounts on deposit in the . Debt-Seryice Fund, the. Operation and Maintenance Fund, the Operation and Maintenance. Reserve Fund, the. Maintenance Reserve Fund and the Junior Lien Obligation Debt Service Fund in excess of the amount required under the Senior iLien Master Indenture or under any; Supplemental Indenture-or•. under any ordinance or resolution authorizing the issuance of Junior Lien Obligations to-be .on deposit in such Fund at the end of such Fiscal Year shall be transferred to the Revenue Fund.
Disbursements from Revenue Fund From and After the Transition Date. The moneys in the Revenue Fund shall be disbursed and applied by the Trustee as required to make the following deposits on the dates and in the amounts provided:
(a) : On the tenth day. of each month, the Trustee shall transfer to the City for deposit into the
Operation and Maintenance Fund an amount equal to one-twelfth .of the amount provided in the Operation
and Maintenance Expense Projection for the current Fiscal Year; provided, however, that if the mid-year
projection contains an adjustment of Operation'and Maintenance'Expenses, the amount required to be
deposited in "the Operation and Maintenance Fund each month of the second six-month period of each
Fiscal Year shall be increased or decreased as appropriate by an amount equal to one-sixth ofthe amount
of such adjustment.
(b) On the business day ofthe Tnistee immediately preceding each January 1 and July 1, the
Trustee shall make the following deposits in the manner and order of priority set forth:
First, The Trustee shall first deposit into the Debt Service Fund the amount necessary to . increase the amount on deposit therein to an amount sufficient to fund the Deposit Requirements corresponding to that January 1 or July 1.
Second, The Trustee shall next transfer to the City for deposit into the Operation and Maintenance Reserve Fund an amount equal to one-half of the Operation and Maintenance Reserve Fund Deposit Requirement, if any, for the Fiscal Year which includes such January 1 and
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July 1; provided, however, that if the mid-year projection contains an adjustment of Operation and Maintenance Expenses, then the amount required to be deposited in the Operation and Maintenance Reserve Fund with respect to each July 1 shall be increased or decreased as appropriate by an amount equal to the amount of such adjustment.
Third, The Trustee shall next transfer to the City for deposit into the Maintenance Reserve Fund an amount equal to the lesser of (i) $1,500,000 and (ii) the amount, if any, required to increase the amount on deposit therein to $3,000,000.
Fourth, The Trustee shall next deposit into the Junior Lien Obligation Debt Service Fund an amount, if any, equal to the amount required by any resolution or ordinance authorizing the issuance of Junior Lien Obligations to be deposited therein on such date and without priority, one over the other, to any sub-funds or accounts within the Junior Lien Obligation Debt Service Fund, the amount specified by a Certificate filed with the Trustee.
Fifth, The Trustee shall next transfer to the City for deposit into the Airport General Fund any amount remaining in the Revenue Fund unless the City shall have filed with the Trustee a Certificate specifying a lesser amount, in which case the amount specified by the City in the Certificate shall be the amount to be transferred to the City at such time for deposit into the Airport General Fund.
If at the time deposits are required to be made under paragraphs (a) or (b) above the moneys held in the Revenue Fund are insufficient to make any required deposit, the deposit shall be made up on the next applicable deposit date after required deposits into all other Funds enjoying a higher priority shall have been made in full.
The City shall be mandatorily and irrevocably obligated to apply moneys in the Maintenance Reserve Fund to make up any deficiencies in the Debt Service Fund. In the event moneys are so applied from the Maintenance Reserve Fund, the amount applied shall be restored on the next applicable deposit date after all other Fund deposits enjoying a higher priority shall have been made in full.
Amounts on deposit in the Debt Service Fund, the Operation and Maintenance Fund, the Operation and Maintenance Reserve Fund, the Maintenance Reserve Fund and the Junior Lien Obligation Debt Service Fund in excess ofthe amount required under the Senior Lien Master Indenture or under any Supplemental Indenture or under any ordinance or resolution authorizing the issuance of Junior Lien Obligations to be on deposit in such Fund at the end of such Fiscal Year shall be transferred to the Revenue Fund.
Use of Funds. The moneys on deposit in the Funds, except the Airport Development Fund and the Airport General Fund, shall be used for the purposes and uses specified as follows:
In addition to the authorized disbursements, the Trustee shall apply moneys in the Revenue Fund to make up any deficiency arising in the Debt Service Fund and the Junior Lien Obligation Debt Service Fund in the order of their priority one over another and in the manner speci fied above under "Disbursements from Revenue Fund" and, in addition, to make any reimbursement due to any Airline, including any payment to any Airline Party required by the Airport Use Agreements as in each case directed by a Certificate filed with the Trustee.
The moneys in the Operation and Maintenance Fund shall be used by the City only to pay Operation and Maintenance Expenses (excluding Operation and Maintenance Expenses of the Land Support Area and required deposits in the Operation and Maintenance Reserve Fund and Maintenance
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Reserve Fund) and lo repay amounts borrowed from the Operation and Maintenance Reserve Fund. Loans from the Operation and Maintenance Reserve Fund to the Operation and Maintenance Fund shall be repaid as soon as funds for such loan repayment are available in the Operation and Maintenance Fund.
The moneys in the Debt Service Fund shall be used only for the funding of Deposit Requirements.
The moneys in the Special Capital Projects Fund shall be used only for the purpose of making "Special Capital Project Expenditures" as defined in the Airport Use Agreements.
(e) ¦ • The. moneys in: the Operation and Maintenance;Reserve'Fund shall'be used, by .the City
only to make, loans to the Operation and Maintenance Fund whenever :and, to the extent moneys in the
Operation and Maintenance Fund are insufficient ,to pay Operation and Maintenance Expenses (excluding
Operation and Maintenance Expenses ofthe Land. Support: Area, and required deposits in the Operation
and Maintenance Reserve Fund and Maintenance Reserve Fund).
(f) The moneys in the Maintenance Reserve Fund shall be used- by. the City only for paying
the, costs of extraordinary maintenance expenditures, such as costs incurred for major repairs, renewals
and replacements at the Airport, whether caused by normal wear and .tear or by unusual and extraordinary
occurrences including costs of painting, major repairs, renewals and replacements and damage caused by
storms or other unusual causes.
; (g) The moneys in the Junior Lien Obligation Debt Service Fund shall be transferred by. the Trustee :to the appropriate trustees or paying agents under, the appropriate ordinances or resolutions authorizing the issuance of Junior Lien Obligations for the purpose of paying such amounts, as. may be. required to be paid by such resolutions or ordinances.
;;;c Disbursements from Debt Sei-vice Fund. The moneys in the Debt Service Fund must be disbursed and applied by the Trustee as required to make the following deposits on the dates and in the amounts provided:
Subfund Deposits. On any date required with respect to the Common Debt Service Reserve Sub-Fund, or by the provisions of a Supplemental Indenture creating a Scries of Senior Lien Obligations, or by an instrument creating Senior Lien Obligations, the Trustee must segregate within the Debt Service Fund and credit to (i) the Common Debt Service Reserve Sub-Fund, such amounts as may be required to be so credited under the Senior Lien Indenture and (ii) such Dedicated Sub-Funds, accounts and subaccounts as may have been created for the benefit ofthe Senior Lien Obligations such amounts as may be required to be so credited under the provisions of the Supplemental Indenture or instrument creating Senior Lien Obligations to pay the principal of and interest on the Senior Lien Obligations; and
Other Required Deposits. On any date required for any other purpose by the provisions of a Supplemental Indenture or by an instrument creating Senior Lien Obligations, but only if the deposit requirement is set forth in the Certificate filed pursuant to paragraph (c) below, the Trustee must segregate within the Debt Service Fund and credit to such Dedicated Sub-Funds, accounts and subaccounts as arc specified in the Supplemental Indenture or instrument creating Senior Lien Obligations the amounts required so to be withdrawn and deposited by the provisions ofthe Supplemental Indenture or the instrument.
City Certificate. With respect to each Series and with respect to any Senior Lien Section 208 Obligation and any Qualified Senior Lien Swap Agreement, the City shall file with the Trustee (and revise from time to time as required) a Certificate detailing the timing and amount ofthe "Other Required Deposits" pursuant to paragraph (b) above in order to determine the Deposit Requirements of the Debt
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Service Fund and the proper disbursement of the moneys held therein, including such revisions as may result from the prepayment, redemption, purchase and remarketing of Senior Lien Obligations and the adjustment ofthe rate of interest borne by Senior Lien Obligations.
Common Debt Service Reserve Sub-Fund.
The City shall maintain the Common Debt Service Reserve Sub-Fund in an amount equal to the Reserve Requirement, which requirement may be satisfied with (i) one or more Qualified Credit Instruments, (ii) Qualified Investments, or (iii) a combination thereof. Any Qualified Investments held to the credit ofthe Common Debt Service Reserve Sub-Fund shall not have maturities extending beyond five years (except for any investment agreement, repurchase agreement or forward purchase agreement approved by each issuer of a municipal bond insurance policy insuring payment of any Common Reserve Bonds) and shall be valued in accordance with the Senior Lien Master Indenture. If on any valuation date, the amount on deposit in the Common Debt Service Reserve Sub-Fund is more than the Reserve Requirement, unless otherwise directed by the City pursuant to paragraph (f) below, the amount of such excess shall be transferred by the Trustee to the Revenue Fund.
If at any time the Common Debt Service Reserve Sub^Fund holds both a Qualified Credit Instrument and Qualified Investments, the Qualified Investments shall be liquidated and the proceeds applied for the purposes for which Common Debt Service Reserve Sub-Fund moneys may be applied prior to any draw being made on the Qualified Credit Instrument. If the Common Debt Service Reserve Sub-Fund holds Qualified Credit Instruments issued by more than one issuer, draws shall be made under such Qualified Credit Instruments on a pro rata basis to the extent of available funds. Amounts deposited in the Common Debt Service Reserve Sub-Fund for the purpose of restoring amounts withdrawn therefrom shall be applied first to reimburse the Qualified Credit Provider and thereby reinstate ¦.the Qualified Credit Instrument.
The moneys in the Common Debt Service Reserve Sub-Fund are held for the benefit of all Common Reserve Bonds and are pledged and assigned for that purpose. On the date of initial issuance of any Senior Lien Obligations intended to be Common Reserve Bonds, the City shall provide the Trustee a Certificate to that effect and setting forth the amount of the deposit to be made from bond proceeds to fund the Reserve Requirement.
On the business day of the Tnistee immediately preceding each January 1 and July 1, there shall be withdrawn from the Debt Service Fund for deposit into the Common Debt Service Reserve Sub-Fund, the amount, if any, required as of the close of business on such date to restore the amount held in the Common Debt Service Reserve Sub-Fund to the Reserve Requirement. Any amount so required shall constitute a Deposit Requirement to be funded from the Debt Service Fund.
If on any Payment Date for the payment of the Principal Installment of and interest on any Series of Common Reserve Bonds the amount held in the Dedicated Sub-Fund for that Series for the payment of such Principal Installment or interest due and payable on such Payment Date shall be less than the Principal Installment and interest then due and payable, then the Trustee shall withdraw from the Common Debt Service Reserve Sub-Fund and deposit into the Dedicated Sub-Fund for that Series the amount necessary to cure such deficiency. In the case of multiple deficiencies among Series, such withdrawal shall be made ratably among the various Series having a deficiency, without preference or priority of any kind.
At the direction of the City expressed in a Certificate filed with the Trustee, moneys in the Common Debt Service Reserve Sub-Fund may be withdrawn and deposited in trust to pay or provide for the payment of Senior Lien Obligations pursuant to the defeasance provisions of the Senior Lien
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Indenture; provided, however, that immediately after such withdrawal the amount of deposit in the Common Debt Service Reserve Sub-Fund equals or exceeds the Reserve Requirement. .
Series 2016C Bonds Debt Service Reserve Account. Pursuant to the Fifty-Fourth Supplemental Indenture, the City has established the 2016C Senior Lien Debt Service Reserve Account within the 2016C Dedicated Sub-Fund. The 2016C Senior Lien Debt Service Reserve Accounts is held in trust by the Trustee for the sole and exclusive benefit ofthe Registered Owners of the 2016C Senior Lien' Bonds.
" The City covenants to maintain each Debt Service Reserve Account* man-amount equal to its1
Reserve ;R'equirement, which requirement - may besatisfied with (i)'one -ornmore1Qualified j Reserve1
Account- Credit -Instruments; (ii)'Qualified Investments,1'or'(iii) a combination' thereof. ; Any Qualified
Investments held to the credit of the Debt Service Reserve Account shall.be valued in.accordancei with the
Senior Lien Master Indenture. If on any valuation date as provided in the Indenture the amount on'
deposit-in-the; Debt'Service Reserve Account is more than the; Reserve Requirement,'unless otherwise
directed by: the-City, the.amount of.such excess-shall.¦¦ be'transferred by 'theTrustee for deposit ;into* the'
Revenue Fund established under the Senior Lien Master'Indenture. At the'direction of the City,'moneys
in the Debt Service Reserve Account may be withdrawn and deposited in trust to pay or provide for the
payment of Senior1 Lien Obligations'pursuant to'the defeasance'provisions of the Senior Lien Master
Indenture; provided, however, that' immediately after such withdrawal 'the amount ofr deposit irr the 'Debt
Service Reserve Account equals or exceeds the Reserve Requirement. ' :: ¦¦<• •
¦ If at any time the Debt Service Reserve Account holds-both1'a Qualified-Reserve Account Credit Instrument and Qualified'Investments, the Qualified' Investments shall be liquidated and the proceeds applied for the' purposes1 for"which Debt1 Service" Reserve Account moneys may be applied prior to-any draw-' being' made' on the1 Qualified Reserve • Account Credit' Instrument/ ¦ 'If ?the!' Debt'-Service''Reserve Account holds Qualified Reserve Account Credit Instruments issued by more than'one issuer, draws shall-1 be made under such credit instruments on a pro rata basis to the extent of available funds. Amounts deposited in the Series Dedicated Sub-Fund'for the'purpose of restoring amounts withdrawn from the Debt Service Reserve Account-shalL'be applied first to reimburse the'Qualified Credit Provider1 and thereby reinstate the Qualified Reserve Account Credit'Instrument and next to'make deposits into the Debt Service Reserve Account.'
Dedicated Sub-Funds for 2016 Senior Lien Bonds. The Fifty-Second Supplemental Indenture creates and establishes with the Trustee a separate and segregated sub-fund within the Debt Service Fund (the "2016A Senior Lieri Dedicated Sub-Fund"). Moneys on deposit in the 2016A Senior Lien Dedicated Sub-Fund and in each account and sub-account established therein are to be held in trust by the Trustee for the sole and exclusive benefit of the Registered Owners of the 2016A Senior Lien Bonds.
The Fifty-Second Supplemental Indenture creates and establishes with the Trustee separate Accounts within the 2016A Senior Lien Dedicated Sub-Fund, designated as follows: (a) the Chicago O'Hare International Airport 2016A Senior Lien Costs of Issuance Account (the "2016A Senior Lien Costs of Issuance Account"); (b) the Chicago O'Hare International Airport 2016A Senior Lien Program Fee Account (the "2016A Senior Lien Program Fee Account"); and (c) the Chicago O'Hare International Airport 2016A Senior Lien Principal and Interest Account (the "2016A Senior Lien Principal and Interest Account").
The Fifty-Third Supplemental Indenture creates and establishes with the Trustee a separate and segregated sub-fund within the Debt Service Fund (the "2016B Senior Lien Dedicated Sub-Fund"). Moneys on deposit in the 2016B Senior Lien Dedicated Sub-Fund and in each account and sub-account established therein are to be held in trust by the Trustee for the sole and exclusive benefit of the Registered Owners ofthe 2016B Senior Lien Bonds.
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The Fifty-Third Supplemental Indenture creates and establishes with the Trustee separate Accounts within the 2016B Senior Lien Dedicated Sub-Fund, designated as follows: (a) the Chicago O'Hare International Airport 2016B Senior Lien Costs of Issuance Account (the "2016B Senior Lien Costs of Issuance Account"); (b) the Chicago O'Hare International Airport 2016B Senior Lien Program Fee Account (the "2016B Senior Lien Program Fee Account"); and (c) the Chicago O'Hare International Airport 2016B Senior Lien Principal and Interest Account (the "2016B Senior Lien Principal and Interest Account").
The Fifty-Fourth Supplemental Indenture creates and establishes with the Trustee a separate and segregated sub-fund within the Debt Service Fund (the "2016C Senior Lien Dedicated Sub-Fund"). Moneys on deposit in the 2016C Senior Lien Dedicated Sub-Fund and in each account and sub-account established therein are to be held in trust by the Trustee for the sole and exclusive benefit of the Registered Owners ofthe 2016C Senior Lien Bonds.
The Fifty-Fourth Supplemental Indenture creates and establishes, with the Trustee separate Accounts within the 2016C Senior Lien Dedicated Sub-Fund, designated as follows: (a) the Chicago O'Hare International Airport 2016C Senior Lien Costs of Issuance Account (the "2016C Senior Lien Costs of Issuance Account"); (b) the Chicago O'Hare International Airport 2016C Senior Lien Program Fee Account (the "2016C Senior Lien Program Fee Account"); (c) the Chicago O'Hare International Airport 2016C Senior Lien Principal and Interest Account (the "2016C Senior Lien Principal and Interest Account"); and (d) the Chicago O'Hare International Airport 2016C Senior Lien Debt Service Reserve Account (the "2016C Senior Lien Debt Service Reserve Account").
Deposits into 2016A Senior Lien Dedicated Sub-Fund and Accounts Therein
On January 1 and July 1 of each year, commencing January 1, 2017 (each such date referred to as the "Deposit Date"), there will be deposited into the 2016A Senior Lien Dedicated Sub-Fund, from amounts on deposit in the Debt Service Fund, an amount equal to the aggregate of the following amounts, which amounts will be calculated by the Trustee on the next preceding December 5 or June 5 (in the case of each January 1 or July 1, respectively) (such aggregate amount with respect to any Deposit Date being referred to as the "2016A Senior Lien Deposit Recpurement"):
for deposit into the 2016A Senior Lien Principal and Interest Account, an amount equal to the aggregate of: (i) for the January 1, 2017 Deposit Date, the Principal Installment due January 1, 2017 and thereafter, one-half of the Principal Installment, if any, coming due on the 2016A Senior Lien Bonds on the January 1 next succeeding such date of calculation and (ii) the amount of interest due on the 2016A Senior Lien Bonds on the current Deposit Date reduced, in the case of each January 1 Deposit Date, by investment earnings credited as of the immediately prior calculation date to the 2016A Senior Lien Principal and Interest Account; and
for deposit into the 2016A Senior Lien Program Fee Account, the amount estimated by the City to be required as ofthe close of business on such Deposit Date to pay all fees and expenses with respect to the 2016A Senior Lien Bonds during the semi-annual period commencing on such Deposit Date.
In addition to the 2016A Senior Lien Deposit Requirement, there will be deposited into the 2016A Senior Lien Dedicated Sub-Fund any other moneys received by the Trustee under and pursuant to the Senior Lien Master Indenture or the Fifty-Second Supplemental Indenture, when accompanied by directions from the person depositing such moneys that such moneys are to be paid into the 2016A Senior Lien Dedicated Sub-Fund and to one or more accounts therein.
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Moneys in the 2016A Senior Lien Principal and Interest Account will be used solely for payment
of principal of, premium, if any, and interest due on each Payment Date with respect to the 2016A Senior
Lien Bonds (including the optional redemption of 2016A Senior Lien Bonds) and not otherwise provided
for,-ratably, without preference, or priority of any.kind. •¦ ••¦
Moneys in the 2016A Senior Lien Costs of Issuance Account will be used solely for the payment
or reimbursement of Costs of Issuance ofthe 2016A Senior Lien Bonds as directed in a Certificate filed
with the Trustee. If after the payment of all Costs of Issuance, as specified in a Certificate filed with the
Trustee,-there is any balance remaining in the 2016A •Senior >Lien Costs of Issuance Account, such
balance^will be>trartsferred''to the'2016AiSeriior;)Lien!Ph)gram'>Fee'''AccouhtToritheI201'6A'Senior'Lien
Principafand Interest Account. ' • ' - • • ' ¦ >¦¦
Moneys in the 2016A Senior Lien Program Fee Account will be used solely for the payment of
fees and expenses with respect to the 2016A Senior Lien Bonds as set forth in a Certificate filed with the
Trustee. ' :' ¦¦¦¦¦¦ ¦
Deposits into 2016B Senior Lien Dedicated Sub-Fund and Accounts Therein -
.;,(•> f.On each,Deposit Date, there will be deposited into the 2016B Senior Lien Dedicated Sub-Fund, from; amounts on deposit in. the Debt-Service .Fund,-an amount equal to .the- aggregate', of'the following amounts, which.amqunts will be calculated bylhe/Trusteepn the next preceding (December 5 .or June. .5, (in the case of each January 1 or July 1, respectively) (such -aggregate amount, with respect to any Deposit Date being referred to as the "20J6B Senior Lien Deposit Requirement"):
(a) for deposit into the 2016B Senior Lien Principal and Interest Account, an amount
i -equal tOf.the1 aggregate~Of:\(\) for the 'Januaryrl ;-20;17?Depbsit< Date, the Principal Installment due
" January T, 2017 arid.thereafter, one-half of the Principal-Installment, if any,' coming due,on the 2016B.Senior;Lien.Bondson the January. 1. next .succeeding .such date: of calculation and (ii) the . . amount, of interest due .on the 2016B Senior Lien.Bonds on the current, Deposit Date .reduced, in the case of each January 1 Deposit Date, by investment, earnings credited as of the immediately, prior calculation date to the 2016B Senior.Lien Principal and Interest Account; and
(b) - for deposit into the 2016B Senior Lien Program Fee Account, the amount
estimated by the City to be required as of the close of business on such Deposit Date to pay all
. fees and expenses with respect to the 2016B Senior Lien Bonds during the semi-annual period commencing,on such Deposit Date.
In addition to the 2016B Senior-Lien Deposit Requirement, there will be deposited, into the 2016B Senior Lien Dedicated Sub-Fund any other moneys received by the Trustee under and pursuant to the Senior Lien Master Indenture or the Fifty-Third Supplemental Indenture, when accompanied by directions from the person depositing such moneys that such moneys arc to be paid into the 2016B Senior Lien Dedicated Sub-Fund and to one or more accounts therein.
Moneys in the 2016B Senior Lien Principal and Interest Account will be used solely for payment of principal of, premium, if any, and interest due on each Payment Date with respect to the 2016B Senior Lien Bonds (including the optional redemption of 2016B Senior Lien Bonds) and not otherwise provided for, ratably, without preference or priority of any kind.
Moneys in the 2016B Senior Lien Costs of Issuance Account will be used solely for the payment or reimbursement of Costs of Issuance ofthe 2016B Senior Lien Bonds as directed in a Certificate filed with the Trustee. If after the payment of all Costs of Issuance, as specified in a Certiiicate filed with the Trustee, there is any balance remaining in the 2016B Senior Lien Costs of Issuance Account, such
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balance will be transferred to the 2016B Senior Lien Program Fee Account or the 2016B Senior Lien Principal and Interest Account.
Moneys in the 2016B Senior Lien Program Fee Account will be used solely for the payment of fees and expenses with respect to the 2016B Senior Lien Bonds as set forth in a Certificate filed with the Trustee.
2016C Senior Lien Bond PFC Revenue Deposit Account
The Fifty-Fourth Supplemental Indenture creates and establishes with the Trustee a separate and segregated account to be designated the "Chicago O'Hare International Airport 2016C Senior Lien Bond PFC Revenue Deposit Account" (the "2016C Senior Lien Bond PFC Revenue Deposit Account'"). Moneys on deposit in the 2016C Senior Lien Bond PFC Revenue Deposit Account will be held in trust by the Trustee for the sole and exclusive benefit ofthe Registered Owners of the Series 2016C Bonds, and will not be used or available for the payment of any other Senior Lien Obligations.
On June 20 of each ofthe Fiscal Years 2017 and 2018, the City will withdraw from the PFC Capital Fund and pay to the Trustee for deposit into the 2016C Senior Lien Bond PFC Revenue Deposit Account an amount equal to the 2016C Senior Lien Deposit Requirement (as defined below) with respect to the next ensuing July 1 Deposit Date.
On December 20 of each ofthe Fiscal Years 2016 to 2018, both inclusive, the City will withdraw from the PFC Capital Fund and pay to the Trustee for deposit into the 2016C Senior Lien Bond PFC Revenue Deposit Account an amount equal to the greater of (i) the 2016C Senior Lien Deposit Requirement (as hereinafter defined) with respect to the next ensuing January 1 Deposit Date, and (ii) the amount required so that the aggregate sum withdrawn from the PFC Capital Fund and deposited in-the 2016C Senior Lien Bond PFC Revenue Deposit Account during the then current Fiscal Year will be not less than one and ten-hundredths times the Net Debt Service with respect to the 2016C Senior Lien Bonds for the Bond Year commencing during such Fiscal Year.
Each deposit to the 2016C Senior Lien Bond PFC Revenue Deposit Account required in the two immediately preceding paragraphs will be made on the required date or as soon thereafter as moneys in the PFC Capital Fund are legally available to satisfy such deposit requirement. If the available amount in the PFC Capital Fund is less than the amount needed to meet any deposit requirement, then the City will deposit the maximum amount then available for withdrawal from the PFC Capital Fund and the City's obligation to make the required deposits to the 2016C Senior Lien Bond PFC Revenue Deposit Account will continue until the applicable 2016C Senior Lien Deposit Requirement has been fully satisfied.
Any moneys held in the 2016C Senior Lien Bond PFC Revenue Deposit Account will be withdrawn by the Trustee and paid over the City free from the lien of the Fifty-Fourth Supplemental Indenture on the earliest date in each Fiscal Year, after January 5 and prior to June 20 of each Fiscal Year, that each prior 2016C Senior Lien Deposit Requirement has been fully satisfied.
Deposits into 2016C Senior Lien Dedicated Sub-Fund and Accounts Therein
On each Deposit Date, there will be deposited into the 2016C Senior Lien Dedicated Sub-Fund, first, from amounts on deposit in the 2016C Senior Lien Bond PFC Revenue Deposit Account and second, if needed, from amounts on deposit in the Debt Service Fund, an amount equal to the aggregate of the following amounts, which amounts will be calculated by the Tnistee on the next preceding December 5 or June 5 (in the case of each January 1 or July 1, respectively) (such aggregate amount with respect to any Deposit Date being referred to as the "20J6C Senior Lien Deposit Requirement"):
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(a) for deposit into the 2016C Senior Lien Principal and Interest Account, an amount equal to the aggregate of: (i) for the January 1, 2017 Deposit Date, the Principal Installment due January 1, 2017 and thereafter, one-half of the Principal Installment, if any, coming due on the ¦2016C Senior Lien Bonds on the January 1 next succeeding such date of calculation and (ii) the ¦ 1 ¦ amount of interest due on the 2016C Senior Lien Bonds on the current Deposit Date reduced by, in the case of each January 1 Deposit Date, by investment earnings credited as of the immediately prior calculation date to the 2016C Senior Lien Principal and Interest Account; and
(b) for deposit into the 2016C Senior Lien Debt Service Reserve Account, the '' amount/ifany, required as'of the close of business' On such Deposit' Date' tb 'restore-the 2016C Senior Lien' Debt 'Service"Reserve Account to ah amount equal to the Reserve Requirement, including reimbursement of any Qualified Credit Provider; and
(c) for deposit into the 2016C Senior Lien Program Fee Account, the amount estimated by the City to; be' required as of the close of business on such Deposit Date to pay: all fees and expenses with respect to the 2016C Senior Lien Bonds during the semi-annual period commencing on such Deposit Date.
In addition to ' the 201'6C Senior Lien Deposit Requirement, there will be deposited into the
2016C Senior Lien Dedicated Sub-Fund any other moneys received by the -Trustee under and pursuant to:
the Senior Lien Master Indenture or the Fifty-Fourth Supplemental Indenture, when accompanied by
directions from the person depositing such moneys that such moneys are to be paid-into the 20!6C Senior
Lien Dedicated Sub-Fund and to one or more accounts therein. i '
Moneys irt:the 2016C Senior Lien Principal and Interest Account will be used solely fbrpayment of'principal; "'premium '(if any),-"'and interest due on each Payment Date with respect to'th'e 2016C Senior Lien Bonds (including the optional redemption of 2016C Senior Lien Bonds) and hot otherwise provided for, ratably, without preference or priority of any kind.
Moneys in the 2016C Senior Lien Debt Service Reserve Account shall be used solely for the payment of the principal of, premium, if any, and interest on the Series 2016C Bonds, without preference or priority of any kind, but only if and to the extent moneys are not available for such purpose in the 2016C Senior Lien Principal and Interest Account.
Moneys in the 2016C Senior Lien Costs of Issuance Account will be used solely for the payment or reimbursement of Costs of Issuance ofthe 2016C Senior Lien Bonds as directed in a Certificate filed with the Trustee. If after the payment of all Costs of Issuance, as specified in a Certificate filed with the Trustee, there is any balance remaining in the 2016C Senior Lien Costs of Issuance Account, such balance will be transferred to the 2016C Senior Lien Program Fee Account or the 2016C Senior Lien Principal and Interest Account.
Moneys in the 2016C Senior Lien Program Fee Account will be used solely for the payment of fees and expenses with respect to the 2016C Senior Lien Bonds as set forth in a Certificate filed with the Trustee.
Coverage Covenants
(a) The City covenants that it will fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of the Airport and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys deposited with the Trustee with respect to that Fiscal Y'ear and any cash balance held
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in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in any Fund or Account, will be at least sufficient:
to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year; and
to provide for the greater of (A) the sum of the amounts needed to make the deposits required to be made pursuant to all resolutions, ordinances, indentures and trust agreements pursuant to which all Outstanding Senior Lien Obligations, or other outstanding Airport Obligations are issued and secured, and (B) one and ten-hundredths times Aggregate Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during.that Bond Year to pay principal of and interest on Senior Lien Obligations.
The City further covenants that it will fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation, of the Airport and for services rendered by .the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys consisting solely of (i) any passenger facility charges deposited with the Trustee for that Fiscal Year, and (ii) any other moneys received by the City in the immediately prior Fiscal Year and deposited with the Trustee no later than the last day of the immediately prior Fiscal Year, will be at least sufficient:
to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year, and
to provide for the payment of Aggregate Debt Service for the Bond Year commencing during that Fiscal Year reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during the Bond Year to pay the principal of and interest on Senior Lien Obligations.
If during any Fiscal Year, Revenues and other funds are estimated to produce less than the amount required under paragraph (a) or (b) above, the City will revise its Airport rentals, fees and charges or alter its methods of operation or take other action in such manner as is necessary to produce the amount so required in such Fiscal Year.
Within 90 days after the end of each Fiscal Year, the City will furnish to the Trustee calculations of the coverage required under paragraphs (a) and (b) above certified by the City Comptroller.
If either calculation specified in paragraph (d) above for any Fiscal Year indicates that the City has not satisfied its obligations under paragraph (a) or (b) above, then as soon as practicable, but in any event no later than 45 days after the receipt by the Trustee of such calculation, the City will employ an Independent Airport Consultant to review and analyze the financial status and the administration and operation of the Airport and to submit to the City, within 45 days after employment of the Independent Airport Consultant, a written report on the same, including the action which the Independent Airport Consultant recommends should be taken by the City with respect to the revision of its Airport rentals, fees and charges, alteration of its methods of operation or the taking of other action that is projected to result in producing the amount so required in the then current Fiscal Year or, if less, the maximum amount deemed feasible by the Independent Airport Consultant. Within 60 days following its receipt of the recommendations the City will, after giving due consideration to the recommendations, revise its Airport rentals, fees and charges or alter its methods of operation, which revisions or alterations need not comply with the Independent Airport Consultant's recommendations so long as any revisions or alterations arc
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projected by the City to result in compliance with paragraphs (a) and (b) above. The City will transmit copies of the Independent Airport Consultant's recommendations to the Trustee and to each Owner who has requested the same.
(f) If at any time and as long as the City is in hill compliance with the provisions of paragraphs (c), (d) and (e) above, there will be no Event of Default under the Senior Lien Master Indenture as a consequence Of the City's failure to satisfy the covenants contained in paragraphs (a) or (b) above during such period.
• : " > "(g) If-alL or * any--portion i of.an -Outstanding:'Series of Senior .Lien' Obligations constitute Balloon Maturities, then for purposes' of deterrhiningiAnnualDebt Service each maturity that constitutes a Balloon-Maturity will, unless otherwise provided in the Supplemental Indenture pursuant;to which such Senior Lien Obligations are authorized or unless paragraph (h) below then applies to such maturity, be treated as if it were amortized over a term of not more than 30 years and with substantially level annual debt'service funding payments commencing riot; later than the-year-following, the-year in which the indebtedness that includes such Balloon Matiirity -was originally' issued and1 extending not later than '30 years frbrri the date ;the; indebtedness that'includes such Balloon 'Maturity was1 origirially issued; the interest rate used'for suchcoiriputation will-be that rale quoted in the Bond Buyer 25 Revenue Bond Index for the'last-week'of the rhonth preceding the date of calculation as-published by trie 'Bond Buyer, -or if that index is rib' longer"published,' another similar index designated'by "anrAuthbriz^ consideration whether such Senior Lien Obligations bear interest which is or is riot excluded from gross income for federal income tax purposes.
(h) Any maturity of Senior Lien Obligations that constitutes a Balloon Maturity as'-described in paragraph (g) above, and for which the stated maturity date occurs within 12 months from the date such calculation of Annual Debt Service is riiade; %iir be assumed to become'due and payable on the stated maturity date', arid'paragraph'(g) above will not apply thereto, unless there is delivered to the entity making thc'calculatibn of'Annual Debt-Service a Certificate of the Chy stating (i) 'that the City intends to refinance such maturity, (ii) the probable terms of such refinancing and (iii) that the debt capacity of the Airport is sufficient to successfully complete such refinancing; upon the receipt of such Certificate, such Balloon Maturity will be assumed to be refinanced in accordance with the probable terms set out in such Certificate and such terms will be used for purposes of calculating Annual Debt Service; provided that such assumption will not result in an interest rate lower than that which would be assumed under paragraph (g) above and will be amortized over a term of not more than 30 years from the expected date of refinancing.
Covenant Against Pledge of Revenues
The City covenants not to issue any bonds, notes or other evidences of indebtedness secured by the pledge contained in the Senior Lien Master Indenture, other than Senior Lien Obligations, and covenants not tb create or cause to be created any lien or charge on Revenues, or on any amounts pledged for the benefit of Owners of Senior Lien Obligations under the Senior Lien Master Indenture, other than the pledge contained in the Senior Lien Master Indenture; provided, however, that the Senior Lien Master Indenture does not prevent the City (a) from issuing bonds, notes or other evidences of indebtedness payable out of, or secured by a pledge of, Revenues to be derived on and after the date of the pledge contained in the Senior Lien Master Indenture is discharged and satisfied as provided therein, or (b) from issuing bonds, notes or other evidences of indebtedness (including bonds, notes or other evidences of indebtedness evidencing loans made by the City to the Airport) which are payable out of, or secured by, the pledge of amounts which may be withdrawn from the Junior Lien Obligation Debt Service Fund so long as the pledge is expressly junior and subordinate to the pledge contained in the Senior Lien Master
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Indenture, including, but not limited to, CP Notes without limit as to nature or amount, pursuant to one or more CP Indentures.
Insurance
The City shall maintain, or cause to be maintained, insurance with respect to the Airport (except the Land Support Area) against such casualties and contingencies and in amounts not less than is reasonably prudent. Such policies of insurance shall name the City and the Trustee as co-insureds as their interests may appear. Without limiting the foregoing, the City shall maintain, or cause to be maintained, the following insurance with respect to the Airport (except the Land Support Area):
Insurance against loss or damage under a policy or policies covering such risks as are ordinarily insured against by reasonably prudent operators of airports, including without limiting the generality ofthe foregoing, fire, lightning, windstorm, hail, floods, explosion, riot, riot attending a strike, civil commotion, damage from aircraft smoke and uniform standard extended coverage with vandalism and malicious mischief endorsements, and all-risk coverage, limited only as may be provided in the standard form, if any, of such endorsements at the time in use in the State of Illinois. Such insurance shall be maintained in an amount not less than the full insurable replacement value of the insured premises. No policy of insurance shall be written such that the proceeds thereof will produce less, by reason of coinsurance provisions or otherwise, than the full insurable replacement value of the insured premises. Full insurable replacement value of any insured premises shall be deemed to equal the actual replacement cost ofthe premises, and shall be determined from time to time, but not less frequently than once every three years, by an architect, contractor, appraiser or appraisal company or one of the insurers, in any case, selected by the City. In the event that such determination of full insurance replacement value indicates that any premises in the Airport (other than the Land Support Area) are underinsured, the City shall forthwith secure the necessary additional insurance coverage.
Comprehensive general public liability insurance including blanket contractual liability and personal injury liability (with employee exclusion deleted), and on-premises automobile insurance including owned, non-owned and hired automobiles used and operated by the City, protecting the City against liability for injuries to persons and property arising out ofthe existence or operation of the Airport (except the Land Support Area) in limits as follows: for personal injury and bodily injury, $100,000,000 for each occurrence and $ 100,000,000 annual aggregate; and for property damage, $ 100,000,000 for each occurrence and $100,000,000 annual aggregate.
Boiler or pressure vessel explosion insurance with coverage on a replacement cost basis as provided in subsection (a) above for property damage, but any such policy may have a deductible amount not exceeding $10,000. No such policy of insurance shall be so written that the proceeds thereof will produce less than the minimum coverage required by the first sentence of this subsection (c) by reason of coinsurance provisions or otherwise.
Each policy of insurance maintained by the City shall contain a waiver of subrogation on the part of the insurer in favor of the City and the A irline Parties.
If, at any time, the City is obligated under any agreement then in effect between the City and any Airline Party to provide, with respect to premises at the Airport, insurance of the nature and in not less than the amounts described herein, then these provisions shall be subject to the applicable provisions of such other agreement.
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Use of Insurance Proceeds
If the Airport, or any portion thereof, shall be substantially damaged or destroyed by fire
or other casualty, the City shall deposit with the Trustee the net proceeds of any insurance received with
respect thereto, and the Trustee shall deposit such net proceeds in a special trust account or, in the case of
damage to'or destruction of any Airport Project then under construction, in the Airport Project Account
relating to such Airport Project: Moneys on deposit in any such special trust account or Airport'Project'
Account shall be disbursed in the same manner, and subject to the same conditions, as provided generally
in' Supplemental' Indentures with respect to disbursements from the Airport'Project Accounts', subject
during the terms of the Airport 'Use 'Agreements -td'the- followihg'additionaT conditions':'* • """' -»• = •
(i)- If-any Airline Party's'Exclusive Use Premises or Airline's Aircraft Parking Area,
as such'terms are defined in the Airport Use. Agreements; or any portion thereof, are damaged'or
destroyed by fire or other casualty, the City, after consultation with such Airline Party, shall, to
' ;" : the extents'.-'of' proceedsj'of insurance received' with "respect to such'premises, forthwith repair,
recdnstaiet:and'restore'(subject to unavoidable delays) the damaged 6r destroyed premises to (1)
substantially the same condition, character arid utility value (based upon the plans and
•'' specifications for such-•premises'/subject'tO 'then-existing'- Airport building standards)' 'as existed
' prior to the event causing such damage or destruction, Or (2)1 such other'condition, character arid
value as'rriay be agreed upon by the'City andsucb Airline Party. "' "'" ¦ :;:
' (ii) - -if any part of the Airport other-than Exclusive Use Premises,-Aircraft Parking-Area and Land Support Area, as such terms are defined, in the Airport Use Agreements, are ¦ damaged'or destroyed-iby fire or other casualty, the'City, after consultation; with such Airline ' viParty'(or its'authorized representative); shall', to the extient'of proceeds-of insurance received with respect to such premises, forthwith repair,-reconstructJand restore'(subject to unavoidable delays) the damaged or destroyed premises to (1) substantially the same condition, character and utility value (based upori the plans and specifications for such premises,- subject to then-existing building standards) as existed prior to the event causing such damage or destruction, or (2) such other condition; character arid value as may be agreed upon by the City and the Airline Parties in accordance with the Airport Use Agreements.
Any surplus insurance proceeds deposited in any such special trust account or Airport Project Account shall be transferred or withdrawn from such special trust account or Airport Project Account as specified by the City for any one or more of the following purposes: (i) to make transfers to one or more Airport Project Accounts to pay the costs of other Aiiport Projects, (ii) to make transfers into the Debit Service Fund, or (iii) to redeem Senior Lien Obligations or Junior Lien Obligations.
Annual audit
The City covenants that it will, within 210 days after the close of each Fiscal Year, furnish the Trustee with a copy of an annual audit report, prepared in accordance with generally accepted accounting principles and certified by an Independent Accountant, covering the operation ofthe Airport for the Fiscal Year. The audit must contain a calculation based on actual data enabling the Independent Accountant to certify that the coverage covenants described above have been satisfied with respect to that Fiscal Year.
Restrictions on Sale or Transfer of airport
(a) The sale, conveyance, mortgage, encumbrance or other disposition, directly or indirectly, of all or substantially all of the Airport or the transfer, directly or indirectly, of control, management or oversight, or any material aspect of control, management or oversight, of the Airport, whether of its properties, interests, operations, expenditures, revenues (including, without limit, Revenues or the
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proceeds of any passenger facility charge or similar charge) or otherwise (any of the foregoing being referred to for this purpose as a "transfer") will not occur unless and until all of the following conditions will have been met:
such transfer has been approved in writing by the Mayor of the City and by the City Council at a meeting duly called for such purpose;
evidence has been obtained in writing confirming that such transfer does not adversely affect any rating on Senior Lien Obligations issued by any Rating Agency;
a certificate has been received from an Independent Airport Consultant, certifying that, in each calendar year during the five-year period commencing after the calendar year in which such transfer occurs, Revenues together with any cash balance held in the Revenue Fund on the first day of such calendar year not then required to be deposited in any fund or account (or subaccount thereof) other than the Revenue Fund, and investment earnings for each such calendar year on moneys held in the funds and accounts held pursuant to the Senior Lien Master Indenture to the extent that such earnings are not required by the Senior Lien Master Indenture to be transferred to any Airport Project Account, will equal an amount not less than the amount required to satisfy the coverage covenants described under the caption "Coverage Covenants" above; provided, however, for purposes of the Certificate "one and fifty-hundredths times" will be substituted for "one and ten-hundredths times" in paragraph (a)(ii)(B) under said
caption;"
written consent to such transfer has been received from the Owners of all Airport Obligations then Outstanding;
(v) written consent to such transfer has been received from the Trustee;
written consent to such transfer has been received from each bond insurer and - each provider of any letter of credit or surety bond supporting Airport Obligations;
written consent to such transfer has been received from the Chicago-Gary Authority pursuant to Section 10-20 ofthe Chicago/Gary Compact between the City and the City, of Gary; and
there has been deposited with the Trustee for the benefit of the Owners of all then outstanding Airport Obligations a letter of credit, surety bond or Qualified Investments in the full amount ofthe then outstanding Airport Obligations, such letter of credit or surety bond to have a credit rating of not less than either of the two highest rating categories by each Rating Agency; provided, however, that no revenues (including, without limit, Revenues or the proceeds of any passenger facility charge or similar charge) will be pledged, or in any way used, to secure any such letter of credit or surety bond.
(b) For purposes of paragraph (c) under the caption "Events of Default" below, the performance of this covenant will be deemed to be material to the Owners of Senior Lien Obligations.
The City has proposed an amendment to the Senior Lien Indenture to remove the foregoing provisions. See "SECURITY FOR THE 2016 SENIOR LIEN BONDS-Proposed Amendment to Senior Lien Indenture."
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Additional Senior Lien Bonds
Additional Senior Lien Bonds are authorized to be issued under the Senior Lien Indenture upon satisfaction of the conditions precedent in the Senior Lien Indenture which are described in the Official Statement under the caption "SECURITY1 FOR THE 2016 SENIOR LIEN- BONDS—Issuance of Additional Senior Lien Bonds."
Completion Bonds ¦ • ¦:
Completion Bonds are authorized by the Senior Lien Master Indenture to be issued to finance the costs of tone or more Airport Projects initially financed in whole or in-part, by Airport Obligations. In connection: with'ithe: issuance of Completion Bonds, the City must deliver to'the Trustee certificates stating,^ among other things, (i)> that the additional cost of the Airport Projects being s financed does not exceed 15 percent of their aggregate cost previously financed by Airport Obligations, (ii); that the revised aggregate cost! of those: Airport'Projects cannotbe paid with moneys available and (iii) that the issuance of Completion Bonds is necessary to'provide funds to corrtpletethe Airport Projects.
Refunding Bonds ->; . ¦,- ¦ . ¦¦-, .:¦
-.--^-.-r.R^ purpose of the refunding o£•Airport Obligations. m: connection with,:lhe .issuance of.Refunding,Bonds-under the Senior Lien Master Indenture, the City must deliver to the Tnistee either any certificate described in the Official Statement under the caption "SECURITY FOR TFIE 2016 SENIOR LIEN BONDS—Issuance of Additional Senior Lien Bonds" or. a Certificate of the City, stating that, giving effect to the refunding, the issuance ofthe Refunding Bonds will result in (i) a net present value .debt service savings: to ithe City, or (ii) a reduction in annual debt service in each Bond Year that debt service is payable on the Airport Obligations to be refunded.
Management of Airport
The City covenants that in order to assure the efficient management and operation of the Airport and to assure the Owners of the Senior Lien Obligations that the Airport will be economically and efficiently operated on the basis of sound business principles, it will operate and maintain the Airport under the direction of the Commissioner of Aviation. The City will not take, or allow any other person to take, any action which would cause the Administrator of the FAA, Department of Transportation, or any successor to the powers and authority ofthe Administrator; tb suspend or revoke the Airport's airport operating certificate issued under the Federal Aviation Act of 1958, or any successor statute. The City will comply with all valid acts, rules, regulations, orders and directives of any governmental, legislative, executive,-administrative or judicial body applicable to the Airport,-unless the City contests them in good
faith, all to the end that the Airport will remain operational at all times.
,-'-. .
Operation and Maintenance of Airport
The City covenants that it will use its best efforts to sec that the Airport is at all times operated and maintained in an efficient operating condition; and that repairs are made to the Airport as are necessary or appropriate in the prudent management of the Airport to ensure its economic and efficient operation at all times. The City covenants to cause all rentals, rates and other charges for the use and operation ofthe Airport and for certain services rendered by the City in the operation of the Airport to be collected when and as due and covenants to prescribe and enforce rules and regulations for their payment and for the consequences of their nonpayment. The City covenants, out of Revenues, from time to time, duly to pay and discharge, or cause to be paid and discharged, any taxes, assessments or other governmental charges lawfully imposed upon the Airport or upon any part of it, or upon the Revenues,
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when they become due, as well as any lawful claim for labor, materials, or supplies which, if unpaid, might by law become a lien or charge upon the Airport, or which might impair the security ofthe Senior Lien Obligations.
Maintenance of Powers
The City covenants that it will at all times use reasonable efforts to keep the Airport open for landings and takeoffs of aircraft of any type using facilities similar to those at the Airport and to maintain the powers, functions, duties and obligations now reposed in it pursuant to law, and will not at any time voluntarily do, suffer or permit any act or thing the effect of which would be to hinder, delay or imperil either the payment of the indebtedness evidenced by any of the Senior Lien Obligations or the performance or observance of any of the covenants contained in the Senior Lien Master Indenture.
Airport Budget
The City must prepare before the beginning of each Fiscal Year an annual budget for the Airport setting forth for that Fiscal Year in reasonable detail, among other things, estimated Revenues and Operation and Maintenance Expenses. The budget must be prepared in accordance with applicable law and must be made available to the City Council in sufficient time for it to act thereon as required by law.
Leases and Concessions
The City has the right for any term of years to let to any person, firm or corporation, or grant concessions or privileges in, any land of the Airport or any building or structure on the land for any purpose necessary or incidental to the operation of the Airport.
Special Facility Revenue Bonds
The City reserves the right to issue Special Facility Revenue Bonds, which must be revenue bonds payable solely from rentals or other amounts derived under and pursuant to a Special Facility Financing Arrangement, and may be issued by the City notwithstanding the limitations, restrictions and conditions contained in the Senior Lien Master Indenture relating to the issuance of Senior Lien Obligations.
Supplemental Indentures Effective Upon Execution by the Trustee
For any one or more of the following purposes and at any time or from time to time, a Supplemental Indenture may be authorized by an ordinance adopted by the City Council, which, upon the filing with the Trustee of a copy of the ordinance certified by the City Clerk and the execution and delivery of the Supplemental Indenture by the City and the Trustee, is fully effective in accordance with its terms:
to close the Senior Lien Master Indenture against, or provide limitations and restrictions in addition to the limitations and restrictions contained in the Senior Lien Master Indenture on, the issuance or incurrence of Senior Lien Obligations or other evidences of indebtedness;
to add to the covenants and agreements of the City in the Senior Lien Master Indenture other covenants and agreements to be observed by the City which are not contrary to or inconsistent with the Senior Lien Master Indenture as theretofore in effect;
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' (c) to add to'the limitations and restrictions in the Senior Lien Master Indenture other limitations and restrictions to be observed by the City which are not contrary to or inconsistent with the Senior Lien Master Indenture as theretofore in effect;
(d) to surrender any right, power or privilege reserved to or conferred upon the City by the terms of the Senior Lien Master Indenture, but only if the surrender of the right, power or privilege is !not contrary to or inconsistent with the covenants and''agreements of the City contained'in the Senior Lien Master Indenture;
!f!:.:,f!i "iw vi;i.! (eyy->:\:::to> create ¦'a-'Series'-of-Senior Lien'Obligations; and,; in-connection therewith,, to specify artd determine the matters and things referred to in the Senior: Lien Master Indenture and also any-other matters and thihgsTelative to the Senior Lien Obligations which are not contrary to or inconsistent with the Senior Lien Master Indenture as theretofore in effect, or to amend, modify or rescind any such authorization, specification or determination at any time before the first issuance of the Senior Lien Obligations;
-: ' (f) ' to confirm,- as further assurance, the pledge under the Senior Lien Master 'Indenture; an'd-the'subjectioh of additional revenues, properties arid col lateral to 'any'lien- claim'or ¦ pledge1 created-or to'be created'by-the Senior Lien Master Indenture; and
(g) to modify any of the provisions of the Senior Lien Master Indenture in' any respect whatever, but only if (i) the modification is, and is expressed to be, effective only after all •'•'! • ' Senior ! Lien' Obligations Outstanding at 'the' date'"of 'the execution arid delivery of the ''' Supplemental'•' Indenture' cea'se'to be Outstanding, and;i(ii)the 'Supplemental Indenture'1 is specifically referred to in the text of all Senior Lieri Obligations issued1 after:thc date of the execution and delivery of the Supplemental Indenture and of Senior Lien Obligations issued in exchange therefore or in place of it.
Supplemental Indentures Effective Upon Consent of Trustee
' (a)' For any one oir more of the following purposes and at any tirn'e or from time to time, a Supplemental Indenture may be authorized by an ordinance adopted by the City Council which', upon (i) the filing with the Trustee of a copy of the ordinance certified by the City Clerk, (ii) the filing with the Trustee and the City of an instrument in writing made by the Trustee consenting thereto and (iii) the execution and delivery of the Supplemental Indenture by the City and the Trustee, is fully effective in accordance with its terms:
to cure any ambiguity, supply any orriission, or cure or correct any defect or inconsistent provisiori in the Senior Lien Master Indenture;
to insert such provisions clarifying matters or questions arising under the Senior Lien Master Indenture as are necessary or desirable and are not contrary to or inconsistent with the Senior Lien Master Indenture as theretofore in effect; or
to provide additional duties of the Trustee under the Senior Lien Master Indenture.
(b) Any Supplemental Indenture may also contain one or more of the purposes specified in the immediately preceding caption, and in that event, the consent of the Trustee under this caption is applicable only to those provisions ofthe Supplemental Indenture as contain one or more ofthe purposes set forth in paragraph (a) under this caption.
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Supplemental Indentures Effective With Consent of Owners of Senior Lien Obligations
At any time or from time to time, a Supplemental Indenture may be authorized by an ordinance adopted by the City Council, subject to consent by the Owners of Senior Lien Obligations in accordance with and subject to the amendment provisions of the Senior Lien Master Indenture, which Supplemental Indenture, upon the filing with the Trustee of a copy of the ordinance certified by the City Clerk, upon compliance with the provisions of the Senior Lien Master Indenture relating to amendments, and upon execution and delivery ofthe Supplemental Indenture by the City and the Trustee, becomes fully effective in accordance with its terms.
Powers of Amendment
Subject to the provisions of paragraph (b) below, any modification or amendment of the Senior Lien Master Indenture or of any Supplemental Indenture, or of the rights and obligations of the City and of the Owners of the Senior Lien Obligations, in particular, may be made by a Supplemental Indenture, with the written consent given as described under the Senior Lien Master Indenture:
of the Owners of more than 50 percent in principal amount of the Senior Lien Obligations Outstanding at the time the consent is given;
in case less than all of the several Series of then Outstanding Series of Senior Lien Obligations are affected by the modification or amendment, of the Owners of more than 50 percent in principal amount of the then Outstanding Senior Lien Obligations of each Series so affected; and
in case the modification or amendment changes the terms of any Sinking Fund Payment, of the holders of more than 50 percent in principal amount of the then Outstanding Senior Lien Obligations of the particular Series and maturity entitled to the Sinking Fund Payment, but only if permitted under paragraph (b) below.
If the modification or amendment will, by its terms, not take effect so long as any Senior Lien Obligations of any specified like Series and maturity remain Outstanding, the consent of the Owners of those Senior Lien Obligations are not required and those Senior Lien Obligations are not deemed to be Outstanding for the purpose of any calculation of Outstanding Senior Lien Obligations under this caption. No such modification or amendment may permit a change in the terms of redemption or maturity of the principal of any Outstanding Senior Lien Obligation (including any redemption as a result of Sinking Fund Payments) or of any installment of interest on it or a reduction in the principal amount or its Redemption Price or in the rate of interest on it without the consent of the Owner of the Senior Lien Obligation, or may reduce the percentages or otherwise affect the classes of Senior Lien Obligations the consent ofthe Owners of which is required to effect any such modification or amendment, or may change or modify any of the rights or obligations of any Fiduciary without its written assent to the change or modification. For the purposes of this caption, a Series is deemed to be affected by a modification or amendment of the Senior Lien Master Indenture if it adversely affects or diminishes the rights of the Owners of Senior Lien Obligations of the Series. The Trustee may in its discretion determine whether or not in accordance with the foregoing powers of amendment Senior Lien Obligations of any particular Series or maturity would be affected by any modification or amendment of the Senior Lien Master Indenture, and any such determination is binding and conclusive on the City and all Owners of Senior Lien Obligations.
Any consent to the modification or amendment ofthe Senior Lien Master Indenture is binding upon the Owner of the Senior Lien Obligation giving the consent and upon any subsequent Owner of that Senior Lien Obligation and of any Senior Lien Obligation issued in exchange for it
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(whether or not-the subsequent Owner of it has notice of the consent) unless the consent is revoked in
writing by the Owner of the Senior Lien Obligation giving the consent or a subsequent Owner of it by
filing the revocation with the Trustee, before the time when the written statement of the'Trustee that the
Owners of the required-percentages-of Senior Lien Obligations have consented to the modification'or
amendment is filed with the City. ¦ ' ' !|
Resignation of Trustee
The Trustee may at any time resign and be discharged of the duties and obligations created by. the Senior Lien Master Indenture by giving not less than 60 days' written notice to the City and mailing notice of the resignation, specifying the date when the resignation takes effect, to the Owners of'the Senior Lien Obligations. The resignation may take effect only upon the appointment of a successor Trustee. '¦¦
Removal-of trustee
The Trustee must be removed by the City if at any time so requested by an instrument or
concurrent instruments in .writing, filed with the Trustee and the City, and signed by the Owners of a
majority in principal amount of the then Outstanding Senior Lien Obligations or their attorneys-in-fact
duly authorized, excluding any Senior Lien Obligations held by or for the account ofthe City. The City
may remove the Trustee at any time, except during-the existence of :an' Event of Default, with or without
cause in the sole discretion of the City by filing with the Trustee an instrument signed :by an Authorized
Officer/' ,; " ' " ¦-¦ -: : > .- '• ¦ . . ¦:. . ., ...= ¦
APPOINTMENT OF SUCCESSOR TRUSTEE
(a) - in case at any time the Trustee resigns or is removed or becomes incapable;of acting, or is
adjudged a bankrupt or insolvent,1 or if a receiver, liquidator or conservator of the Tnistee, or of its
property, is appointed, or if any public officer takes charge or control'of the. Trustee or of its property or
affairs, the City covenants and agrees that it will thereupon appoint a successor Trustee. The City
covenants, within 20 days after the appointment, to cause to be mailed notice of the appointment to the
Owners of the Senior Lien Obligations.
• If in a proper case no appointment of a successor Trustee is made pursuant to the' foregoing provisions of this Section within 45 days after the Trustee has given to the City written notice of its resignation or after a vacancy in the office of the Trustee has occurred by reason of its removal or inability to act, the Trustee or the Owner of any Senior Lien Obligation may apply to any court of competent jurisdiction to appoint a: successor Trustee. The court may thereupon, .after the notice, if any, as the court may deep proper and prescribe, appoint a successor Trustee.
Any Trustee appointed1 under the provisions ofthe Senior Lien Master Indenture in. succession to the Tnistee must be a bank, trust company or national banking association having the powers of a trust company doing business and having an office in Chicago, Illinois.
Events of Default
Each of the following events of default is declared an "Event of Default":
(a) payment of the principal or Redemption Price, if any, of any Senior Lien Obligation is not made when and as it becomes due, whether at maturity or upon call for redemption or otherwise;
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payment of any installment of interest on any Senior Lien Obligation is not made when it becomes due;
the City fails or refuses to comply with the provisions of the Senior Lien Master Indenture, or defaults in the performance or observance of any the covenants, agreements or conditions on its part contained in the Senior Lien Master Indenture or the Senior Lien Obligations, which materially affects the rights of the Owners of the Senior Lien Obligations and the failure, refusal or default continues for a period of 45 days after written notice of it by the Trustee or the Owners of not less than 25 percent in principal amount ofthe Outstanding Senior Lien Obligations; provided, however, that in the case of any such default which can be cured by due diligence but which cannot be cured within the 45-day period, the time to cure is extended for such period as may be necessary to remedy the default with all due diligence; or
an event of default occurs and is continuing under the provisions of any Supplemental Indenture.
Remedies
(a) , Upon the happening and continuance of any Event of Default specified in paragraph (a)
or (b) of the immediately preceding caption, the Trustee must proceed, or upon the happening and
continuance of any Event of Default specified in paragraph (c) or (d) of the. immediately preceding
caption, the* Trustee may proceed, and upon the written request of the Owners of not less than 25 percent
in principal amount of the Outstanding Senior Lien Obligations, must proceed, in its own name, subject to
the provisions of the Senior Lien Master Indenture, to protect and enforce its rights and the rights of the
Owners of the Senior Lien Obligations by such of the following remedies or any additional remedies
specified in one or more Supplemental Indentures with respect to a particular Series as the Trustee, being
advised by counsel, deems most effectual to protect and enforce such rights:
by mandamus or other suit, action or proceeding at law or in equity, to enforce all rights of the Owners of the Senior Lien Obligations, including the right to require the City to receive and collect Revenues adequate to carry out the covenants and agreements as to those Revenues and the pledge contained in the Senior Lien Master Indenture, and to require the City to carry out any other covenant or agreement with the Owners ofthe Senior Lien Obligations and to perform its duties under the Senior Lien Master Indenture;
by bringing suit upon the Senior Lien Obligations;
by action or suit in equity, require the City to account as if it were the trustee of any express trust for the Owners ofthe Senior Lien Obligations; or
by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the Owners ofthe Senior Lien Obligations.
(b) In the enforcement of any rights and remedies under the Senior Lien Master Indenture,
the Trustee is entitled to sue for, enforce payment on and receive any and all amounts then or during any
default becoming, and at any time remaining, due from the City, but only out of moneys pledged as
security for the Senior Lien Obligations for principal, Redemption Price, interest or otherwise, under any
provision of the Senior Lien Master Indenture or any Supplemental Indenture or of the Senior Lien
Obligations, and unpaid, with interest on overdue payments at the rate or rates of interest specified in the
Senior Lien Obligations, together with any and all costs and expenses of collection and of all proceedings
under the Senior Lien Master Indenture and under the Senior Lien Obligations without prejudice to any
other right or remedy of the Trustee or ofthe Owners ofthe Senior Lien Obligations, and to recover and
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enforce a judgment or decree against the City for any portion of the amounts remaining unpaid, with
interest, costs and expenses, and to collect from any moneys available under the Senior Lien Master
Indenture for such purpose, in any manner provided by law, the moneys adjudged or decreed to be
payable. '• • - ' • ¦ >•' ¦' ¦ •
Direction of Proceedings by Owners of Senior Lien Obligations
Anything in the Senior Lien Master Indenture to the contrary notwithstanding but subject to the limitations set forth therein, the Owners, of the majority . in principal amount of the Senior Lien Obligations? then ^Outstanding) have the righty. byi an< instrument-or concurrent tinstrumentst-inj writing executed and delivered to the Trustee,, to,direct the method of conducting all jremedial: proceedings to be taken by the Trustee under the Senior Lien Master Indenture, but the direction must not be otherwisc than in accordance with law or the provisions of the Senior Lien Master Indenture, and the Trustee has the right to decline-to., follow-any such-direction which , in the opinion of, the Trustee would be unjustly prejudicial to Owners of the Senior Lien Obligations not parties to the direction. '¦
Defeasance
(a) : " If the City'pays'or causes ;to;be'paid to the Owners of all' Senior Lien Obligations the principal and interest;and.Redemption:Price, ifvany,;to become due thereon; at the times and in the manner stipulatedin them^in- the Senior Lien Master Indenture and' the Supplemental Indentures and instruments creating Senior Lien Obligations,'then the pledge contained in the Senior Lien Master Indenture and all other-rights-granted thereby are discharged and Satisfied. In that events the 'Trustee must,-upon the request ofthe City; execute and: deliver to theiCity.alf;such'instruments: as-may be desirable to evidence; the: discharge and: satisfaction; and'*he;Fiduciarie's'.mustpay over or deliver to'the City all'Accounts,; Funds and-other ^moneys -or: securities held by; them---pursuant to the'Senior Lien 'Master- Indenture and the Supplemental Indentures which are not required for payment or redemption of Senior Lien Obligations not theretofore surrendered for payment or redemption.
- (b) . Senior Lien Obligations or interest installments for the payment or redemption of which funds have been-set aside and held in trust by. Fiduciaries (through deposit by the City of moneys for the payment or redemption'or otherwise) are, at the maturity or upon the date upon which the Senior Lien Obligations1 have been duly called for their redemption, deemed to have* been-paid within the meaning and with the effect expressed in paragraph (a) of-this caption. Senior Lien Obligations are, before their maturity or redemption date, deemed to have been paid within the meaning and with the effect expressed in paragraph (a) of this caption if (i) in case any of the Senior Lien Obligations are to be redeemed on any date before their maturity, the City has taken all action necessary to call the Senior Lien Obligations for redemption and notice of the redemption has been duly given or provision satisfactory to the Trustee has been made for the giving of such notice, (ii) there have been deposited with the Trustee for that purpose either moneys in an amount which is sufficient, or Federal Obligations the principal of and the interest on which when due (without reinvestment) will provide moneys which, together with the moneys, if any, deposited with the Trustee at the same time, are sufficient, to pay when due the principal or Redemption Price, if any, and interest due and to become due on the Senior Lien Obligations on and before their redemption date or maturity date, as the case may be, and (iii) if the Senior Lien Obligations arc not by their terms subject to redemption within the next succeeding 45 days, the City has given the Trustee, in form satisfactory to it, irrevocable instructions to mail, as soon as practicable, a notice to the Owners of the Senior Lien Obligations that the deposit required by clause (i) above has been made with the Trustee and that the Senior Lien Obligations arc deemed to have been paid in accordance with the Senior Lien Master Indenture, and stating the maturity or redemption date upon which moneys are to be available for the payment of the principal or Redemption Price, if any, of, and accrued interest on, the Senior Lien Obligations.
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Neither the Federal Obligations or moneys deposited with the Tnistee pursuant to the Senior Lien Master Indenture nor principal or interest payments on any such Federal Obligations may be withdrawn or used for any purpose other than, and must be held in trust for, the payment of the principal or Redemption Price, if any, of and interest on the Senior Lien Obligations; but any cash received from the principal or interest payments on the Federal Obligations deposited with the Trustee, if not then needed for the purpose, must, to the extent practicable, be reinvested in Federal Obligations maturing at times and in amounts sufficient to pay when due the principal or Redemption Price, if any, of, and interest due and to become due on, the Senior Lien Obligations on and before their redemption date or maturity date, as the case may be, and interest earned from those reinvestments must be paid over to the City, as received by the Trustee, free and clear of any trust, assignment, lien or pledge.
(c) No defeasance of a Senior Lien Obligation that is to be paid more than 45 days after the date of the deposit referred to in paragraph (b) (ii) above will be effective until the Trustee has received a verification report signed by an Independent Accountant that the Federal Obligations and moneys to be deposited for such purpose are sufficient to pay the principal and Redemption Price of, and interest on, all bonds with respect to which provision for payment is to be made as described under this caption by virtue ofthe deposit of such Federal Obligations and moneys.
Rights of the Bond Insurer
The issuer of a municipal bond insurance policy with respect to any Senior Lien Obligations is deemed to be the sole Owner of the Senior Lien Obligations for purposes of approving amendments to the Senior Lien Master Indenture (other than certain amendments that require the consent of each affected Owner or the consent of the Trustee), exercising remedies upon the occurrence of a default under the Senior Lien Master Indenture, providing specific approvals, consents or waivers or instruments of similar purpose, and to the extent the bond insurer is deemed to be the sole Owner for such purposes, the rights of the Owners of the Senior Lien Obligations will be abrogated.
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Appendix C
SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE AGREEMENTS
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Appendix C
Summary of Certain Provisions of the airport Use agreements
The following is a summary of certain provisions of the Airport Use Agreements, to which reference is made for a complete statement of their provisions and contents. Certain words and terms used in this summary are defined in the Airport Use Agreements and have the same meanings in this summary, except as defined otherwise in this Official Statement. The Airport Use Agreements signed by the Airline Parties are substantially similar except for provisions relating to different exclusive use premises for each Airline Party and the termination or extension of certain other agreements of each Airline Party relating to O'Hare.
Term
The Airport Use Agreements became effective in 1983 (or upon their execution if later), were amended and restated in 1985, were amended again in 1996 and 2005, and expire on May 11, 2018.
Cost-Revenue Centers
The Airport Use Agreements group areas in O'Hare for various accounting purposes into six Cost-Revenue Centers. These are the Terminal Area, the Airfield Area, the International Terminal Area, the Terminal Support Area, the Fueling System and the Land Support Area (see "Land Support Area" below for a separate discussion). The purpose of the Cost-Revenue Centers is to allow for the calculation of Airport Fees and Charges in a manner that allocates such fees and charges among the Airline Parties (and, in the case of the Airfield Area, among non-Airline Parties as well) based on their usage of O'Hare. Accordingly, each of the Cost-Revenue Centers (except the Land Support Area) has allocated to it Revenues, Operation and Maintenance Expenses, Debt Service and certain fund deposit requirements.' Net deficits (that is, generally, the excess of Operation and Maintenance Expenses, Debt Service and fund deposits over Revenues) generated in any Fiscal Year in the Terminal Area and the Airfield Area Cost-Revenue Centers are paid by the Airline Parties in the form of Terminal Area Use Charges and Landing Fees, respectively. The net cost of the Fueling System Cost-Revenue Center is paid in the form of a separate Fueling System Fee. The Terminal Support Area and International Terminal Area Cost-Revenue Centers do not have specific fees or charges associated with them under the Airport Use Agreements. Instead, the net deficit (or net revenue) of each is calculated and then treated as a cost (or revenue) of the Terminal Area or the Airfield Area. It is not anticipated, however, that there will be a net deficit of the International Terminal Area under the Airport Use Agreements, because the net cost of the International Terminal Area is paid through fees and charges charged to the airlines that are signatories to the separate International Terminal Use Agreements.
Land Support Area
The Land Support Area is a geographic portion of O'Hare that presently consists of vacant land, certain air rights and facilities, such as air cargo (including mail), freight forwarding, aircraft maintenance, flight kitchens and fuel storage, and a site at O'FIare formerly occupied by the U.S. Military. The expenses of the Land Support Area are not included in the calculation of Airport Fees and Charges. Similarly, with certain exceptions, the income generated from facilities in the Land Support Area is not considered Revenues, and is not pledged as security for the payment of the Airport Obligations. There is currently no Debt Service allocated to the Land Support Area. One-half of the net revenues ofthe Land Support Area (excluding certain items) are deposited in the Revenue Fund for subsequent deposit in the Airport Development Fund described below under the subcaption "Special Funds." In addition, any net revenues of the Land Support Area allocable to any car or vehicle rental concessions and Airport
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passenger public parking facilities located in the future on the former military site are to be deposited in the Revenue Fund and credited against Airport Fees and Charges.
Rentals, Fees and Charges
The Airport Use Agreements establish a $5 per square foot Terminal Area Rental for premises
leased to Airline Parties for their exclusive occupancy. Terminal Area Use Charges for such premises
also are calculated'on a square footage basis. Terminal Area Use Charges are based upon an allocation of
all'het costs attributable to 'the 'Terminal 'Area 'among 'Airline 'Parties leasing exclusive use premises in the
Terminal Area. ~ .... ^-.j a ... ..... ....... u,.
The net costs ofthe Fueling System Cost-Revenue Center are allocated among Airline Parties on the basis of fuel gallonage. Each Airline Party pays Fueling System Fees on the basis of a formula which reflects the ratio of its total gallonage to the total gallonage of all Airline Parties.
Landing Fees are calculated by first determiriirig the Net Cost of the Airfield Area, which consists
of portions of the following allocable to the Airfield Area: the sum of Operation and Maintenance,
Expenses, Debt Service, fund deposit requirements, and net deficit of the International Terminal' Area,
less the sum of Non-Use Agreement Revenues .(exclusive of landing fees payable by persons other than
Airline7P^es)"^d"net' revenues of the Intemaihwial Terminal, Area".' 'Beginning iri rates arid charges year
2006, the Net Cost of the'Airfield Airea is/.allocated among"Airline Patties'and users of the Airfield Area
that are not Airline Parties on'the basis 'of'the relative use ofthe Airfield Area by. such persons.' Such,
allocation of the Net Cost of the Airfield Area shall be based on the respective approved maximum landed
weight of aircraft of Airline" Parties landed during stich Fiscal Year and'the approved/maximum landed
weight of "all, aircraft of'other users .during"" siic^ fofpurppses of such allocation,'
the landed 'weight of certain' classes ,6f user's of the Airfield Area may be increased by certain premium factors "determined'by' thVCommissioner ,0'f Aviation from time to time. To the extent in any Fiscal Year Landing Fees, collected.from'userspf the Airfield Area other than Airline Parties.are in excess of the Net Cost of .the Airfield Area allpcated'to'such users for .that'Fiscal Year, such excess shall be applied in ftiturc years' in a manner that does riot, directly or indirectly, benefit any Airline Party.
General Commitment to Pay Airport Fees and Charges
The Airport Use Agreements provide that the aggregate of all rentals,'fees-and charges to be paid under all Airport Use Agreements by all Airline Parties shall be sufficient to pay for the net cost of operating, rhaintaining and developing O'Hare'(excluding the Land Support Area), including the satisfaction of all of the City's obligations to make deposits and payments under any ordinance or resolution authorizing Airport Obligations. Airport Fees and Charges not paid by a defaulting Airline Party, after appropriate collection efforts by the City and after exhaustion of certain funds available for that purpose, among others, are to be paid by all other Airline Parties as part of their Landing Fees as a result of the inclusion of such unpaid fees and charges in Operation and Maintenance Expenses of the Airfield Area.
Billing of Airport Fees and Charges
Not later than 30 days prior to the end of each Fiscal Year, the City furnishes the Airline Parties a projection of the Landing Fee Rate and Terminal Area Use Charges for the next Fiscal Year {"Projection of Fees and Charges"). The Landing Fees, Terminal Area Use Charges and Fueling System Fees for the next Fiscal Year are computed on the basis of the Projection of Fees and Charges, and Terminal Area Rentals are based on leased exclusive use premises. Not later than the 10th day of each month the City bills each Airline Party for the amount of its allocable share of Terminal Area Rentals and Use Charges
for the next month. The amount so billed is equal to 1/12th of each Airline Party's share of such rentals and charges for the Fiscal Year and is due on the first day of such next month. During each month the City also bills each Airline Party for Landing Fees payable for the preceding month; such Landing Fees are due within 30 days after the date of billing.
The Projection of Fees and Charges is adjusted at mid-year and Landing Fees, Terminal Area Use Charges and Fueling System Fees then may be adjusted accordingly. Within six months after the close of each Fiscal Year, a final audit is required to be prepared showing actual Landing Fees, Terminal Area Use Charges and Fueling System Fees for such Fiscal Year. Each Airline Party is entitled to a credit against subsequent billings (and in certain instances cash payments) for amounts paid in excess of the audited actual fees and charges, and is obligated to pay any deficiency along with its next monthly payment.
Capital Projects
The Airport Use Agreements contain as exhibits thereto descriptions of certain Capital Projects approved by the Airline Parties. The City was authorized in the Airport Use Agreements to issue Airport Obligations and include the Debt Service thereon in the calculation of Airport Fees and Charges without further consent or approval ofthe Airline Parties for all such Capital Projects, and also to (a) fund the cost of designing, constructing and equipping Capital Projects necessary to comply with any valid rale, regulation or order of any federal or state agency; (b) fund the cost of certain tenant improvements and certain relocation expenses; (c) fund insurance or condemnation award deficiencies; (d) refund or refinance Special Facility Revenue Bonds by agreement with Airline Parties; and (e) fund program and construction management costs and expenses relating to the implementation of the Airport Use Agreement.
C-3
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Appendix D AUDITED FINANCIAL STATEMENTS
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City of Chicago, Illinois Chicago O'Hare International Airport
Basic Financial Statements as of and for the Years Ended December 31, 2015 and 2014, Additional Supplementary Information, Statistical Information and Independent Auditors' Report
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1 -2
MANAGEMENT'S DISCUSSION AND ANALYSIS 3-11
BASIC FINANCIAL STATEMENTS:
Statements of Net Position as of December 31, 2015 and 2014 12
Statements of Revenues, Expenses, and Changes imNet Position for the ;.
Years Ended December 31,2015 and:20'l4? H U ¦ . \' ; ; . ; 13
Statements of Cash Flows for the Years Ended December 31,?2015 and 2014 , 14-15
Notes to Basic Financial Statements as of and for the-Years Ended . .
December 31, 2015 and 2014 i ^ ^ ? • ; ' 16-52
REQUIRED SUPPLEMENTAL INFORMATION: b::-. b. :;. ,: ¦_ . . b 53
Schedule of Changes in the Net Pension Liability and Related-Ratios 54-57
Schedule of Contributions 58-60
Schedule of Other Postemployment Benefits Funding Progress 61
ADDITIONAL SUPPLEMENTARY INFORMATION: 62
Calculations of Coverage Covenant for the Year Ended December 31, 2015 63
Notes to Calculations of Coverage for the Year Ended December 31,2015 64
STATISTICAL INFORMATION:
Historical Operating Results for Each of the Ten Years Ended December 31, 2006-2015 65
Debt Service Schedule 66
Capital Improvement Plan (CIP), 2016-2020 67
Operations of the Airport for Each of the Ten Years Ended December 31, 2006-2015 68
Enplaned Commercial Passengers by Airline for Each ofthe Ten Years Ended
December 31, 2006-2015 69
Historical Passenger Traffic for Each of the Ten Years Ended December 31, 2006-2015 70
Historical Total Origin and Destination (O&D) Enplanements Chicago Region Airports for
Each of the Ten Years Ended December 31, 2006-2015 71
Enplanement Summary for Each of the Ten Years Ended December 31, 2006-2015 72
Aircraft Operations for Each of the Ten Years Ended December 31, 2006-2015 '73
Net Airline Requirement and Cost per Enplaned Passenger for the Year Ended December 31, 2015 74
Historical PFC Revenues for Each of the Ten Years Ended December 31, 2006-2015 75
Passenger Facility Charge (PFC) Debt Service Coverage for Each of the Ten Years Ended
December 31, 2006-2015 76
Net Position by Component for Each of the Ten Years Ended December 31, 2006-2015 77
Change in Net Position for Each of the Ten Years Ended December 31, 2006-2015 78
Long-Term Debt for Each of the Ten Years Ended December 31, 2006-2015 79
Full-Time Equivalent Chicago O'Hare Airport Employees by Function for each of the
Ten Years Ended December 31, 2006-2015 80
Principal Employers (Nongovernment) Current Year and Ten Years Ago
(sec note at the end of this page) 81
Population and Income Statistics Each of the Ten Years Ended December 31, 2006-2015 82
Summary—2015 Terminal Rentals, Fees and Charges for the Period Commencing July 1, 2015 83
Airport Market Share of Rental Car Brands Operating on Airport 84
Historical Visiting O&D Enplaned Passengers Each of the Ten Years Ended
December 31,2006-2015 85
Historical CFC Collections On Site Airport Rental Car Companies 86
Historical CFC Collections On and Off Site Airport Rental Car Companies 87
Racs and Off-Airport and Related Brands Operating at the Airport 88
Projected 2014 CFC Bond Debt Service Coverage from the Report ofthe
Airport Consultant—Each of the Six Years Ending December 31,2018-2023 89
Projected 2014 CFC Bonds Tifia Loan Debt Service Coverage Each ofthe Six Years Ending
December 31,2018-2023 90
Deloitte.
Tel: +1 312 486 1000 Fax:+1 312 486 1486 .www.deloitte.com
INDEPENDENT AUDITORS' REPORT
The Honorable Rahm Emanuel, Mayor,
and Members of the City' Council: v - ¦¦•" ,¦: .¦
City of Chicago, Illinois
We have audited the accompanying basic financial statements of Chicago O'Hare International Airport ("O'Hare"), an enterprise fund of the City of Chicago, Illinois ("the City"), as of and for the years ended December 31, 2015 and 2014, and the related notes to the basic financial statements;'which collectively comprise O'Hare's basic financial statements as listed in the table of contents.
Management's Responsibility for the Basic Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America;, this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment ofthe risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation ofthe financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of signi ficant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Chicago O'Hare International Airport as of December 31, 2015 and 2014, and the changes in its financial position, and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1 to the basic financial statements, the basic financial statements referred to above present only Chicago O'Hare International Airport, an enterprise fund of the City, and do not purport to, and do not, present the financial position of the City as of December 31, 2015 and 2014, changes in its financial position, or where applicable, its cash flows, in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
As discussed in Notes 1 and 12 to the basic financial statements, beginning net position at January 1, 2015 was restated due to the City's adoption of Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27; and, ending net position as of December 31, 2015 reflects changes in certain benefits and actuarial assumptions (Note 7). Our opinion is not modified with respect to these matters.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that management's discussion and analysis and the Schedule of Changes in the Net Pension Liability and Related Ratios, Schedule of Contributions, and Schedule of Other Postemployment Benefits Funding Progress, be presented to supplement the basic financial statements. Such information, although, not a part ofthe basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States, of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audits were conducted for the purpose of forming an opinion on the basic financial statements that collectively comprise O'Hare's basic financial statements. The additional supplementary information and statistical information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The additional supplementary information as listed in the table of contents is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the additional supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
June 30, 2016
The statistical information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.
?
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands)
The following discussion and analysis of Chicago O'Hare International Airport's (the "Airport") financial performance provides an introduction and.overview of the Airport's financial activities for the fiscal years ended December 31, 2015 and 2014. Please read this discussion in conjunction with the Airport's basic financial statements and the notes to basic financial statements immediately following this section.
FINANCIAL HIGHLIGHTS!' ;< -.••-./- , . . f: ¦•
2015
» Operating revenues for 2015 increased by $704 (0.0%) compared to prior-year operating revenues.
Operating expenses before depreciation and amortization increased by $310,703 (62.8%) compared to 2014 primarily due to increases in pension cost resulting from the implementation of G ASB 68 and . salaries and wages.
• " The Airport'sifofal"rieFp^dsitibFat'D'ecemFer:3"1, 2015, was $474,600! This7is a decrease of $985,484
(67.5%) over total; net'position at'December 31, 2014 primarily due to'the implementation of GASB
68, which established a net pension-liability in'2015. ; ' ' 1
Capital asset ^additions for 2015. were $450,787 primarily due to buildings, runways and'taxiway improvenie^ts and iparking-'facilities upgrade.)':-: ; ¦ - ¦-¦ • •v,.>i/i; v h ¦, - ^wu -.r. .¦. j . :¦.
2014
» Operating revenues for 2014 increased by$126,844 (17;7-%) compared to prior-year operating revenues. '
Operating expenses before depreciation and amortization increased by $68,958 (16.2%) compared to 2013 primarily due to increased salaries and wages, repairs and maintenance, and other operating expenses.
The Airport's total net position at December 31, 2014, was $1,460,084. This is an increase of $132,685 (9.9%) over total net-position at December 31, 2013.
Capital asset additions for 2014 were $346;671 principally due to land acquisition, buildings, runways and taxiway improvements and roadway rehabilitation.
OVERVIEW OF THE BASIC FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the Airport's basic financial statements. The Airport is included in the City's reporting entity as an enterprise fund. The Airport's basic financial statements comprise the basic financial statements and the notes to basic financial statements. Tn addition to the basic financial statements, this report also presents additional and statistical information after the notes to basic financial statements.
The Statements of Net Position present all of the Airport's assets and liabilities using the accrual basis of accounting. The difference between assets and deferred outflows and liabilities and deferred inflows is reported as Net Position. The increase or decrease in net position may serve as an indicator, over time, whether the Airport's financial position is improving or deteriorating. However, the consideration of other non-financial factors, such as changes within the airline industry, may be necessary in the assessment of overall financial position and health of the Airport.
The Statements of Revenues, Expenses and Changes in Net Position present all current fiscal year revenues and expenses, regardless of when cash is received or paid, and the ensuing change in Net Position.
The Statements of Cash Flows report how cash and cash equivalents were provided and used by the Airport's operating, capital financing, and noncapital financing and investing activities. These statements present the cash received and disbursed, the net increase or decrease in cash and cash equivalents for the year and the cash and cash equivalents balance at year-end.
The Notes to Basic Financial Statements are an integral part ofthe basic financial statements; accordingly, such disclosures are essential to a full understanding of the information provided in the basic financial statements.
In addition to the basic financial statements, this report includes Additional Supplemental Information and Statistical Information. The Additional Supplemental Information section presents the debt service coverage calculations, and the Statistical Information section includes certain unaudited information related to the Airport's historical financial and non-financial operating results and capital activities.
FINANCIAL ANALYSIS
Landing fees, terminal area use charges, and fueling system charges are assessed to the various airlines throughout each fiscal year based on estimated rates. Such rates are designed to yield collections from airlines adequate to cover certain expenses and required debt service and fund deposits as determined under provisions of the Amended and Restated Airport Use Agreement and Terminal Facilities Lease and the International Terminal Use Agreement and Facilities Lease ("Use Agreements"). Incremental amounts due from the airlines arise when amounts assessed, based on the estimated rates used during the year, are less than actual expenses and required deposits for the year. Such incremental amounts due from airlines are included in amounts to be billed. Incremental amounts due to the airlines arise when amounts assessed, based on the estimated rates used during the year, exceed actual expenses and required deposits for the year. Such incremental amounts due to airlines are included in billings over amounts earned.
At December 31, 2015, the Airport's financial position continued to be strong with total assets and deferred outflows of $10,447,148, total liabilities and deferred inflows of $9,972,548, and net position of $474,600.
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A comparative condensed summary ofthe Airport's net position at December 31, 2015, 2014, and 2013 is as follows (dollars in thousands):
Net Position.
2015 2014 2013
Current unrestricted assets $ 265,920, $ 210,357 $ 210,181
Restricted and other assets 2,541,960 2,536,281 2,715,535
Capital assets—net 7,090,695 6,872,854 6,7.42,101
pefc.iredoutnows.r. ,.: ... . ... .548,573 ;. ., 50,172... . . , 62,974r
Total assets and deferred outflows $10,447,148. $9,669,664 $ 9,730,791'
Current liabilities ' ' .$" 264,688 $1,75,216 $ 174,621
Liabilities payable from restricted assets and 9,699,212 8,034,364 8,228,771
noncurrent liabilities . ...
Deferred iriflbws " : ';' 8;648 ' ' "" '
Total liabilities and deferred inflows $ 9,972,548 $8,209,580 $ 8,403,392
Net position:.
! Net investment in capital assets " $ 707,991 $ 644,430 $ 582,086
Restricted 828,216 780,514 709,754
Unrestricted (1;061,607) 35,140 35;559
Total net position- • ' • ; ;; : ': !" 'Vi ;!" $ !:474,600 ¦' 'S" 1 ;460,084 '$ 1,327,399 2015
Current unrestricted assets increased.by $55,563 (26.4%) primarily due to increased accounts receivable and decreased cash and investments. The Airport's current ratio (current unrestricted assets/current unrestricted liabilities) at December 31, 2015 and 2014 was 1.00:1 and 1.20:1, respectively. Restricted and other assets increased by $5,679 (0.2%) primarily due to decreases in construction funds of $18,226 and capitalized interest funds of $ 14,555 and increases to debt service interest funds of $8,947 and Airport Development Funds of $33,143. Net capital assets increased by $217,841 (3.2%) due principally to capital activities of the Capital Improvement Program and the O'Hare Modernization Program (OMP) at the Airport.
The increase in current liabilities of $89,472 (51%) is mainly related to the increased accounts payable and accrued liabilities of $32,172 and increased amounts of advanced payments for terminal and hangar, rents of $5,427 offset by increased billings over amounts earned of $51,903.
Liabilities payable from restricted assets and noncurrent liabilities increased by $1,664,848 (20%) due primarily to the increase in pension liability.
Net position may serve, over a period of time, as a useful indicator ofthe Airport's financial position. As of December 31, 2015, total net position was $474,600, a decrease of $985,484 (67.5%) from 2()14primarily due to the impact ofthe implementation of GASB 68.
2014
Current unrestricted assets increased by $176 (0.08%) primarily due to increased accounts receivable and decreased cash and investments. The Airport's current ratio (current unrestricted assets/current unrestricted liabilities) at December 31, 2014 and 2013, was 1.19:1 and 1.20:1, respectively. Restricted and other assets decreased by $179,254 (6.6%) primarily due to decreases in construction funds of $209,904 and capitalized interest funds of $49,898 and increases to debt service interest funds of $28,008 and Airport Development Funds of $45,302. Net capital assets increased by $ 130,753 (1.9%) due principally, to capital activities ofthe Capital Improvement Program and the O'Hare Modernization Program (OMP) at the Airport.
The increase in current liabilities of $595 (0.3%) is mainly related to the increased billings over amounts earned of $12,963 offset in part by a decrease in accounts payable and accrued liabilities of $5,008 and decreased amounts of advanced payments for terminal and hangar rents of $4,817.
Liabilities payable from restricted assets and noncurrent liabilities decreased by $ 194,407 (2.4%) due primarily to the decrease in revenue bond payable.
Net position may serve, over a period of time, as a useful indicator of the Airport's financial position. As of December 31, 2014, total net position was $1,460,084, an increase of $132,685 (9.9%) from 2013.
A comparative condensed summary of the Airport's changes in net position for the years ended December 31, 2015, 2014, and 2013 is as follows (dollars in thousands):
Operating revenues: Landing fees and terminal charges Rents, concessions, and other
Total operating revenues
Operating expenses: Salaries and wages Pension expense Repairs and maintenance Professional and engineering Other operating expenses Depreciation and amortization Capital asset impairment
Total operating expenses
Operating income
Nonoperating revenues Nonoperating expenses
Total nonoperating revenues/expenses Income (Loss) Before Capital Grants Capital grants
2014
$ 552,431 292,093
844,524
Changes in Net Position
2013
$ 442,934 274,746
182,984
110,928 88,143 112,952 218,211
717,680
713,218
131,306
233,318 (320,971)
(87,653)
191,842 339,546 98,945 83,265 92,112 231,670 3,320
1,040,700
(195,472)
224,544 (342,153)
43,653 89,032
(117,609) (313,081) 76,689
$ (236,392) $ 132,685 $ 172,781
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Landing fees and terminal area use charges for the years 2015 and 2014 were $546,053 and $552,431,
respectively. Rents, concessions, and other revenues were $299,175 and $292,093 for the years 2015 and
2014, respectively. The increase in 2015 opcratirtg revenues of $704 (0.1%) compared to 2014 was
primarily due to decreased-landingfees. arid terminal area use charges of $6,378:offset by increased rents,
concessions and other of $7,082. ' ! ¦> ¦'•
Salaries and wages; increased $8,858 (4:8%)-in 2015 compared to 2014;-The increase is.attributable to '•¦•. additional salaries retroactive^pay adjustments. Pension expense-of $339;546 is included'in 2015' as a separate category'due'to the implementation of GASB 68. Repairs and maintenanceexpenses decreased by $11,983 (10.8%o) from the prior year. The decrease is largely the result of'afreduction!in!sridw removal expenses. Professional and engineering costs decreased $4,878 (5.5%) from the prior year as a result of decreases in contracted costs.'Other operating expenses decreased by $20,840 (18.5%). Other operating expenses'are mainly comprised1 of certain employee' costs, insurance premiums, indirect costs, materials and supplies, utilities, vehic1e purchases,;and the: provision for doubtful accounts.
The 2015 nonoperating revenues of $224,544;are'comprised- of passenger facility charges (PFC) -$147,697, customer facility charges (CFC) of $39,204 and'bther nonoperating revenuc of $18,315 and investment income of $19,328.
Nonoperating expenses of S330,'7'l 2 arid $320,971: for the years 2015 and 2014- respectively, were comprised primarily of bond interest, PFC expenses noise mitigating costs and costs of issuance. The increase of $9,741 (3%) for201;5 over:2014 was mainly due. to increased interest expense offset by . decrease in PFC noise mitigation arid-cost'of issuance.'. : , -
Capital grants', comprisbd mainly-Of-federal grants, decreased from $89,032 in 2014 to $76,689 in 2015, a 13.9% decrease mainly'as a result of less-federal grant reimbursements in 2015.
2014
Landing fees and terminal area use charges for the years 2014 and 2013 were.$552,431 and $442,934, respectively. Rents, concessions, and other revenues were $292,093 and $274,746 for the years 2014 and 2013, respectively. The increase in 2014 operating revenues of $126,844 (17.7%) compared to 2013 was primarily due to increased landing fees and terminal area use charges of $ 109,497.
Salaries and wages increased $20,751 (12.8%) in 2014 compared to 2013. The increase is attributable to additional salaries and wages associated with snow removal operations and retroactive pay adjustments. Repairs and maintenance expenses increased by $25,444 (29.8%) from the prior year the increase is largely the result of additional snow rernoval expenses. Professional and engineering costs increased $7,073 (8.7%) from the prior year as a result of increases in contracted costs. Other operating expenses increased by $15,690 (16.1%) Other operating expenses are mainly comprised of certain employee costs, insurance premiums, indirect costs, materials and supplies, utilities, vehicle purchases, and the provision for doubtful accounts.
The 2014 nonoperating revenues of $233,318 are comprised of passenger facility charges (PFC) $136,351, customer facility charges (CFC) of $36,284 and other nonoperating revenue of $30,845 and investment income of $29,838. During 2014, nonoperating revenues increased'by $44,114 due primarily to increased investment income of $29,838.
Nonoperating expenses of $320,971 and $315,034 for the years 2014 and 2013, respectively, were comprised primarily of bond interest, PFC expenses noise mitigating costs and costs of issuance. The increase of $5,937 (1.9%) for 2014 over 2013 was mainly due to increased interest expense offset by decrease in PFC noise mitigation and cost of issuance.
Capital grants, comprised mainly of federal grants, decreased from $203,536 in 2013 to $89,032 in 2014, a 56.3% decrease mainly as a result of associated expenses becoming eligible for grant reimbursements from the federal government.
A comparative summary ofthe Airport's changes in cash flows for the years ended December 31, 2015, 2014, and 2013 is as follows (dollars in thousands):
Cash Flows
2014
Cash provided by (used in) activities: Operating
Capital and related financing Noncapital financing Investing
$ 428,277 (360,848) (8,014) 390,288
$ 340,950 (525,095) (13,893) 180,519
$ 285,387 241,509 (17,479) (330,111)
Net change in cash and cash equivalents
Cash and cash equivalents: Beginning of year
End of year $1,414,399 $ 964,696 $ 982,215
2015
As of December 31, 2015, the Airport's available cash and cash equivalents of $1,414,399 increased by $449,703 compared to $964,696 at December 31, 2014, due to operating activities of $428,277 and investing activities of $390,288 offset by capital and related financing of $360,848 and noncapital financing of $8,014. Total cash and cash equivalents at December 31, 2015, were comprised of unrestricted and restricted cash and cash equivalents of $98,883 and $1,315,516, respectively.
2014
As of December 31, 2014, the Airport's available cash and cash equivalents of $964,696 decreased by $17,519 compared to $982,215 at December 31, 2013, due to operating activities of $340,950 and investing activities of $180,519 offset by capital and related financing of $525,095 and noncapital financing of $ 13,893. Total cash and cash equivalents at December 31, 2014, were comprised of unrestricted and restricted cash and cash equivalents of $5,632 and $959,064, respectively.
CAPITAL ASSET AND DEBT ADMINISTRATION
At the end of 2015 and 2014, the Airport had $7,090,695 and $6,872,854, respectively, invested in net capital assets. During 2015, the Airport had additions of $450,787 related to capital activities. This included $298 for land acquisition and the balance of $450,489 for terminal improvements, parking facilities enhancement, and runway and taxi improvements.
During 2015, completed projects totaling $816,006 were transferred from construction in progress to applicable buildings and other facilities capital accounts. These major completed projects were related to runway and taxi improvements, electrical system upgrades, and parking facilities and terminal improvements.
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The Airport's capital assetsat December 31, 2015, 2014, and 2013 are summarized as follows (dollars in thousands):
Capital Assets at Year-End
2015 2014 2013
Capital assets not depreciated:
Land . $ 885,967 $ 885,669 $ 884,636
Construction ^progress 386,814 752,331 845,495
Total capital assets not depreciated 1,272,781- 1,638,000 -' 1,730,131
Capital assets depreciated:
Buildings and other facilities 9,014,975 8,208,757 7,769,955
Less accumulated depreciation for:
Buildings and other facilities 1 (3,197^06-1 ) ¦ (-2,973,903) >¦¦¦ (2,757;985)
Total capital assets depreciated—net 5,817,914 5,234,854 ' 5;011,970
Total property and facilities—net $ 7,090,695 $ 6,872,854 $ 6,742,101
The Airport's capital activities are funded through Airport revenue bonds, federal and state grants, PFC,
CFC, and Airport revenue. Additional information on the Airport's capital assets is presented in Note 5iof
the notes to basic financial statements. , , . :
The Airport issued $75.8 million of commercial' paper' notes during 2-615'. Nbtesprodeeds hiay be used to' finance portions of the cost's of authorized airports.projects'and'repay tHe; expenses of issuing the notes. The Airport has no outstanding Commercial Paper Notes at December 31, 2015 due to the issuance ofthe Chicago O'Hare 2015 C&D Senior Lien Revenue'Bbhds in October 2015, in which proceeds were used to repay the outstanding Commercial Paper Notes.
During 2015, the Airport sold $1,947,380 of Chicago O'Hare International Airport Senior Lien Revenue Bonds, Series 2015 A-D and having interest rates tanging from 2% to 5% with maturity dates ranging from January 1, 2016, to January 1, 2046. Certain net proceeds were used to refund certain maturities of outstanding bonds. Certain net proceeds will be used to finance portions of the OMP and the Capital Improvement Program and certain process'were used to fund capitalized interest deposit and debt service reserve deposit requirement and to pay the cost of issuance of the bonds.
The Airport's outstanding debt at December 31, 2015, 2014, and 2013 is summarized as follows (dollars in thousands):
Outstanding Debt at Year-End
2015 2014 2013
Revenue bonds and notes $7,466,485 $7,527,336 $7,665,205
Unamortized:
Bond premium (discount) 374,179 199,169 224,056
Total outstanding debt—net 7,840,664 7,726,505 7,889,261
Current portion (221,220) (189,605) (168,895)
Total long-term revenue bonds
and notes payable—net $7,619,444 $7,536,900 $7,720,366
Additional information on the Airport's long-term debt is presented in Note 4 of the notes to basic financial statements, and the Statistical Information section of this report.
The Airport's revenue bonds at December 31, 2015, had credit ratings with each ofthe three major rating agencies as follows:
Senior Lien General Airport Revenue Bonds PFC Revenue Bonds CFC Revenue Bonds
Moody's
A2 A2 Baal
Investor Standard Services & Poor's
A A BBB
Fitch Ratings
A-A
Not Rated
Kroll Ratings
A+ Not Rated Not Rated
At December 31, 2015 and 2014, the Airport believes it was in compliance with the debt covenants as stated within the Master Trust Indentures.
ECONOMIC FACTORS AND NEXT YEAR RATES AND CHARGES
In 2015, the Airport was the second busiest airport in the world, measured in terms of total aircraft operations, and the fourth busiest in terms of total passengers. The Airport had 38.4 million and 34.9 million enplaned passengers in 2015 and 2014, respectively. The strong origin-destination passenger demand and the Airport's central geographical location near the center of the United States and along the most heavily traveled east/west air routes make the Airport a natural hub location.
United Airlines and American Airlines each use the Airport as one of their major hubs. United Airlines (including its regional affiliates) comprised 38.6% of the Airport's enplaned passengers in 2015 and 35.4% ofthe enplaned passengers in 2014. American Airlines (including its regional affiliate) comprised 33.1% ofthe Airport's enplaned passengers in 2015 and 31.3% of the enplaned passengers in 2014.
Based on the Airport's rates and charges for fiscal year 2016, total budgeted operating and maintenance expenses arc projected at $535,030 and total net debt service and fund deposit requirements are projected at $440,768. Additionally, 2016 nonsignatory revenues are budgeted for $390,907 resulting in a net airline requirement of $584,891 that will be funded through landing fees, terminal area use charges, and fuel system use charges.
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REQUESTS FOR INFORMATION
This financial report is designed to provide the reader with a general overview ofthe Airport's finances. Questions concerning ariy5)flthe information provided in this report or requests for additional financial information should be addressed to the Cify~of Chicago Department of Finance.
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CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Dollars in thousands)
2015 2014
OPERATING REVENUES:
Landing fees and terminal area use charges (Note 1) $ 546,053 $ 552,431
Rents, concessions, and other (Note 6) 299,175 292,093
Total operating revenues 845,228 844,524
OPERATING EXPENSES (Notes 7 and 8):
Salaries and wages 191,842 182,984
Pension expense (Note 7) 339,546
Repairs and maintenance 98,945 110,928
Professional and engineering services - 83,265 88,143
Other operating expenses 92,112 112,952
Total operating expenses before depreciation,
amortization and capital asset impairment 805,710 495,007
Depreciation and amortization 231,670 218,211
Capital asset impairment 3,320
Total operating expenses 1,040,700 713,218
OPERATING (LOSS) INCOME (195,472) 131,306
NONOPERATING REVENUES (EXPENSES):
Passenger facility charge revenue 147,697 136,351
Customer facility charge revenue 39,204 36,284
Passenger facility charge expenses (2,341) (4,630)
Other nonoperating revenue ' 18,315 30,845
Noise mitigation costs (Note 1) (8,998) (15,892)
Costs of issuance (Note 1) (11,441) (154)
Investment income (loss) (Note 4) 19,328 29,838
Interest expense (Note 4) (319,373) (300,295)
Total nonoperating revenues (expenses) (117,609) (87,653)
(LOSS) INCOME BEFORE CAPITAL GRANTS (313,081) 43,653
CAPITAL GRANTS (Note 1) 76,689 89,032
CHANGE IN NET POSITION (236,392) 132,685
TOTAL NET POSITION—Beginning of year as restated (Note 12) 710,992 1,327,399
TOTAL NET POSITION—End of year $ 474,600 $ 1,460,084
See notes to basic financial statements.
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CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: Landing fees and terminal area use charges Rents, concessions, and other Payments to vendors Payments to employees
Transactions with other City funds—provided by Transactions with other City funds—(used in)
Cash flows provided by operating activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from issuance of bonds Proceeds from commercial paper notes Payment of commercial notes payable
Proceeds from O'Hare 201 OB Senior Lien Build America Bonds subsidy
Payment to refund bonds
Principal paid on bonds
Bond issuance costs
Interest paid on bonds and note
Acquisition and construction of capital assets
Capital grants
Customer facility charge revenue
Passenger facility charge revenue and other receipts
Passenger facility charge expenses
Cash flows (used in) provided by capital and related financing activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Proceeds from settlement agreement Cash paid for Noise mitigation program
Cash flows (used in) noncapital financing activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) investments net
Investment interest
Cash flows provided by (used in) investing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS—Beginning of year
CASH AND CASH EQUIVALENTS—End of year
2014
$ 554,161 288,192 (272,612) (167,248) 1,265 (62,808)
340,950
2015
570,459 317,973 (216,459) (175,052) 2,454 (71,098)
428,277
31,026
12,354
(168,895) (154) (368,370) (289,835) 88,942 36,284 138,184 (4,631)
2,164,456
(51,026) 12,380 (1,767,600) (189,605) (11,441) (420,548) (359,547) 74,516 39,204 150,705 (2,342)
984 (8,998)
(360,848) (525,095)
1,999 (15,892)
(13,893)
162,528 17,991
180,519
(17,519) 982,215 $ 964,696
(8,014)
373,361 16,927
390,288
449,703
964,696
S 1,414,399
(Continued)
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015AND-2014
(Dollars in thousands) „
2014
RECONCILIATION TO CASH AND CASH EQUIVALENTS REPORTED ON THE STATEMENTS OF NET ASSETS: Unrestricted ¦ Restricted: • Current Noncurrent
537,631 7.77,885
$ 98,883. . $ 5,632
494,735 464,329
$ 1,414,399 $ 964,696
RECONCILIATION OF OPERATING INCOME TO CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Operating (loss) income Adjustments to reconcile: Depreciation, amortization, and impairment ; Pension expense'other than contribution Changes in assets and liabilities: (Increase) in accounts receivable Increase in due from other City funds Decrease in prepaid expenses (Decrease) increase in accounts payable (Decrease) in due to other City funds (Decrease) increase in prepaid terminal rent (Decrease) increase in billings over amounts billed Decrease (increase) in amounts to be billed
$ (195,472)
234,990 31'3,746
(14,127) 2,219 177 29,544 (131) 5,427 51,904
$ 131,306 218,212
(10,318) (2,542) '189 (5,008) 965 (4,817)
12,963
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS: Property additions in 2015 and 2014 of 5140,257 and $89,773 respectively, are included in accounts payable.
The fair market value adjustments gain (loss) to investments for 2015 and 2014 were S( 1,839) and $(4,316), respectively.
See notes to basic financial statements. (Concluded)
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CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
NOTES TO BASIC FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization—Chicago O'FIare International Airport (the "Airport") is operated by the City of Chicago Illinois (the "City") Department of Aviation. The Airport is included in the City's reporting entity as an enterprise fund. The City is a member of the Chicago-Gary Regional Airport Authority, which was created in 1995 to address the air transportation needs ofthe Chicago-Northwest Indiana Region.
Basis of Accounting and Measurement Focus—The accounting policies of the Airport are based upon accounting principles generally accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB). The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The accounts of the Airport are reported using the flow of economic resources measurement focus.
The Airport uses the accrual basis of accounting, under which revenues are recognized when earned and expenses are recognized when incurred.
Annual Appropriated Budget—The Airport has a legally adopted annual budget, which is not required to be reported.
Management's Use of Estimates—The preparation of basic financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the basic financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
Cash, Cash Equivalents, and Investments—Cash, cash equivalents, and investments generally are held with the City treasurer as required by the Municipal Code of Chicago (the "Code"). Interest earned on pooled investments is allocated to participating funds based upon their average combined cash and investment balances. Due to contractual agreements or legal restrictions, the cash and investments of certain funds are segregated and earn and receive interest directly.
The Code permits deposits only to City Council-approved depositories, which must be regularly organized state or national banks and federal or state savings and loan associations, located within the City, whose deposits arc federally insured.
Investments authorized by the Code include interest-bearing general obligations ofthe City, the State of Illinois (the "State"), and the U.S. government; U.S. Treasury bills and other non-interest-bearing genera] obligations ofthe U.S. government purchased in the open market below face value; domestic money market mutual funds regulated by and in good standing with the Securities and Exchange Commission; and tax anticipation warrants issued by the City. The City is prohibited by ordinance from investing in derivatives, as defined, without City Council approval.
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The Airport values its investments at fair value or amortized cost'as applicable.' U.S.-government
securities purchased at a price other than par with a maturity of less than one year are reported at •.
amortized cost. The fair value of U.S. agency securities, corporate bonds, and municipal bonds are
estimated using recently executed transactions, market price quotations (where,obser-vabje), or bond
spreads. •.
Repurchase agreements can be purchased only from banks and certain other institutions authorized to do business in the State. The City treasurer requires that securities pledged to secure these agreements have a market value equal to the cost ofthe repurchase agreements plus accrued interest.
Investments, generally, do not have a maturity in excess, of 30 years from the date of purcha'seCertain other investment balances are held in accordance with: the specific provisions, of the applicable bond ordinances.
Cash, equivalents; include, certificates pfdeposit and.other, investments with maturities of three months or less when purchased. •
Accounts Receivable Allowance—Management has provided an allowance for amounts recorded at year-end, which may be uncollectible.
Revenues and Expenses—Revenues from landing, fees, terminal, area use charges, fueling system charges, parking revenue, and concessions are reported as operating revenues. Revenues that are related to financing, investing, customer facility charges (CFC), and passenger facility charges (PFC) arc
. reported as .nonoperating revenues. Salaries and wages, repair and, maintenance, professional and
engineering services, and other expenses that relate to Airport operations are reported as operating
expenses. Interest expense, PFC expenses, financing costs, and noise mitigation costs are reported as
nonoperating.expenses. ,,,, .
Transactions with.the City—The City's general fund provides services to the Airport. The amounts allocated to the Airport for these services are treated as operating expenses by the. Airport and consist mainly of employee benefits, self-insured risks, and administrative expenses.
Property and Facilities—Property and facilities are recorded at cost or, for donated assets, at market value at the date of acquisition. Expenditures greater than $5,000 for the acquisition, construction, or equipping of capital projects, together with related design, architectural, and engineering fees, are capitalized. Expenditures for vehicles and other movable equipment are expensed as incurred.
Depreciation and amortization are provided using the straight-line method and begin in the year following the year of acquisition or completion. Estimated useful lives, are as follows:
Runways, aprons, tunnels, taxiways, and paved roads 30 years
Water drainage and sewer system 20-50 years
Refrigeration and heating systems 30 years
Buildings 40 years
Electrical system 15-20 years
Other 10-30 years
Deferred Outflows—Deferred outflows represent the fair value of derivative instruments that are deemed to be effective hedges, unamortized loss on bond refundings and differences between estimated and actual investment earnings related to pensions, and changes in actuarial assumptions related to pensions.
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Deferred Inflows—Deferred inflows represent the differences between projected and actual actuarial experience related to pensions.
Net Position—Net position comprises the net earnings from operating and nonoperating revenues, expenses, and capital grants. Net position is displayed in three components—net investment in capital assets; restricted for debt service, capital projects, PFCs, airport use agreement and airport development fund, CFCs, and other assets; and unrestricted. Net investment in capital assets consists of all capital assets, net of accumulated depreciation, and reduced by outstanding debt, net of debt service reserve and unspent proceeds. Restricted net position consists of net position on which constraints are placed by external parties (such as lenders and grantors), laws, regulations and enabling legislation. Unrestricted net position consists of all other net position not categorized as either of the above.
Employee Benefits—Employee benefits are granted for vacation and sick leave, workers' compensation, and health care. Specified unused vacation leave is accrued and may be carried over for one year. Sick leave is accumulated at the rate of one day for each month worked, up to a maximum of 200 days. Severance of employment terminates all rights to receive compensation for any unused sick leave. Sick leave pay is not accrued. Employee benefit claims outstanding, including claims incurred but not reported, are estimated and recorded as liabilities. The Airport maintains insurance from a commercial carrier for workers' compensation claims. Settlements in each ofthe past two years have been less than insurance coverage maintained.
Employees are. eligible to defer a portion of their salaries until future years under the City's deferred compensation plan.created in accordance with Internal Revenue Code Section 457. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. The plan is administered by third-party administrators who maintain the investment portfolio. The plan's assets have been placed in trust accounts with the plan administrators for the exclusive benefit of participants and their beneficiaries and are not considered assets of the City.
The City is subject to the State of Illinois Unemployment Compensation Act and has elected the reimbursing employer option for providing unemployment insurance benefits for eligible former employees. Under this option, the City reimburses the State for claims paid by the State.
Bond Issuance Costs, and Bond Premiums, and Discounts—Bond issuance costs related to bond insurance and bond premiums and discounts are deferred and amortized over the term of the related debt. Other debt issuance costs are expenses in the period incurred.
Capitalized Interest—Interest expense on construction bond proceeds are capitalized during construction on those capital projects paid from the bond proceeds and are being amortized over the depreciable life ofthe related assets on a straight-line basis.
Capital Grants—The Airport reports capital grants as revenue on the statements of revenues, expenses, and changes in net position. Capital grants are on a reimbursement basis and revenues are recognized when associated capital expenditures become eligible for grant reimbursement.
Noise Mitigation Costs—Funds expended for the noise mitigation program are recorded as nonoperating expenses in the period they are incurred.
Revenue Recognition—Landing fees, terminal area use charges, and fueling system charges are assessed to the various airlines throughout each fiscal year based on estimated rates. Such rates are designed to yield collections from airlines adequate to cover certain expenses and required debt service and fund deposits as determined under provisions of the Amended and Restated Airport Use Agreement
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and Terminal Facilities Lease and the International Terminal Use Agreement and»Facilities Lease ("Use Agreements"). Incremental amounts due from the airlines arise when amounts assessed, based on the estimated rates used during the year, are less than actual expenses and required deposits for the year. -Such incremental amounts-due from airlines-are includedin-amdunts-to^be billed. Incremental amounts due to the airlines arise when amounts assessed,:based on the estimated rates'used during the year, exceed actual expenses and required-deposits for the year: Such incremental amounts due to airlines are included in billings over amounts earned-.-
Passenger Facility Charge Revenue—The Airport imposedPFCs of $4.50 per eligible enplaned
passehger'for'the'yearsiendediDecem to
Federal Aviation'Administration regulation and approval,- to-finance'specific eligible capital projects.
The City reports PFC revenue as nonoperating revenue and related noncapital expenses as nonoperating
expenses. • ¦" ¦ v,; io;-:-, • " v.-
Customer Facility Charge Revenue^—The Airport imposed-a CFC of $8:00 per contract day. on each •customer for motor vehicle rentals at the'Airport beginning August 1, 2010. CFCs are available to finance specific1 eligible capital projects. The'City reports CFG revenue as; nonoperating revenue and related noncapital expenses' as nonoperating expenses in -conformity with>industry practice. ¦
Adopted Accounting Standards—Accounting arid Financial Reporting for Pensions, an amendment of GASB Statement No. 27 ("GASB No. 68"), establishes new financial reporting requirements for most governments ;that provide theiremployees -With pension benefits through theseitypes of plans. The City adopted GASB 68 for the year ended December 31, 2015. GASB 68 replaces ;the requirements-of GASB Statement Noi' 27'iAccounting for Pensions by State and' Local-GovernmentabEmployersand:GASB Statement Nov 50>,; Pension-Disclbsures,- as> they relate to "governments;that provide" pensions through pension-plans administered as trusts "or-similar arrangements that meet certain criteria. GASB 68 requires governments providing defined benefit- pensions 'to 'recognize' their; long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. The Statement also enhances accountability and transparency through revised and new note disclosures-and'fequifedisupplerh'enta^ was restated as a result of implementation ;of this-standard'(see: Note 12)<'' '::
Pension Transition for Contributions Made Subsequent to the Medsuremerit'Ddte—an amendment of GASB Statement No. 68 ("GASB 7 l 'Ov relates'to ambunts associated with contributions, if any, made by a state or local government employer or nonetriployer contributing entity to a defined-benefit pension plan after the measurement date ofthe government's beginning net pension liability. GASB 71 became effective for the O'Hare Fund beginning with the year'ended December^ 1,; 20F5:'This'Statcment amends paragraph 137 of GASB 68 to require that, at transition, a government recognize e beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability and requires that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions to be reportedat transition only if it is practical to determine all such amounts. Theresas nO impact on the O'Hares Fund's Financial statements as a result ofthe implementation of GASB 71.
Upcoming Accounting Standards—Other accounting standards that O'Hare is currently reviewing for applicability and potential impact on the basic financial statements include:
GASB Statement No. 72 Fair Value Measurement and Application ("GASB 72"), addresses accounting and financial reporting issues related to fair value measurements. GASB 72 will be effective for the Airport beginning with its year ending December 31, 2016. This Statement provides guidance for determining a fair value measurement for financial reporting purposes and the related disclosures. This
Statement requires a government to use valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value. This Statement establishes a hierarchy of inputs to valuation techniques used to measure fair value. This Statement also requires disclosures to be made about fair value measurements, the level of fair value hierarchy, and valuation techniques.
GASB Statement No. 73, Accounting and Financial.Reporting for Pensions.and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 ("GASB 73"), extends the approach to accounting and financial reporting established in Statement 68 to all pensions. Requirements of this Statement for pension plans that are within the scopes of Statement No. 67, Financial Reporting for Pensions or Statement 68 will be effective for the Airport beginning with its year ending December 31, 2016. It establishes requirements for defined contribution pensions that are not within the scope of Statement 68. GASB 73 clarifies the application of certain provisions of Statements 67 and 68 with regard to: (1) Information that is required to be presented as notes, (2) Accounting and financial reporting for separately financed specific liabilities, and (3) Timing of employer recognition of revenue.
GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans ("GASB 74"), replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB (Other Postemployment Benefits) Measurement by Agent Employers and Agent Multiple-Employer Plans. GASB 74 will be effective for the Airport beginning with its year ending December 31, 2017. Included'are requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures. GASB 74 also includes requirements to address financial reporting for assets accumulated for purposes of providing defined benefit OPEB through OPEB plans that are not administered through trusts that meet the specified criteria.
GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other. Than Pensions ("GASB 75"), replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. GASB 75 will be effective for the Airport beginning with its year ending December 31, 2018. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. Tn addition, this Statement details the recognition and disclosure requirements for employers with payables to defined benefit OPEB plans that are administered through trusts that meet the specified criteria and for employers whose employees are provided with defined contribution OPEB.
GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments ("GASB 76"), supercedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. GASB 76 will be effective for the Airport beginning with its year ending December 31, 2016.
GASB Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans ("GASB 78"), amends the scope and applicability of Statement 68. It excludes pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local government pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local government employers, and (3) has no
predominate state or local government employer: This. Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosure; and required supplementary information for pensions that have the characteristics described above. GASB 78 will be effective for the Airport beginning with its year ending December 31^, -2016. ¦ ¦
GASB Statement No. 79, Certain External Investment Pools and Pool Participants ("GASB 79"), addresses accounting and financial reporting-forcertain external investment pools and pool participants. It establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. GASB'79 establishes additional note disclosure requirements forqu'alifyihgiextemafinve'stme at amortized1 costs for financial reporting purposes and for governments that participate in those pools. GASB 79 will be effective for the Airport beginning with its year ending:December 31,2016.
GASB Statement No. 82, Pension Issues, an amendment! of GASB Statements-No. 67, No. 68, and No: 73i ("GASB. 82"); addresses issues regarding >(l)4hepresentation of payrolls-related measures in required supplementary information;^) the selection.of assumptions and:the treatment-of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments rhade by employers to satisfy employee (Plan member) contribution requirements: GASB 82 willbe effective for the Airport beginning-with its year ending'December 31,
2017.;;-" "¦" ¦""''"" ~r~...
RESTRICTED AND UNRESTRICTED CASH, CASH EQUIVALENTS, AND INVESTMENTS
Investments—U.S. agencies include investments in,government-sponsored enterprises such as Federal National Mortgage Association',-Federal' Home Loan Banks, and-Federal Home Loan Mortgage Corp. The Airport had investments1 as of December 31, 2015 <-as< follows (dollars hithousands):-.-''"-.
Investment Type
U.S. agencies U.S. Treasuries Commercial paper Corporate bonds Municipal bonds Certificates of deposits and other short term
Less than 1
$ 266,777
248,954 11,002 76,532 1,222,505
6-10
$ 14,001
16,720
Investment Maturities (in Years)
1-5 .
$ 535;005 . 19,759
69,808 126,366
Fair Value
$ 815,783 19,759 248,954 97,530 202,898 1.222,505
$ 1,825,770 S 750,938 $ 30,721 $'
Share of City's pooled funds
$2,610,071
The Airport had investments as of December 31, 2014, as follows (dollars in thousands):
Investment Maturities (in Years)
; More
Investment Type Less than 1 1-5 6-10 than 10 Fair Value
U.S. agencies $ 243,573 $1,016,260 $49,654 $ - $1,309,487
Commercial paper 130,890 130,890
Corporate bonds 17,240 26,322 43,562
Municipal bonds 34,278 178,416 7,300 219,994
Certificates of deposits
and other short term 925,546 925,546
Subtotal $1,351,527 $1,220,998 $ 56,954 $ - 2,629,479
Share of City's
pooled funds 1,872
Total $2,631,351
Interest Rate Risk—As a means of limiting its exposure to fair value losses arising from rising interest rates, the City's investment policy requires that investments generally may not have a maturity date in excess of 30 years from the date of purchase. Certain other investments are held in accordance with the specific provisions of applicable ordinances.
Credit Risk—With regard to credit risk, the Code limits the investments in securities to:
Interest-bearing general obligations of the United States and the State of Illinois;
United States treasury bills and other non-interest bearing general obligations of the United States or United States government agencies when offered for sale at a price below the face value of same, so as to afford the city a return on such investment in lieu of interest;
Tax anticipation warrants, municipal bonds, notes, commercial paper or other instruments representing a debt obligation issued by the City of Chicago;
Commercial paper which: (1) at the time of purchase, is rated in the two highest classifications by at least two accredited ratings agencies; and (2) matures not more than 270 days after the date of purchase;
Reverse repurchase agreement if: (1) the term does not exceed 90 days; and (2) the maturity of the investment acquired with the proceeds of the reverse repurchase agreement does not exceed the expiration date ofthe reverse repurchase agreement; Reverse repurchase agreements may be transacted with primary dealers and financial institutions, provided that the City has on file a master repurchase agreement;
Certificates of deposit of banks or savings and loan associations designated as municipal depositories which arc insured by federal deposit insurance; provided that any amount of the deposit in excess of the f ederal deposit insurance shall be collateralized as noted in Custodial Credit Risk - Cash and Certificates of Deposit below;
Bankers acceptance of banks'whose senior obligations, at the time of purchase, are rated in cither the AAA or AA rating categories by at least two accredited ratings agencies;
Tax-exempt securities exempt from federal arbitrage provisions applicable to investments of proceeds of the City's tax-exempt debt obligations; :;
Domestic money market mutual funds regulated by and in good standing with the Securities and
Exchange Commission; provided that such money .market mutual funds ''.portfolios are limited to
investments authorized by this section;" ,' ¦'
Any other suitable investment instrument permitted .by-state laws governing municipal investments generally, subject to the reasonable exercise of prudence in making investments of public funds;
Except where otherwise restricted or prohibited, a non-interest-bearing savings account, non-interest-bearing checking account or other non-interest bearing demand account established in a national or state bank, or a federal or state savings and loan association, when, in the determination of the treasurer, the placement of such funds in the non-interest bearing account is used as compensating balances to offset fees associated with that account that will result ihcost savings to the City;
Bonds of companies organized in the United State's With assets exceeding $500.0 million that, at
thetime of purchase, are rated hot'less thah'A-, or .equivalent fating, by at least two accredited
ratings' agencies; ' '' ' ' ' ''
Debt instruments of international financial institutions, including but not limited to the World Bank
and^he' Iritematibhal'Monefaiy F fated within 4'intermediate
credit ratings^of the United States sovereign credit rating by at least two accredited ratings
agencies, but not less than an A-ratirig, or equivalent rating. The maturity of investments
authorized in this subsection shall not exceed 10 years. For purposes of this subsection, an
"international financial institution" means a financial institution that has been established or
chartered by more than one country arid the owners or shareholders are generally national
governments or other international institutions such as the United Nations;
United States dollar denominated debt instruments of foreign sovereignties that, at the time of purchase, are rated within'4 intermediate credit rating's of the United State's sovereign credit rating by at least two accredited ratings agencies, but not less than an A-rating or equivalent rating;
Interest-bearing bonds of any county, township, city, village,'incorporated town, municipal corporation, or school district, of the State of Illinois, of any other state, or of any political subdivision or agency ofthe State of Illinois or of any other state, whether the interest earned thereon is taxable or tax-exempt under federal law. The bonds shall be registered in the name ofthe city or held under a custodial agreement at a bank. The bonds shall be rated, at the time of purchase, not less than A-, or equivalent rating, by at least two accredited rating agencies with nationally recognized expertise in rating bonds of states and their political subdivisions;
Bonds registered and regulated by the Securities and Exchange Commission and for which the full faith and credit of the State of Israel is pledged for payment; provided that the bonds have an A-rating or above or equivalent rating by at least two accredited ratings agencies;
Bonds, notes, debentures, or other similar obligations of agencies ofthe United States rated, at the time of purchase, no less than AAA by at least two accredited rating agencies.
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Total holdings across all funds held by the treasurer shall have no less than an overall average rating of Aal on a quarterly basis, as rated by two accredited rating agencies. The Airport's exposure to credit risk as of December 31, 2015 and 2014, is as follows (dollars in thousands):
Quality Rating
Moody's/S & P
Aaa/AAA Aa/AA A/A Pl/Al Not rated
$ 57,119 853,412 27,949
.1,668,949
$ 55,828
1,373,002 15,075 240,348 945,226
$2,607,429
The Airport participates in the City's pooled cash and investments account, which includes amounts from other City funds and is maintained by the City treasurer. Individual cash or investments are not specifically identifiable to any participant in the pool. The Treasurer's pooled fund is included in the City's Comprehensive Annual Financial Report.
Custodial Credit Risk—Cash and Certificates of Deposit—This is the risk that in the event of a bank failure, the City's Deposits may not be'returned. The City's Investment Policy states that in order to protect the City public fund deposits, depository institutions are to maintain collateral pledges on City deposits and certificates of deposit during the term ofthe deposit.
For certificates of deposit of banks or savings and loan associations designated as municipal depositories which are insured by federal deposit insurance, any amount ofthe deposit in excess ofthe federal deposit insurance shall be either: (1) fully collateralized at least 102 percent by: (i) marketable U.S. government securities marked to market at least monthly; (ii) bonds, notes, or other securities constituting the direct and general obligation of any agency or instrumentality ofthe United States; or (iii) bonds, notes or other securities constituting a direct and general obligation of any county, township, city, village, incorporated town, municipal corporation, or school district, of the State of Illinois or of any other state, or of any political subdivision or agency of the State of Illinois or any other state which are rated in either the AAA or AA rating categories by at least two accredited ratings agencies and maintaining such rating during the term of such investments; (2) secured by a corporate surety bond issued by an insurance company licensed to do business in Illinois and having a claims-paying rating in the top rating category as rated by a nationally recognized statistical rating organization and maintaining such rating during the term of such investment; or (3) fully collateralized at least 102 percent by an irrevocable letter of credit issued in favor ofthe City of Chicago by the Federal Home Loan Bank, provided that the Federal Home Loan Bank's short-term debt obligations are rated in the highest rating category by at least one accredited ratings agency throughout the term ofthe certificate of deposit.
The collateral required to secure City funds must be held in safekeeping and pursuant to collateral agreements which would prohibit release or substitution of pledged assets without proper written notification and authorization ofthe City Treasurer. The final maturity of acceptable collateral pledged shall not exceed 120 months.
The bank balance of cash and certificates of deposit with the City's various municipal depositories was $626.6 million as of December 31, 2015. Ofthe bank balance, 98.3% was cither insured or collateralized with securities held by City agents in the City's name. An amount of $10.5 million was uncollatcralized at December 31, 2015, and thus was subject to custodial credit risk.
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The investments reported in the basic financial statements as of December 31 ^2015 and 2014, is as follows (dollars in thousands):
2015
Per Note 2: Investments—Airport Investments^City Treasurer Pooled Fund
$ 2,607,429 2,642
$2,629,479 - 1,872
$2,610,071 $2,631,351
Per financial statements: . Restricted investments
Unrestricted investments
Investments classified as cash and cash , equivalents, on the statements pf net position
$1,182,225 44,621
¦ 1,383,225
$1,503,728 • 94,002
1,033,621
$,2,610,07.1 $2,63.1,351
RESTRICTED ASSETS
The General Airport Revenue Bond Ordinance ("Bond Ordinance"), the Master Indenture of Trust Securing ChicagOTO'Harcfnternational Airport Second Lien Obligations ("Second Lien Indenture"), the Master Indenture of Trust SecuringiChicago-O'Harc; International Airport.Third Lien Obligations ("Third Lien Indenture"), the Use Agreement, and federal regulations contain various limitations and restrictions which;-among other-things,:requirethe-creation and maintenance' of. separate saccourits, certain of which must be held by a trustee and-into which-requiredjdeposits are made by the. Airport on a periodic basis to fund construction, debt retirement, operation and maintenance, and contingencies.
Restricted cash, cash equivalents, and investment balances in accordance with the Bond Ordinance, the Second Lien Indenture, and the Third Lien Indenture requirements are as follows (dollars in thousands):
Account
Construction
Capitalized: interest >
Debt service reserve
Debt service interest
Debt'service principal
'Operation and maintenance reserve
Maintenance reserve
Customer facility charge
Airport Development Fund
Other funds
Subtotal—Bond Ordinance, Master Indenture Accounts Passenger facility charge Total
2014
J 668,758
94,134 618,529 356,405
43,965 128,068 3,000
91,195 309,392
35,669
2,349,115 113.676
2015
; .650,533
79,579 63'l',717 ,347,458
46,422 133,758 3,000
93,856 342,535
42,571
2,371,429 126,312
$2,497,741 $2,462,791
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Construction and capitalized interest accounts are restricted for authorized capital improvements and payment of interest costs during construction.
The debt service reserve account is restricted to the payment of debt service in the event that the balance in the debt service account is insufficient.
The debt service principal and interest accounts are restricted to the payment of bond principal and interest.
The operation and maintenance reserve account is restricted to make loans to the operation and maintenance account, as needed, which are to be repaid as funds become available. The maintenance reserve account is restricted to extraordinary maintenance expenditures.
The City has entered into arbitrage agreements under which the City has agreed to comply with certain requirements of the Internal Revenue Code of 1986, as amended, in order tb maintain the exclusion of the interest on the bonds from the gross income of the recipients thereof for federal income tax purposes. The rebate account relating to each series of the bonds has been established to account for any liability ofthe City to make arbitrage rebate payments to the federal government relating to such series of bonds.
The Airport Development Fund is restricted and may be used by the Airport for any lawful Airport purpose.
Other funds include the federal and state grant funds and the special capital projects fund. The PFC account is restricted lo fund eligible and approved PFC projects.
The customer facility charge account is restricted to fund eligible and approved CFC projects.
At December 31, 2015 and 2014, the Airport believes it was in compliance with the funding requirements and restrictions as stated in the Bond Ordinance and Master Indenture.
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4. LONG-TERM DEBT
Long-term debt at December 31, 2015 and 2014, consisted of the following (dollars in thousands):
2015 2014
Senior lien bonds (formerly third lien):
$248,910 Series 2003 A-1 and A-2 third'lien revenue refunding bonds
issued August 14,2003, due through 2034; interest at 4.50%-6.00% $ - $ 46,370
' ;S382;155'.Scries2003,Brl and B-2-third lien reyenuebpnds-: - ¦ - •. r. ¦ 1 '
. issued August 21, 2003, due through 2034; interest at 5.25%-6.00% ., . . 152,535
$355,245 Series 2003 C-l and C-2 third lien revenue refunding bonds issued August 21, 2003, due through 2034; interest at 5.25% 335,980
$149,330 Series 2003;D, E and F third lien revenue bonds : , . . .
.'. issued[December 2, 2003, due through 2034; interest at 2.125%-5.5% '' "" ' ' 75,915
• '$281)655 Series 2004'A arid B third lien'revenue refunding bonds •'•
issued December 2, 2004; due through 2035; interest at 4:75%-5.0% M45.870
, $39,-700 Series 2004 C. and D.third lien revenue refunding bonds . -
issued December 2, 2004,' due through 2026; interest at 4.70%-5.25% 39,700
$29,360 Series 2004 E, F, G, and H third lien revenue refunding bonds
: issued:December 2, 2004; due through 2023;- interest at 3.49%-5.35%" 29,360 29,360
$961,010 Series 2005 A third lien revenue bonds issued December 22, 2005, due through 2033;.interest at.5.0%-5.25% 961,010
$238,990 Series 2005 B third lien revenue refunding bonds
issued December 22, 2005, due through.2018; interest:at 5.25% • 143,215. 192,335
$300,000 Series 2005 C and D third lien revenue bonds issued December 22, 2005, due through 2035; variable floating interest rate 0.01%
and 0.02%% at December 31, 2015 240,600 240,600
$112,630 Series 2006 A, B, and C third lien revenue refunding bonds
issued December 13,2006, due through 2037; interest at 4.55%-5.50% 30,280 30,280
$43,520 Series 2006 D third lien revenue bonds issued December 13, 2006, due through 2037; interest at 4.55%-5.00% 27,250
$530,170 Series 2008 A third lien revenue bonds
issued January 31, 2008, due through 2038; interest at 4.5%-5.0% 530,170 530,170
$175,500 Scries 2008 A third lien revenue bonds
issued January 31, 2008, due through 2020; interest at 5.0% 175,500 175,500
$74,245 Series 2008 C and D third lien revenue bonds
issued January 31, 2008, due through 2038; interest at 4.0%-4.6% 68,495 69,550
(Continued)
591,590 Series 2010 A third lien revenue bonds issued April 29, 2010, due through 2040; interest at 3.0%-5.0%
$669,590 Scries 2010 B third lien revenue bonds issued April 29, 2010, due through 2040; interest at 6.145%-6.845%
$171,450 Series 2010 C third lien revenue bonds issued April 29, 2010, due through 2035; interest at 4.00%-5.25%
$55,850 Scries 2010 D third lien revenue refunding bonds issued April 29, 2010, due through 2019; interest at 5.00%-5.25%
$47,360 Series 2010 E third lien revenue refunding bonds issued April 29, 2010, due through 2016; interest at 1.75%-5.00%
$95,375 Series 2010 F third lien revenue refunding bonds issued April 29, 2010, due through 2040; interest at 4.25%-5.25%
$420,155 Series 2011 A third lien revenue bonds issued May 5, 2011, due through 204); interest at 5.625%-5.750%
$295,920 Series 2011 B third lien revenue bonds issued May 5, 2011, due through 2041; interest at 3.00%- 6.00%
$283,925 Series 2011 C third lien revenue bonds issued May 5, 2011, due through 2041; interest at 5.50%-6.50%
$444,760 Scries 2012 A senior lien revenue refunding bonds issued September 12, 2012, due through 2032; interest at 1.00%-5.00%
$277,735 Series 2012 B senior lien revenue refunding bonds issued September 12, 2012, due through 2032; interest at 1.00%-5.00%
$6,400 Scries 2012 C senior lien revenue refunding bonds issued September 12, 2012, due through 2015; interest at 3.00%^1.00%
$336,350 Scries 2013 A senior lien revenue refunding bonds issued October 17, 2013 due through 2026; interest at 2.00%-5.00%
$165,435 Series 2013 B senior lien revenue refunding bonds issued October 17, 2013 due through 2029; interest at 2.00%-5.25%
$98,375 Series 2013 C senior lien revenue bonds issued October 17, 2013 due through 2044; interest at 5.00%-5.50%
$297,745 Series 2013 D senior lien revenue bonds issued October 17, 2013 due through 2044; interest at 3.00%-5.25%
$428,640 Scries 2015 A senior lien revenue refunding bonds issued October 15, 2015 due through 2037; interest at 2.00%-5.00%
$1,191,540 Scries 2015 B senior lien revenue refunding bonds issued October 15, 2015 due through 2035; interest at 4.00%-5.00%
$195,690 Scries 2015 C senior lien revenue bonds issued October 15, 2015 due through 2046; interest at 3.625%-5.000%
$131,510 Scries 2015 D senior lien revenue bonds issued October 15, 2015 due through 2046; interest at 4.000%-5.000%
Subtotal—senior lien bonds
2015 2014
$ 47,325 $ 47,670
578,000 578,000
171,450 171,450
51,880 55,595
8,625 16,850
95,735 95,735
420,155 420,155
279,040 293,805
283,925 283,925
371,245 399,975
234,430 255,280
3,365
328,680 330,645
154,880 162,785
98,375 98,375
297,745 297,745
428,640
1,191,540 195,690
131,510
6,586,490 6,563,780
(Continued)
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2015 2014
Passenger Facility Charge Revenue Bonds:
$l 11,425 Scries 2008 A Passenger Facility Charge Revenue Refunding Bonds
issued January 31,2008, due through 2016; interest at 4.0%-5.0% S 24,465 $ 47,790
$24,965 Series 2010 A Passenger Facility Charge Revenue Bonds
issued May 27, 2010, due through 2040; interest at 5.00%-5.25% 24,965 24,965
$51,305 Scries 2010 B Passenger Facility Charge Revenue Bonds
issued May 27,2010, due through 2040; interest at 5:00%-5.25% 51,305 51,305
$48,495 Series 2010 C Passenger Facility Charge Revenue Bonds
issued May 27, 2010, due through 2031; interest at5.272%-6.395% ' 48,495 48,495
$12,900 Series 2010 D Passenger Facility Charge Revenue Refunding Bonds
issued May 27,2010, due through 2019; interest at 2.0%-5.0% 7,700 9,405
$12,190 Scries 2011 A Passenger Facility Charge Revenue Refunding.Bonds ¦¦¦¦¦¦ ¦¦
issued May 5, 2011, due through 2032;.interest at 5.00%-5.625% 12-190 12,190
$33,815 Series 2011 B Passenger Facility Charge Revenue Refunding Bonds
issued May 5, 2011, due through 2033; interest at 5.0%-6.0% — - - - 33|815-:— 33,815
$114,855 Series 2012 A Passenger Facility Charge Revenue Refunding Bonds
issued September 12, 2012, due through 2032; interest at 3.0%-5.0% : 113/705 113,705
$337,240 Series 2012 B Passenger Facility Charge Revenue Refunding Bonds,
issued September 12, 2012, due through 2032; interest at 2.5%-5.0%314,605 322,110
Subtotal—Passenger Facility Charge Revenue Bonds 631;245 ' 663,780
Customer Facility Charge Revenue Bonds—$248,750 Series 2013 A Senior Lien
CFC Bonds issued August 22, 2013, due through 2043; interest at 3.0%-5.75% 248,750 248,750
Commercial Paper Notes -Series A, B, C, D, E, F (Taxable) Commercial Paper Notes
outstanding at December 31, 2014, due through 2015; interest at. 10%-. 13% 51,026
Total revenue bonds and notes 7,466,485 7,527,336
Unamortized premium 374,179 199,169
7,840,664 7,726,505
Current portion (221,220) (189,605)
Total long-term revenue bonds payable $7,619,444 $7,536,900
(Concluded)
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Long-term debt during the years ended December 31, 2015 and 2014, changed as follows (dollars in thousands):
Balance January 31
Balance December 31
Due within One Year
Revenue bonds and notes Unamortized premium (discount)
Total long-term debt
$221,220
> 2,023,142 ¦217,076
$7,466,485 374,179
$(2,083,993) (42,066)
$7,726,505 $2,240,218. $(2,126,059) $7,840,664. . $221,220
2014
Revenue bonds and notes Unamortized premium (discount)
Total long-term debt
Balance January 31
$7,665,205 224,056
Additions
! 31,026 1,060
Reductions
$ (168,895) (25,947)
Balance December 31
$7,527,336' 199,169
Due within One Year
$189,605
Interest expense capitalized for 2015 and 2014 totaled $39.7 million and $72.3 million, respectively. Interest income capitalized for 2015 and 2014 totaled'$3.8 million and $6.4 million, respectively. Interest expense includes amortization of the deferred loss on bond refunding for 2015 and 2014 of $9.0 million and$ 12.8 million^ respectively, and amortization of $26.5 million of premium, net, and $24.9 million of premium, net, respectively.
Issuance of Debt—Chicago O'Hare International Airport Commercial Paper Notes ("O'Hare CP Notes"), Series A-1 through E-l (AMT), Series A-2 through E-2 ("Non-AMT"), Series A3 through E3 ("Taxable"), $275.0 million maximum aggregate principal amount of which $0 million was outstanding at December 31, 2015. The City has excluded commercial paper from current liabilities as it intends and has the ability to refinance the obligation on a long-term basis. Irrevocable letters of credit delivered by five banks in an aggregate maximum principal amount of $305.9 million provide for the timely payment of principal and interest on the notes until September 30, 2016. At December 31, 2015, there were no outstanding letter of credit advances.
In October 2015, the Airport sold $428.6 million of Chicago O'Hare International Airport Senior Lien Revenue Refunding Bonds, Series 2015 A (AMT) at a premium of $42.2 million. The bonds have interest rates ranging from 2% to 5%. The bonds arc not subject to mandatory sinking fund redemption prior to maturity and have maturity dates ranging from January 1, 2016, through January 1, 2037. Certain net proceeds of $468.2 million were used to defease a portion of the Series 2003A-1 General Airport Revenue Bonds ($20.0 million of principal and $0.4 million of interest), a portion of Series 2003B-1 General Airport Revenue Bonds ($0.5 million of principal and interest), to fully defease the Series 2003B-2 General Airport Revenue Bonds ($138.8 million of principal and $3 million of interest),a portion of Series 2003C-2 General Airport Revenue Bonds ($82.0 million of principal and $1.6 million of interest), a portion of Series 2003D General Airport Revenue Bonds($.02 million of principal and interest), a portion of Series 2003E General Airport Revenue Bonds ($22.9 million of principal and $.4 million of interest),a portion of Series 2004A General Airport Revenue Bonds ($131.0 million of principal and $2.4 million of interest), a portion of Series 2004C General Airport Revenue Bonds ($29.2 million of principal and $.6 million of interest), a portion of Series 2004D General Airport Revenue Bonds ($7.4 million of principal and $.1 million of intcrest),and to fully defease the Series 2006D General Airport Revenue Bonds ($27.2 million of principal and $.5 million of interest). Certain net proceeds of $2.6 million were used to pay the cost of the issuance ofthe bonds. The current refunding resulted in a difference between the acquisition price and the net carrying amount of $4.8 million that will be charged to operations over 5 to 23 years using the straight-line method. The
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current refunding decreased the Airport's total debt service-by $75:4 million and'resulted in an economic gain (difference between the present value of the old debt and the new debt service payments of $54.1 million.
In October 2015, the Airport sold $1,191.5 million of Chicago O'Hare International Airport Senior Lien Revenue Refunding Bonds, Series 2015 B (non-AMT) at a premium of $154-8 million. The bonds have interest rates ranging from. 4% to 5%. The bonds are not subject to mandatory sinking fund redemption prior to maturity and have maturity dates ranging from January 1, 2016, through January 1, 2035. Certain net proceeds of $1,339.4 millipn .were used to fully defease a portion of Series 2003A-1 General Airport Revenue Bonds ($9.3 million of principal and $ 0.2 million of interest),a portion of Series 2003B-1 General Airport Revenue Bonds ($13v2: million of principal and $0.3 million of interest), to fully'defease the Series 2003C-1 General Airpoft'Revenue Bonds ($5.2 million of principal and .$0.1 million of interest. ),.a portion of.Series 2003C-2 General Airport Revenue Bonds ($248.7 million of principal and $4.8 million of interest),a portion of Series 2003D.General AirportRevenue Bonds ($36.0 million of principal and $0.7 million of interest), a portion of Series 2003E General Airport -Revenue'Bonds ($16.8 million principal and SO.3 million of interest), a portion of Series 2004A General Airport Revenue Bonds ($14.9 million of principal and $0.3 million of interest), a portion of Series 2004C General'Airport Revenue Bonds ($2.9 million of principal and $0.1million; of interest), a portion of, Series! 2004D General Airport Revenue Bonds. ($0.3 million of principal and interest), and to fully defease .the Series 2005A General Airport Revenu.e^^
$24.3 million of interest). Certain net proceeds of $6.9 million were used to pay the cost of the issuance ofthe bonds. The advance refunding resulted in a differencefbetwecn the, acquisition price and the net carrying amount of $14.6 million that will be charged to operations over 5 to 20 years using the straight-line method.-The current refundings of the.Bonds decreaseditheiAirport.'s;total;debt seryic.e:payments by ; $236:7/ million and tesulted in.an economic gain .(difference! betweeri the-present value'of the.old debt and the;newidebt seryieepayments)jo£ $169.4;million; r:-/,-.-•: ;i. .;,»<••.< > .':
In; October, 2015,, the Airport sold $195.7.million of Chicago O'Hare International Airport(Senior Lien Revenue Bonds, Series 2015 C-(AMT);at'a premium:of $11.3rmillion.,The-bonds have interest-rates ranging from 3.625%'to 5% and maturity and mandatory redemption maturity dates ranging from January 1, 2021, through January 1, 2046. Certain net proceeds of $59.8 million were used to pay a portion of the commercial paper notes; certain of net proceeds of $130.3 million will be used to finance the portion of the capital improvement program (CIP); certain net.proceeds of $10.4 million were used .to fund the capitalized interest deposit requirement, the debt service reserve deposit requirement and certain net- proceed of $ 1.2 million were, used to pay the cost of the issuance of the bonds-
In October j201.5, the Airport sold $131.5 million of Chicago O'Hare International Airport. Senior Lien Revenue Bonds, Series 2015 D (non-AMT).at a.premium of $8.8.million/The bonds have,interest rates ranging from 4 % to 5%, and maturity and mandatory redemption maturity dates ranging from January 1, 2021, through January 1, 2046; Certain net proceeds of.$67:1 million were used to pay a portion ofthe commercial paper notes; certain of net proceeds of $66.0 million, will be used to finance the portion ofthe CIP; certain of net proceeds of $3.6 million were, used ;to fund.the debt service reserve deposit requirement; certain net proceeds of $2.8 million were used to fund the capitalized interest deposit requirement; and certain net proceeds of $0.8 million were used to pay the cost of the issuance of the bonds.
Debt Redemption—Following is a schedule of debt service requirements to maturity of the senior lien bonds. For issues with variable rates, interest is imputed at the effective rate as of December 31, 2015, as follows (dollars in thousands):
Years Ending December 31
2016 2017 " 2018 2019 2020
2021-2025 2026-2030 2031-2035 2036-2040 2041-2045 2046
Principal
185,605 218,365 256,235 265,500 241,610 1,019,660 1,217,850 1,692,795 1,185,935 281,810 21,125
Interest
$ 298,831 316,876 305,116 292,488 280,214 1,245,268 969,583 624,635 250,787 30,424 528
Total
484,436 •535,241 561,351 557,988 521,824 2,264,928 2,187,433 2,317,430 1,436,722 312,234 21,653
$6,586,490 $4,614,750 $11,201,240
The Airport's senior lien variable-rate bonds may bear interest from time to time at a flexible rate, a daily rate, a weekly rate, and an adjustable long rate or the fixed rate as determined from time to time by, the remarketing agent in consultation with the City. At December 31, 2015, the O'Hare 2005 C&D Senior Lien Bonds were in weekly interest rate mode as of December 31, 2015. Irrevocable letters of credit ($244.8 million) provide for the timely payment of principal and interest on the Series 2005 C&D bonds until August 15, 2017. At December 31, 2015, there were no outstanding letter of credit advances.
The debt service requirements to maturity ofthe PFC Revenue Bonds as of December 31, 2015, is as follows (dollars in thousands):
Years Ending December 31
2016 2017 2018 2019 2020
2021-2025 2026-2030 2031-2035 2036-2040
30,303 28,505 26,609 25,018 23,891 100,104 58,738 15,080 3,959
Principal Interest
35,615 36,995 38,845 24,720 23,895 141,010 194,120 105,565 30,480
Total
65,918 65,500 65,454 49,738 47,786 241,114 252,858 120,645 34,439
$312,207
The debt service requirements to maturity of the CFC Revenue Bonds as of December 31, 2015, is as follows (dollars in thousands):
Years Ending December 31
2016 2017 2018 2019 2020
2021-2025 '
2026-2030
2031-2035-
2036-2040
2041-2043-
Principal
4,725 4,960 5,205 30,055 38,845 50,020 65,785 49,155
Interest
$ 13,554 13,554 13,436 13,194 12,955 60,553 51,521 39,998 23,720' 4,283
Total
$ 13,554 13,554 18,161 18,154 18,160 ' 90,608 90,366 90,018 89,505
' 53,438
$ 248,750
CHANGES IN CAPITAL ASSETS
Capital assets during the years ended December 31, 2015 and 2014, changed as follows (dollars in thousands):
Balance
2015 January 1
Capital assets not depreciated:
Land S 885,669
Construction in progress 752,331
Total capital assets not depreciated 1,638,000
Capital assets depreciated—buildings
and other facilities 8,208,757 Less accumulated depreciation for—buildings
and other facilities (2,973,903)
$ 6,872,854 $ 1,037,168 $(819,327) $ 7,090,695
Total capital assets depreciated—net 5,234,854 Total property and facilities- net Includes capitalized interest of $26,958
Balance
2014 January 1
Capital assets not depreciated:
Land $ 884,636
Construction in progress 845,495
Total capital assets not depreciated 1,730,131
Capital assets depreciated—buildings
and other facilities 7,769,955 Less accumulated depreciation for—buildings
and other facilities (2,757,985)
Total capital assets depreciated—net 5,011,970
Total property and facilities- net $ 6,742,101
Includes capitalized interest of $104,305
LEASING ARRANGEMENTS WITH TENANTS
Most ofthe Airport's land, buildings, and terminal space are leased under operating lease agreements with airlines and other tenants. The minimum future rental income on noncancelable! operating:leases as of December 31, 2015, is as follows (dollars in thousands):
Years Ending December 31
2016 2017 2018 2019 2020
2021-2025 2026-2030 2031-2035
$ 97,549
97,555 96,357 95,340 1,597 8,302 9,592 9,564
Total minimum future rental income
Contingent rentals that may be received under certain leases, based on the tenants' revenues or fuel .consumption,,are not included in minimum future rental income.
Rental income, consisting of all rental and concession revenues, except ramp rentals and automobile parking, amounted to approximately $414.2 million and $418.5 million in 2015 and 2014, respectively. .Contingent rebtals included in the totals.were approximately $87.0 million and $89.0 million for 2015 . . and-2014, respectively.
7. PENSION PLANS
General Information about the Pension Plan
Plan Description. Retirement Benefit—Eligible O'Hare Fund employees participate in one of four single-employer defined benefit pension plans (Plans). These Plans are: the Municipal Employees'(Municipal); the Laborcrs'(Laborers') and Retirement Board Employees'; the Policemen's (Policemen's); and the Firemen's (Firemen's) Annuity and Benefit Funds of Chicago. Plans are administered by individual retirement boards of trustees comprised of City officials or their designees and of trustees elected by plan members. Each Plan issues a publicly available financial report that includes financial statements and required supplementary information that can be obtained at www.meabf.org ., www.labfchicago.org , www.chipabf.org and www.fabf.orgg .
Benefits Provided—The Plans provide retirement, disability, and death benefits as established by State law. Benefits generally vest after 10 years of credited service. Employees qualify for an unreduced retirement age minimum formula annuity based on a combination of years of service and age of retirement. Employees may also receive a reduced retirement age minimum formula annuity if they do not meet the age and service requirements for the unreduced retirement age annuity. The requirement of age and service are different for employees who became members before January 1, 2011, and those who became members on or after January 1, 2011. The annuity is computed by multiplying the final average salary by a percentage ranging from 2.2 percent to 2.5 percent per year of credited service. The final average salary is the employee's highest average annual salary for any four consecutive years within the last 10 years of credited service for participants who became members before January 1, 2011 and any eight consecutive years within the last 10 years of credited service for participants who became members on or after January 1, 20! 1.
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Benefit terms provide for annual adjustments to each employee's retirement allowance subsequent to the employees' retirement date. For participants who became members before January 1, 2011, the annual adjustments for Municipal and Laborers are 3.0 percent, compounded, and for Firemen's and Policemen's 3.0 percent, simple, for annuitants born before 1955 and 1.5 percent, simple, born in 1955 or later. For participants that first became members on or after January 1, 2011, the annual adjustments arc equal to the lesser of 3.0 percent and 50 percent of CPI-U ofthe original benefit.
Contributions—Historically, State law required City contributions at statutorily, not actuarially, determined rates. State law also requires covered employees to contribute a percentage of .their salaries. The City's contribution was calculated based on the total amount of contributions by employees to the Plan made in the calendar year two years prior, multiplied by 1.25 for the Municipal, 1.00 for the Laborers', 2.00 for the Policemen's, and 2.26 for the Firemen's. The City's contributions are budgeted in the same year as the applicable levy year for the property taxes funding the contributions. The City's contributions are then paid to the pension hinds in the following year (which is when the levied property taxes are collected and paid to the City by the Cook County Treasurer).
State law in effect at December 31, 2015 for the Policemen's and Firemen's Plans, known as Public Act 96-1495 (P.A. 96-1495), requires the City to significantly increase contributions to those Plans beginning in 2015. In each year, the City must contribute the amount needed for each Plan to achieve a 90% Funded Ratio by the end of 2040.
Public Act 99-0506 (P.A. 99-0506) was enacted on May 31, 2016. P.A. 99-0506 changed the funding requirements required by Public Act 96-1495, providing that the City make a fixed contribution amount for 2015 through 2019 which is significantly larger than contributions made prior to the adoption of P.A. 96-1495 but smaller than the contributions required under P.A. 96-1495. P.A. 99-0506 requires that the City's contributions are at actuarially determined rates beginning in 2020 and future funding be sufficient to produce a funding level of 90% by the year ended December 31, 2055 (instead of 2040 required by P.A. 96-1495). As this law was enacted subsequent to December 31, 2015, the measurement of the City's net pension liability as of December 31, 2015, was not impacted, since the liability was measured using the law in effect as of December 31, 2015. The City will be taking into consideration the impact of this new law when measuring the liability in 2016. The new law is expected to increase the City's net pension liability.
The City's contributions to Municipal and Laborer's are determined pursuant to the formulas set forth in the Illinois Pension Code (the Pension Code). Pursuant to Public Act 098-641 (P.A. 98-641), the City's contributions to Municipal and Laborer's were scheduled to increase beginning in 2015; however, in July 2015 the Circuit Court of Cook County determined P.A. 98-641 to be unconstitutional. As a result of such determination by the court, the provisions of the Pension Code governing the City's contributions to MEABF and LABF have reverted to the provisions in effect prior to the enactment of P.A. 98-641. Furthermore, in March 2016, the Illinois Supreme Court upheld the ruling made by the Circuit Court.
The contribution to all four pension plans from the Airport was $25.8 million for the year ended December 31, 2015.
Pension Liabiu'tics, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
At December 31, 2015, the Airport reported a liability of $ 1,542 million for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
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that date. The Airport's proportion of the net pension liability was determined based onbudgeted
Airport salaries within each corresponding pension plan. At December 31, 2015; the Airport's
proportion was 5.8 percent of the Municipal Plan, 6.2 percent of the Laborer's Plan, 1.3 percent ofthe
Policemen's Plan and 4.9 percent of the Firemen'-s Plan: •>. ••• -|910|Changes in Benefits and Actuarial Assumptions: As discussed above, P.A. 98-0641 was determined to
be unconstitutional resulting in changes in the discount rate caused by a change in the required funding
policy and changes in benefits for the participants ofthe Municipal and Laborers pension'plans,1 which
include restoring full automatic annual increase and changes, in the retirement age for certain
participants.'' : ' * '•• •* ' ' ¦ ''¦ ' ¦ ¦¦ ¦';-v>
The change in the discount rate assumption increased the Airports'allocated net pension liability by $507.3 million.for Municipal and $73.1 million for Laborers'. This impact is.being.amortized over a five year period for Municipal and a four year period for Laborers'. The change in ibenefits increased the Airport's allocated share ofthe net pension liability by $124.6 million for. Municipal and $23:9 million for Laborers'. This impact is recognized as a portion of 2015 pension expense in its entirety. For the year ended December 31, 2015, the Airport recognized pension expense of $339.5 million. ¦'¦
At December 31, 2015, the Airport reported deferred outflows of resources of $487.9 million arid deferred inflows of resources of $8.6 million related to pensions from the following sources: '
Municipal (dollars in thousands):
Deferred-Outflows :Deferred,lnflows of Resources . ; of Resources
Differences between
expected and actual experience $ .- $5,117
Changes of assumptions 405,849 Net difference between projected, and
actual earnings on pension plan investments 11,560
Total ' $417,409 ' $5,117
Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Year Ended December 31
$ 103,073
103,073
103,073
103,073 2020
Thereafter
Laborers' (dollars in thousands):
Deferred Outflows Deferred Inflows of Resources of Resources
Differences between
expected and actual experience -Changes of assumptions Net difference between projected and
actual earnings on pension plan investments
Total
$ -51,881
6,055 $57,936
Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Year Ended December 31
2016 2017 2018 2019 2020
Thereafter
$21,907 21,907 10,576 1,514
Policemen's (dollars in thousands):
Deferred Outflows Deferred Inflows of Resources of Resources
Differences between
expected and actual experience Changes of assumptions Net difference between projected and
actual earnings on pension plan investments
Total
2,516 $2,516
Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Year Ended December 31
2016 2017 2018 2019 2020
Thereafter
$ 386 386 386 386 (201)
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Firemen's (dollars in thousands):
Deferred Outflows Deferred Inflows of Resources of Resources
Differences between
expected and actual experience Changes of assumptions Net difference between projected and
actual earnings on pension plan investments
Total
7,151 2,935 $ 10,086
Year Ended December 31
2016 2017 2018 2019 2020
Thereafter
$2,102 2,102 2,102 2,102 1,354
Actuarial Assumptions. The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the;; measurement:
Inflation Salary Increases Investment Rate of Return
Municipal
3.0 % 4.5%-8.25% (a) 7.5 % (c)
Laborers'
3.0 % 3.75 % (b) 7.5 % (0
Policemen's
3.0 % 3.75 % (c)
7.5;%
Firemen's .
2.5 % 3.75 % (d) 7.5 %
Varying by years of service
Plus a service—based increase in the first 15 years
Plus additional percentage related to service
Plus additional service based increases
Net of investment expense
Net of investment expense, including inflation
Mortality rates were based on the RP-2000 Health Annuitant Mortality Table for Males or Females, as appropriate for Municipal, Laborers' and Firemen's and RP-2014 for Policemen's.
The mortality actuarial assumptions used in the December 31, 2015 valuation were adjusted based on the results of actuarial experience study for the following periods:
Municipal Laborers' Policemen's Firemen's
January 1, 2005-December 31, 2009 January 1, 2004-December 31, 2011 January 1, 2009-December 31, 2013 January 1, 2003-December 31, 2010
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The long term expected rate of return on pension plan investments was determined using the building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:
Long-Term Expected Real Rate of Return
Asset Class:
Domestic equity Domestic large cap equity Domestic small cap equity U.S. equity Non U.S. equity Global equity International equity Domestic Fixed income Fixed income Hedge funds Private equity Private markets GAA
Real estate Risk Parity
Alternative investments Commodities Cash deposits and short-term investments Real assets
Municipal
26.00 %
22.00
27.00 10.00 5.00
10.00
%
Laborers' Policemen's Firemen's
22.00 %
13.00 14.00
24.00 16.00
21.00 20.00
22 00 7.00 9.00
12.00 5.00
25.00 21.00
16.00 8.00
3.00
2.00
2.00 3.00
4.00
4.00
11.00 8.00 6.00 2.00
Municipal
4.90 %
5.00
0.00 3.00 8.60
6.00
Laborers' Policemen's Firemen's
5.90 %
6.10 7.80
7.25 7.55
7.90 6.50
1.70 4.00 8.20
5.10 4.60
7.25 7.25
2.60 3.80
8.15
6.00
5.25 2.75
2.25
4.20
6.90 4.70 4.40 5.00
100.00 % 100.00 % 100.00 % 100.00 %
Discount Rate
Municipal—The discount rate used to measure the total pension liability was 3.73%. This Single Discount Rate was based on an expected rate of return on pension plan investments of 7.5 percent and a municipal bond rate of 3.6 percent (based on the Bond Buyer 20- Bond Index of general obligation municipal bonds as of December 31, 2015).The projection of cash flows used to determine the discount rate assumed member contributions will be made at the current contribution rate and that employer contributions will be made at the 1.25 multiple of member contributions from two years prior. For this purpose, only employer contributions that are intended to fund benefits of current plan members and their beneficiaries are included. Projected employer contributions and contributions from future plan members that are intended to fund the service costs of future plan members and their beneficiaries are not included. Based on those assumptions, the pension plan's fiduciary net position was not projected to be available to make all projected future benefit payments of current plan members. The projected benefit payments through 2023 were discounted at the expected long-term rate of return. Starting in 2024, the projected benefit payments were discounted at the municipal bond rate. Therefore, a single equivalent, blended discount rate of 3.73% was calculated using the long-term expected rate of return and the municipal bond index.
Laborers'—A Single Discount Rate of 4.04 percent was used to measure the total pension liability. This Single Discount Rate was based on an expected rate of return on pension plan investments of 7.5 percent and a municipal bond rate of 3.6 percent (based on the Bond Buyer 20- Bond Index of general obligation municipal bonds as of December 3 1, 2015).The projection of cash Hows used to determine this Single Discount Rate assumed that plan member contributions will be made at the current contribution rate and
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that employer contributions will be made at rates equal to the difference between statutory contribution rates and the member rate. Based on these assumptions, the pension plan's fiduciary net position and future contributions were sufficient to finance the benefit payments through the year 2027. As a result, the long-term, expected rate of return on pension plan investments-was applied to projected benefit payments through the year 2027, and the municipal bond rate was applied to all benefit.payments after that date.
Policemen's—A Single Discount Rate of 7.15 percent was used to measure the total pension liability. This Single Discount Rate was based on an expected rate of-return on pension plan investments of 7.5,percent and a municipal bond rate,of 3.6,percent (based on the. Bond Buyer 20- Bond Index of general obligation municipal bonds as of December 31, 2015).The projection of cash flows used to determine this Single Discount Rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between statutory contribution rates and the member rate. Based-.on these assumptions, the pension plan's fiduciary net position and future contributions were sufficient to finance the benefit payments through the year 2063. As a result, the long-term expected rate of return on pension plan investments was applied to projected benefit payments through the year 2063, and the municipal bond rate was applied to all benefit payments after that date.
Firemen's—A Single Discount Rate of 7.16 percent was used to measure the total pension liability. This Single Discount Rate was based on an expected rate of return on pension plan investments of 7.5 percent and a municipal bond rate of 3.6 percent (based on the Bond Buyer 20- Bond Index of general obligation municipal bonds as of December 31, 2015).The projection of cash flows used to determine this Single Discount Rate assumed that member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between statutory contribution rates and the member rate. Based on these assumptions, the Plan's fiduciary net position and future contributions were sufficient to finance future benefit payments only through the year 2061. As a result, the long-term expected rate of return on pension plan investments was applied to projected benefit payments through the year 2061, and the municipal bond rate was applied to all benefit payments after that date.
Sensitivity of the Airport's Proportionate Shcire ofthe Net Pension Liability to Changes in the Discount Rate.
Municipal—the following presents the allocated share of the net pension liability to the Airport as of December 31, 2015, calculated using the discount rate of 3.73 percent, as well as'what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (2.73 percent) or 1 percentage point higher (4.73 percent) than the current rate (dollars in thousands):
Current
Net Pension Liability December 31, 2015 1% Decrease Discount Rate 1% Increase
Municipal discount rate Municipal liability
2.73 % 3.73 % 4.73 %
$1,293,192 $1,084,148 $912,840
Laborers'—the following presents the allocated share ofthe net pension liability to the Airport as of December 31, 2015, calculated using the discount rate of 4.04 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (3.04 percent) or 1 percentage point higher (5.04 percent) than the current rate (dollars in thousands):
Current
Net Pension Liability December 31, 2015 1% Decrease Discount Rate 1% Increase
Laborers'discount rate 3.04% 4.04% 5.04%
Laborers'liability $187,588 $ 153,802 $126,107
Policemen's—the following presents the allocated share of the net pension liability to the Airport as of December 31, 2015, calculated using the discount rate of 7.15 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.15 percent) or 1 percentage point higher (8.15 percent) than the current rate (dollars in thousands):
Current
Net Pension Liability December 31, 2015 1% Decrease Discount Rate 1% Increase
Policemen's discount rate 6.15% 7.15% 8.15%
Policemen's liability $ 139,193 $120,078 $ 103,985
Firemen's—the following presents the allocated share of the net pension liability to the Airport as of December 31, 2015, calculated using the discount rate of 7.16 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.16 percent) or 1 percentage point higher (8.16 percent) than the current rate (dollars in thousands):
Current
Net Pension Liability December 31, 2015 1% Decrease Discount Rate 1% Increase
• Firemen's discount rate 6.16 % 7.16 % 8.16 %
Firemen's liability $209,936 $ 184,109 $162,106
Pension Plan Fiduciary Net Position. Detailed information about the pension plan's fiduciary net position is available in the separately issued Pension Plans financial report.
OTHER POSTEMPLOYMENT BENEFITS
Other PostEmploymcnt Benefits—Pension Funds
The Pension Funds also contribute a portion ofthe City's contribution as subsidy toward the cost for each of their-annuitants to participate in the City's health benefits plans, which include basic benefits for eligible annuitants and their dependents and supplemental benefits for Medicare eligible annuitants and their dependents. The amounts below represent the accrued liability of the City's pension plans related to their own annuitants and the subsidy paid to the City (see section c). The plan is .financed on a pay as yOu go basis (dollars in thousands)'! ' "'
Annual OPEB Cost and Contributions Made ¦ For Fiscal Year Ended December 31, 2015
Municipal Laborers'. Policemen's Firemen's
-Contribution Rates City:
Annual Required Contribution Interest on Net OPEB Obligation Adjustment to Annual— Required Contribution
Annual OPEB Cost (Gain) 'CoritributiOns'Made' ::. >::>> ¦¦
$ 2,402 209
$: 9,632 391
(4,358)
' 5,665 ¦ -9,441. -
S 2,61 V
'• ¦ 385.
. (4,375).
¦ q;382;
^$ 23,819 3,391
(38,440)
, (11,230) : - -22,468
A portion of the City's employer contribution to the Pension Funds is used to finance the health insurancesupplement benefit payments.
$ 9,174 2,406
,(27,331) (2,376)
(15,751)' 235 '•; 8',49r'^^-i:;2,154':
Decrease in !•';'! • ; Net OPEB Obligation
Net OPEB Obligation, Beginning of Year
Net OPEB Obligation,
Actuarial Method and Assumptions—For the Pension Funds' subsidies, the actuarial valuation for the fiscal year ended December 31, 2015 was determined using the Entry Age Normal actuarial cost method. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the employer and plan members) and included the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial method and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long term perspective of the calculations.
Actuarial Valuation Date Actuarial Cost Method
Municipal
12/31/2015
Entry Age Normal
Laborers'
12/31/2015
Entry Age Normal
Policemen's
12/31/2015
Entry Age Normal
Firemen's
12/31/2015
Entry Age Normal
Amortization Method
1 year closed 1 year closed
No Assets
No Assets
No Assets
No Assets
(Pay-as-you-go) (Pay-as-you-go) (Pay-as-you-go) (Pay-as-you-go)
Actuarial assumptions: OPEB Investment Rate of Return (a)
Projected Salary Increases (a) Inflation
4.5 % 3.0 %
4.5 % 3.0 %
4.5 % 3.0 %
4.5 % 2.5 %
Seniority / Merit
Healthcare Cost Trend Rate (e)
Compounded Annually
Service-based increases equivalent to a level annual rate of increase of 1.4 percent over a full career
Service-based increases equivalent to a level annual rate of increase of 1.9 percent over a full career
Service-based increases equivalent to a level annual rate of increase of 1.8 percent over a full career
Trend not applicable - fixed dollar subsidy
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OPEB COST SUMMARY (dollars in thousands)
Year
2013 2014 2015
'I!'!.:
2013 2014 2015
2013 2014 2015
2013 20.14 2015
Annual.
OPEB:
Cost
$ 13,389 (13,100) (15,750)
3,009 567 235
10,536 6,191 5,665
4,071 (868) (L379)
% of Annual: . Net
OPEB " OPEB Obligation Obligation
71.01% $75,637 . " 53,486
.84 416 917
93 156 167
'63
29,244
6,442 4,649 2,730
12,150 8,684 4,908
11,902 8,563 4,802
* The negative cost is primarily due to the insurance subsidy ending in 2016.
Acmarialvaluationsofanongoingplaninvolveestimatesofthevalueo theprobabilitypfoccurrencepfe.ventsfarintothefuture.Examplcsincludeassumptip
nt,mortality,andthehealthcarecosttrend.Amountsdeterminedregardingthefundedstatusoftheplanandtheann ualrcquiredcontributionsoftheemployeraresubjecttocontinualrevisionsastheresultsarecomparedwithpaste xpectationsand hew estimates are made about the future. The schedule of funding progress; presents, asrcquired,supplementaryinformationfollowingthenotestothefmancialstatements(dollarsinthousands,una udited).
Actuarial Valuation Date
Actuarial Value of Assets (a)
Actuarial Accrued Liability
(AAL) Entry Age (b)
Unfunded (Surplus) UAAL (b-a)
Funded Ratio (alb)
Covered Payroll (c)
Unfunded (Surplus) AAL as a Percentage of Covered
Payroll ((b-a)/c)
Municipal 12/31/2015 $
Laborers' 12/31/2015
Policemen's 12/31/2015
Firemen's 12/31/2015
8,147 2,133 9,255 2,399
$ 8,147 2,133 9,255 2,399
$ 1,643,481 204,773 1,086,608 465,232
0.50 % 1.04 0.85 0.52
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Other PostEmploymcnt Bencfits-^City Obligation
Up to June 30, 2013, the annuitants who retired prior to July 1, 2005 received a 55 percent subsidy from the City and the annuitants who retired on or after July 1, 2005 received a 50, 45, 40 and zero percent subsidy from the City based on the annuitant's length of actual employment with the City for the gross cost of retiree health care under a court approved settlement agreement, known as the "Settlement Plan." The pension funds contributed their subsidies of $65 per month for each Medicare eligible annuitant and $95 per.month for each Non-Medicare eligible annuitant to their gross cost. The annuitants contributed a total of $104.4 million in 2015 to the gross cost of their retiree health care pursuant to premium amounts set forth in the below-referenced settlement agreement.
The City subsidized a portion of the cost (based upon service) for hospital and medical coverage for eligible retired employees and their dependents based upon a settlement agreement entered in 2003 and which expired on June 30, 2013.
On May 15, 2013, the City announced plans to, among other things: (i) provide a lifetime.healthcare plan to former employees who retired before August 23, 1989 with a contribution from the City of up to 55% ofthe cost of that plan; and (ii) beginning July 1, 2013, provide employees who retired on or after August 23, 1989 with healthcare benefits in a new Retiree Health Plan (Health Plan), but with significant changes to the terms including increases in premiums and deductibles, reduced benefits and the phase-out of the Health Plan for such employees by December 31, 2016.
The cost of health benefits is recognized as an expenditure in the accompanying financial statements as claims are reported and are funded on a pay-as-you-go basis. In 2015, the net expense to the City for providing these benefits to approximately 22,697 annuitants plus their dependents was approximately $44 million.
Plan Description Summary—The City of Chicago was party to a written legal settlement agreement outlining the provisions of the Settlement Plans, which ended June 30, 2013. The Health Plan provides for annual modifications to the City's level of subsidy. It is set to phase out over three years, at which the Health Plan, along with any further City subsidy, will expire by December 31, 2016, for all but the group of former employees (the Korshak class of members) who retired before August 23, 1989, who shall have lifetime benefits. Duty Disabled retirees who have statutory pre-63/65 coverage will continue to have fully subsidized coverage under the active health plan until age 65.
The provisions ofthe Health Plan provide in general, that the City pay a percentage ofthe cost (based upon an employee's service) for hospital and medical coverage to eligible retired employees and their dependents for the specified period, ending December 31, 2016. The percentage subsidies were revised to reduce by approximately 25 percent of 2013 subsidy levels in 2014 and 50 percent of 2013 subsidy levels in 2015, and 75 percent of 2013 subsidy levels in 2016.
In addition, State law authorizes the four respective Pension Funds (Policemen's, Firemen's, Municipal Employees', and Laborers') to provide a fixed monthly dollar subsidy to each annuitant who has elected coverage under any City health plan through December 31, 2016. After that date, no Pension Fund subsidies are authorized. The liabilities for the monthly dollar Pension Fund subsidies contributed on behalf of annuitants enrolled in the medical plan by their respective Pension Funds arc included in the Net Pension Obligation ("NPO") actuarial valuation reports ofthe respective four Pension Funds under GASB 43.
Special Benefits under the Collective Bargaining Agreements (CBA)—Under the terms of the collective bargaining agreements for the Fraternal Order of Police (FOP) and the International
-46 -
Association of Fire Fighters (IAFF), certain employees-who retire after attaining age 55 with the required years of service are permitted to enroll themselves and their dependents in the healthcare benefit program offered to actively employed members. They may keep this coverage until they reach the age of Medicare eligibility. These retirees do not contribute towards the'cost of coverage, but the Policemen's Fund-contributes $95 per month towards coverage for police officers; the:-Firemen's Fund does not contribute.
Both of these agreements which provide pre-65 coverage originally expiredat June 30, 2012. These benefits have been renegotiated to continue^ through 2016 or June'30, 2017, depending on bargaining unit agreements. This valuation assumes that the GBA special benefits, except for those who will have already retired as of December 31, 2016, will cease on December 31, 2016 or June 30, 2017, depending on bargaining unit agreements. •
Funding Policy—No assets are accumulated or dedicated to funding the retiree health:plan benefits.
Annual OPEB Cost and Net OPEB Obligation—The City's annual.other post-employment benefit
(OPEB) cost (expense) is calculated based on thcannual required contribution of the employer (ARC).
The^ARC (Annual Required Contribution) represents adcvel of funding that,! if paid^oni an ongoing basis,
is projected to cover the normal cost each year and to amortize any unfunded actuarial liabilities over a
period often years. ¦ ,, ¦¦ ¦
The following table shows the components of the City's annual OPEB costs for the year for the Health Plan arid CBA Special Benefits, the amount actually contributed to the plan and changes in the City's net OPEB obligation.' The Net OPEB Obligation is the-amourit entered'upon the City's Statement of Net Position asof year end as the net'-liability for- the other post-employment benefits—the Health Plan. The amount of the annual cost that is recorded in the Statement of Changes in Net Position'for 2015'is the Annual OPEB Cost (expense).
Annual OPEB Cost and Contributions Made
(dollars in thousands)
Retiree CBA
Settlement Special
Health Plan Benefits Total
Contribution Rates:
City Pay As You Go Pay As You Go Pay As You Go
Plan Members N/A N/A N/A
Annual Required Contribution S 46,069 S 60,654 $ 106,723
Interest on Net OPEB Obligation 867 4,459 5,326
Adjustment to Annual Required Contribution (3,291) (16,918) (20,209)
Annual OPEB Cost 43,645 48,195 91,840
Contributions Made 58.279 38,272 96,551
Decrease in Net OPEB Obligation (14,634) 9,923 (4,711)
Net OPEB Obligation, Beginning of Year 28,914 148,648 177,562
Net OPEB Obligation, End of Year $ 14,280 S 158,571 S 172,851
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The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2015 are as follows (dollars in thousands):
Schedule of Contributions, OPEB Costs and Net Obligations
Fiscal Year Ended
Annual Percentage of Annual Net OPEB OPEB Cost OPEB Cost Contributed Obligation
Settlement Plan
12/31/2015 12/31/2014 12/31/2013
$ 43,645 62,666 75,444
133.5 %
149.9
148.4
$ 14,280 28,914 60,210
CBA Special Benefits
12/31/2015 12/31/2014 12/31/2013
$ 48,195 49,766 41,722
79.4 %
68.5
65.5
$ 158,571 148,648 132,981
Total
12/31/2015 12/31/2014 12/31/2013
$ 91,840 112,432 117,166
105.1 %
113.9
118.9
$ 172,851 177,562 193,191
Funded Status and Funding Progress—As of January 1, 2015, the most recent actuarial valuation' date, the actuarial accrued liability for benefits was $780.6 million all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was approximately $2,488.0 million and the ratio ofthe unfunded actuarial accrued liability to the covered payroll was -31.4 percent.
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Actuarial valuations of an ongoing-plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the :p I an-and-thc annual required contributions of the employer are subject to continual revisions as the results are compared.with past expectations and new estimates, are made about the future. The schedule of funding progress, presents, as required, supplementary information following the' notes to the financial statements (dollars in thousands, unaudited).
Actuarial Valuation Date
Unfunded
Actuarial Actuarial Actuarial
Value of Accrued Accrued Liability Funded
Assets Liability (AAL) (UAAL) Ratio
Covered Payroll
UAAL as a Percentage of Covered Payroll
Settlement Plan
12/31/2014
CBA Special Benefits
12/31/2014 Total
12/31/2014
Actuarial Method and Assumptions—Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the employer and plan member's) and-included the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members'to that point. The actuarial method and'assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long term perspective ofthe calculations.
For the Health Plan benefits (not provided by the Pension Funds), the entry age normal actuarial cost method was used. The actuarial assumptions included an annual healthcare cost trend rate of 8.0% initially, reduced by decrements to an ultimate rate of 5.0% in 2026. The range of rates included a 3.0% inflation assumption. Rates included a 2.5% inflation assumption. The plan has not accumulated assets and does not hold assets in a segregated trust. However, the funds expected to be used to pay benefits are assumed.to be invested for durations which will yield an annual return rate of 3.0%. The remaining Unfunded Accrued Actuarial Liability is being amortized as a level dollar amount over ten years. The benefits include the provisions under the new Health Plan, which will be completely phased-out by December 31, 2016, except for the Korshak category, which is entitled to lifetime benefits. Also included in the Non-CBA benefits are the duty disability benefits under the active health plan payable to age 63/65.
-49 -
For the Special Benefits under the CBA for Police and Fire, the renewed contracts' expiration dates of June 30, 2016 (for Police Captains, Sergeants and Lieutenants) and June 30, 2017 for all other Police and Fire are reflected, such that liabilities are included only for payments beyond the end ofthe calendar year of contract expiration on behalf of early retirees already retired and in pay status as of December 31 of the expiration year of the contract. The entry age normal method was selected. The actuarial assumptions included an annual healthcare cost trend rate of 8.0% in 2014, reduced by decrements to an ultimate rate of 5.0% in 2026. Rates included a 2.5% inflation assumption. The plan has not accumulated assets and does not hold assets in a segregated trust. The funds expected to be used to pay benefits are assumed to be invested for durations which will yield an annual return rate of 3.0%. The remaining Unfunded Accrued Actuarial Liability is being amortized as a level dollar amount over ten years.
Summary of Assumptions and Methods
Actuarial valuation date
Actuarial cost method
Amortization method
Remaining amortization period
Asset valuation method
Actuarial assumptions: Investment rate of return Projected salary increases Healthcare inflation rate
Settlement Health Plan
December 31, 2014
Entry age normal
Level dollar, open
10 years
Market value
3.0% 2.5%
8.0% initial to 5.0% in 2026
CBA Special Benefits
December 31, 2014
Entry age normal
Level dollar, open
10 years
Market value
3.0% . 2.5% 8.0% initial to 5.0% in 2026
9. RELATED-PARTY TRANSACTIONS
Included in operating expenses arc reimbursements to the general fund ofthe City for services provided by other City departments, employee fringe benefits, and certain payments made on behalf of the Airport. Such reimbursements amounted to $86.1 million and $72.8 million in 2015 and 2014, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Airport has certain contingent liabilities resulting from litigation, claims, and commitments incident to its ordinary course of business. Management expects that the final resolution of these contingencies will not have a material adverse effect on the financial position or results of operations of the Airport.
The Airport provides employee health benefits under a self-insurance program, administered by the City. Such claims outstanding, including claims incurred but not reported, are estimated and recorded as liabilities in the basic financial statements.
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Uninsured claim expenditures and liabilities are reported when it is probable thata loss has occurred and
the amount of that loss can be reasonably, estimated. These losses include an estimate of claims that have
been incurred but not reported:- Changes in the claims liability amount for the years endedDeccmber 31,
2015 and-2014;-are as follows-(dollars, in thousands):
Beginning balance—January 1 Total c]aims. incurred.(expenditures) Claims paid ...
Claims liability—December 31
2015
$
. 2,527 25,249. (25,018)
$ 2,758 $ 2,527
The City's property and liability insurance premiums are approximately $8.5 million per year. The City maintains property and liability-insurance-coverage for both O'Hare and Midway and allocates the cost ¦of'the'-premiums between the two airports'.1 the property coverage was renewed on December 31, 2015 with a limit of $3.5 billion and includes $3.5 billion in terrorism coverage, and the liability coverage was renewed May 15, 2015 with a'limitof $1 billion and includes $750 million in war and terrorism liability . coverage.
At December 31, 2015 and 2014, the Airport had commitments in the amounts of approximately $210.4 million and $237.1 million, respectively, in connection with contracts entered into for construction projects. ....
11. DEFERRED OUTFLOWS/INFLOWS OF RESOURCES
, 2015
Deferred outflows of resources: Deferred outflows from pension activities Unamortized deferred bond refunding costs
Total deferred outflows of resources
50,172
$ 487,947. 60,626
$ 548,573 $50,172
Deferred Inflows of resources Deferred inflows from pension activities
12. RESTATEMENT DUE TO IMPLEMENTATION OF NEW ACCOUNTING STANDARD
During fiscal year 2015, the Airport implemented two new accounting standards. GASB Statement No. 68, "Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27", revised standards of accounting and reporting for pension expenses and liabilities as,well as allowing for the deferral of certain pension expense elements. As a result of implementing this statement, net position was restated at January 1, 2015. The net position at January 1, 2014 was not restated as it was not practical since the information was not available. The impact of these changes on the beginning balances reported in the financial statements is shown below (in thousands):
Chicago O'Hare International Airport Total net position, january I, 2015
As Originally Reported or
5 1,460,084 $(749,092)
As Restated after GASB 68 Impact
$710,992
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13. SUBSEQUENT EVENTS
In May 2016, Fitch upgraded the rating ofthe O'Hare Airport Senior Lien revenue bonds from A- to A with a stable outlook.
REQUIRED SUPPLEMENTARY INFORMATION
-53 -
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS
Last Fiscal Year (dollars are in thousands) . ¦ ,. ¦ • = . . .
2015
MUNICIPAL EMPLOYEES': Total pension liability:
Service cost ¦ $ 226,816
Interest 909,067
Benefit changes 2,140,009
Differences between expected and actual experience (109,835)
Assumption changes 8,711,755
Benefit payments including refunds (826,036)
Pension plan administrative expense
Net change in total pension liability 11,051,776
Total pension liability—beginning 12,307,094
- Total pension liability—ending (a) 23,358,870
Plan fiduciary net position:
Contributions—employer 149,225
Contributions—employee 131,428
Net investment income 114,025,
Benefit payments including refunds of employee contribution (826,036)
Administrative expenses (6,701)
Other
Net change in plan fiduciary net position (438,059)
Plan fiduciary net position—beginning 5,179,486
Plan fiduciary net position—ending (b) 4,741,427
NET PENSION LIABILITY—Ending (a)-(b) $18,617,443
PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF
THE TOTAL PENSION LIABILITY 20.30 %
COVERED-EMPLOYEE PAYROLL* $ 1,643,481
EMPLOYER'S NET PENSION LIABILITY AS A PERCENTAGE OF
COVERED-EMPLOYEE PAYROLL 1,132.81 %
ALLOCATED NET PENSION LIABILITY $ 1,084,148
ALLOCATED PERCENTAGE 5.82 %
* Covered payroll is the amount in force as ofthe valuation date and likely differs from actual payroll paid during fiscal year.
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CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
SCHEDULE ORCHANGESMNTHEiNET PENSION LIABILITY AND RELATED RATIOS > ^ ; G 3HV:
Last Fiscal Year (dollars are in thousands) {-¦¦' ¦ ~- , ¦ ¦ < ¦-¦
2015
LABORERS':
Total pension liability: V
Service cost ¦ $: 38;389
Interest * 153j812
Benefit changes 384,033
•Differences between expected and actual experience - ./ , . (46,085)
Assumption changes l,175;935
Benefit payments including refunds • -,- i . ;' (152;530)
Pension plan administrative expense - ¦ >-¦ .i " (3,c844)
•'Net change in total pension liability ' :' l ,549,710
Total pension liability—beginning 2,162,905
Total pension liability—ending (a) 3,712,615
Plan fiduciary net position:
Contributions—employer 12,412
' Contributions—employee ¦ ¦¦ ¦>¦.< ¦ ¦¦<¦< ''^844
Net investment income " " (22j318)
Benefit payments including refunds of employee contribution - (152',530)
Administrative expenses (3,844)
Other
Net change in plan fiduciary net position (149,436)
Plan fiduciary net position—beginning 1,388,093
Plan fiduciary net position—ending (b) 1,238,657
NET PENSION LIABILITY—Ending (a)-(b) $2,473,958
PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF
THE TOTAL PENSION LIABILITY 33.36 %
COVERED-EMPLOYEE PAYROLL * $ 204,773
EMPLOYER'S NET PENSION LIABILITY AS A PERCENTAGE OF
COVERED-EMPLOYEE PAYROLL 1,208.15 %
ALLOCATED NET PENSION LIABILITY $ 153,802
ALLOCATED PERCENTAGE 6.22 %
* Covered payroll is the amount in force as of the valuation date and likely differs from
actual payroll paid during fiscal year. (Continued)
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS
Last Fiscal Year (dollars are in thousands)
2015
POLICEMEN'S: Total pension liability:
Service cost $ 213,585
Interest 832,972
Benefit changes
Differences between expected and actual experience (105,969)
Assumption changes
Benefit payments including refunds (676,777)
Pension plan administrative expense (4,508)
Net change in total pension liability 259,303
Total pension liability—beginning 11,773,430
Total pension liability—ending (a) 12,032,733
Plan fiduciary net position:
Contributions—employer 572,836
Contributions—employee 107,626
Net investment income (5,334)
Benefit payments including refunds of employee contribution (676,777)
Administrative expenses (4,508)
Other 3,092
Net change in plan fiduciary net position (3,065)
Plan fiduciary net position—beginning 3,062,014
Plan fiduciary net position—ending (b) 3,058,949
NET PENSION LIABILITY—Ending (a)-(b) $ 8,973,784
* Includes pension plan administrative expense
PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF
THE TOTAL PENSION LIABILITY 25.42 %
COVERED-EMPLOYEE PAYROLL** . S 1,086,608
EMPLOYER'S NET PENSION LIABILITY AS A PERCENTAGE OF
COVERED-EMPLOYEE PAYROLL 825.85 %
ALLOCATED NET PENSION LIABILITY $ 120,078
ALLOCATED PERCENTAGE 1.34 %
** Covered payroll is the amount in force as ofthe valuation date and likely differs from ~ actual payroll paid during fiscal year.
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CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS
Last Fiscal Year (dollars are in thousands) • ¦ ¦ ¦ '¦ ¦ ;
2015
FIREMEN'S:
Total pension liability: '' ¦•;
Service cost $ 87^203
Interest 338^986
Benefit changes ! '¦ ¦ "->
Differences between expected and actual experience ¦ (7,981)
Assumption changes 176^282
Benefit payments including refunds '¦ ; ¦ ¦ (278(017)
Pension plan administrative expense ' ¦ (3 J149)
' Net change in total pension liability :"' '313,324
total pension liability—beginning 1 ' 4,512,760
Total pension liability—ending (a) 4,826,084
Plan fiduciary net position:
Contributions—employer .,v. ^. 236^104
-Contributions—employee ............. ., . , ... .,46,552
-Net investment income 7,596
Benefit payments including refunds of employee contribution ,(278,017)
Administrative expenses (3,149)
Other|910|Net change in plan fiduciary net position 9,093
Plan fiduciary net position—beginning 1,036,008
Plan fiduciary net position—ending (b) 1,045,101
NET PENSION LIABILITY—Ending (a)-(b) $3,780,983
PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF /
THE TOTAL PENSION LIABILITY ¦ 21.66 %
COVERED-EMPLOYEE PAYROLL * 465,232
EMPLOYER'S NET PENSION LIABILITY AS A PERCENTAGE OF
COVERED-EMPLOYEE PAYROLL 812.71 %
ALLOCATED NET PENSION LIABILITY 184,109
ALLOCATED PERCENTAGE 4.87 %
* Covered payroll is the amount in force as ofthe valuation date and likely differs from actual payroll paid during liscal year.
(Concluded)
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CITY OF CHICAGO, ILLINOIS
SCHEDULE OF CONTRIBUTIONS
Last Ten Years (dollars are in thousands)
Years Ended December 31
2006
2007
2008
2009
2010.
2011
2012
2013
2014
2015
Actuarially Determined Contributions*
$325,914
343,123
360,387
413,509
483,948
611,756
690,823
820,023
839,039
677,200
Contributions in Relation to the Actuarially Determined Contribution
$ 157,063
139,606
146,803
148,047
154,752
147,009
148,859
148,197
149,747
• 149,225
Contribution Deficiency
$ 168,851 203,517 213,584 265,462 329,196 464,747 541,964 671,826 689,292
¦ 527,975 ¦¦¦
Covered Employee Payroll**
$1,475,877 1,564,459 1,543,977 1,551,973 1,541,388 1,605,993 1,590,794 1,580,289 1,602,978 -1,643,481
Contributions as a Percentage of Covered Employee Payroll
10.64 %
8.92
9.51
9.54 10.04
9.15
9.36
9.38
9.34
9.08
* The funding method mandated by the Illinois Pension Code is insufficient to avoid insolvency, and without a change, the Fund is projected to become insolvent within the next 10 years (during 2025). Therefore, the actuarially determined contribution is comprised of an employer normal cost payment and a 30-year, level dollar amortization payment on the unfunded actuarial accrued liability.
** Covered payroll is the amount in force as of the valuation date and likely differs from actual payroll paid during fiscal year.
Laborers'
Years Ended December 31
2006 2007 2008 2009 2010 201 1 2012 2013 2014 2015
Actuarially Determined Contributions*
$
21,142 21,726 17,652 33,518 46,665 57,259 77,566 106,199 106,019 79,851
Contributions in Relation to the Actuarially Determined Contribution
$ 106 13,256 15,233 14,627 15,352 12,779 11,853 11,583 12,161 12,412
Contribution Deficiency
$
21,036 8,470 2,419 18,891 31,313 44,480 65,713 94,616 93,858 67,439
Covered Employee Payroll**
193,176 192,847 216,744 208,626 199,863 195,238 198,790 200,352 202,673 204,773
Contributions as a Percentage of Covered Employee Payroll
0.06 %
6.87
7.03
7.01
7.68
6.55
5.96
5.78
6.00
6.06
* The LABF Statutory Funding does not conform to Actuarial Standards of Practice, therefore, the actuarially determined contribution is equal to the normal cost plus an amount to amortize the unfunded liability using dollar payments and a 30 year open amortization period.
** Covered payroll is the amount in force as of the valuation date and likely differs from actual payroll paid during fiscal year.
(Continued)
CITY OF CHICAGO, ILLINOIS
SCHEDULE OF CONTRIBUTIONS
Last Ten Years (dollars are in thousands)
Policemen's:
Years Ended December 31
2006 2007 2008 2009 2010 2011 2012 2013 201:4 2015
Actuarially Determined Contributions*
$'262,657 312,726 318,235 339,488 363,625 402,752 '431,010 474,177 491,651 785,501
Contributions in Relation to the Actuarially ; Determined!" Contribution
$150,718
170,598
172,836
172,044
174,501
174,035
197,885
179,521
178,158' : ' 575,928 •
Contribution! Deficiency
$ 111,939 142,128 145,399 167,444 ' 189,124 228,717 233,125 294,656 313,493 209,573
"Covered Employee Payroll**
$1,012,984 1;038,957 l;023,581 l'Ol 1,205 1,048,084 1,034,404 l'S'015,171 1,015,426 1;074,333 1,086,608
Contributions as a Percentage of
Covered ; Employee Payroll
14.88 %
16.42;:
16.89'!
17.01
16.65 •-
16.82
19.49 :
17.68'
16.58'
53.00
* The PABF Statutory Funding does not conform to Actuarial Standards Of Practice; therefore;': the 2015 actuarially determined contribution is equal to the normal cost plus a 30-year closedvlevel dollar amortization-of the unfunded actuarial liability i^Prior to 2015-the-actuarially determined':- • contribution was equal to the^"ARC" which was equal to normal cost plus a!30-year open level " ¦¦" percent amortization of the unfunded actuarial liability. '
** Covered payroll is the amount in force as ofthe valuation date and likely differs from actual payroll paid during fiscal year.
Firemen's:
Years Ended December 31
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
: Actuarially Determined Contributions*
$ 160,246 188,202 189,941 203,867 218,388 250,056 271,506 294,878 304,265 323,545
Contributions in Relation to the Actuarially Determined. Contribution
$
76,763 72,023 81,258 89,212 80,947. 82,870 81,522 103,669 107,334 236,104
Contribution Deficiency
$ 83,483 116,179 108,683 114,655 137,441 167,186 189,984 191,209 196,931 87,441
Covered Employee Payroll**
387,442 389,125 396,182 400,912 400,404 425,385 418,965 416,492 460,190 465,232
Contributions as a Percentage of Covered Employee Payroll
19.81.%
18.51"
20.51
22.25
20.22
19.48
19.46
24.89
23.32
50.75
* The FABF Statutory Funding does not conform to Actuarial Standards of Practice, therefore, the acftiarially determined contribution is equal to the normal cost plus an amount to amortize the unfunded liability using dollar payments and a 30 year open amortization period.
,f* Covered payroll is the amount in force as ofthe valuation date and likely differs from actual payroll paid during fiscal year.
(Continued)
-59-
CITY OF CHICAGO, ILLINOIS
SCHEDULE OF CONTRIBUTIONS
Actuarial Methods and Assumptions
Municipal Employees'
Actuarial valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method ¦
12/31/2015
12/31/2015 (a) 12/31/2015 (b)
Entry age normal Entry age normal Entry age normal
Level dollar, open Level dollar, open (c) Level percent, open
30 years 30 years 30 years
5-yr. Smoothed 5-yr. Smoothed 5-yr. Smoothed
Market Market Market
12/31/2015 Entry age normal Level dollar, open 30 years 5-yr. Smoothed ¦ Market
Actuarial assumptions: Inflation Salary increases Investment rate of return Retirement age Mortality Other information
3.0 % 4.5%-8.25% (d) 7.5 % (g)
0) (m)
(q)
3.0 % 3.75 % (c) 7.5 % (h)
0) (n)
(r)
3.0 % 3.75 % (0
7.5 %
00' '(o) '
(s)
2.5 % (f) 3.75 % 7.5 % (1) (P) (s)
(a) . Actuarially determined .contribution amount is determined as of December 3.1, with appropriate interest to the middle.of the year.
Actuarially determined contribution rates are calculated as of December 31, which is 12 months prior to the end of the fiscal year in which contributions are reported.
The statutory contributions arc based on a multiple of member contributions from the second prior year. The statutory contribution multiple is 1.00
Varying by years of service.
Plus a service-based increase in the first 15 years.
Salary increase rates based on age-related productivity and merit rates plus inflation. '
Net of investment expense.
Net of investment expense, including inflation. '
(l) For employees first hired prior to January 1, 2011, rates of retirement are based on the recent experience ofthe Fund (adopted December 31, 2010).
For employees first hired on or after January 1, 2011, rates of retirement for each age from 62 to 80 were used (adopted Decemebr 31, 2011). 0) Experience-based table of rates that arc specific to the type of eligibility condition. Last updated for the December 31, 2012, valuation pursuant to an
experience study of the period January 1, 2004, through December 31, 2011. (k) Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the December 31, 2014, actuarial valuation
pursuant to an experience study ofthe period January 1, 2009, through December 31, 2013. (1) Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the December 31, 2011, valuation pursuant to an
experience study ofthe period January 1, 2003. through December 31, 2010. (m) Post-retirement mortality rates were based on the RP-2000 Healthy Mortality Tables with mortality improvements projected to 2010 using Scale AA.
Pre-retirement mortality rates were based on the post-retirement mortality assumption, multiplied by 85% for males and 70% for females, (n) Rl'2000 Combined Healthy mortality table, sex distinct, set forward one year for males and setback two years for females. No adjustment is made
for post-disabled mortality
(o) Post-Retirement Healthy mortality rates- Sex distinct Retirement Plans 2014 Healthy Annuitant mortality table weighted 108% for males and 97% for females Pre-Retirement mortality rates: Sex distinct Retirement Plans 2014 Total Employee mortality tabic weighted 85% for males and 115% for females. Disabled Mortality: Sex distinct Retirement Plans 2014 Healthy Annuitant mortality table weighted 115% for males and 115% for females
(p) RP2000 Combined Healthy mortality table, sex distinct for post retirement mortality. RP2000 Combined Healthy mortality table, sex distinct, set forward six years for post retirement mortality post-disabled mortality. Pre-retirement mortality is 80 percent ofthe post-retirement rates
(q) Other assumptions Same as those used in the December 31, 2015, actuarial funding valuations.
(r) Notes. Benefit changes based on the provisions in effect prior to Public Act 98-0641 were recognized in the Total Pension Liability as of December 31, 20)5. (s) The valuation is based on the statutes in effect as of Decemebr 31, 2015, and docs not consider the impact of PA 99-0506 which was passed on May 31, 2016
(Concluded)
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CITY OF CHICAGO, ILLINOIS
SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS FUNDING PROGRESS
Last Three Years (dollars are in thousands)
. Actuarial
Actuarial Value
Valuation of Assets
Date (a)
Actuarial Accrued ... Liability.
(AAL) Entry Age (b)
Unfunded Actuarial; Accrued. Liability (UAAL) (b-a)
Funded Ratio (alb)
Covered Payroll (c)
Unfunded (Surplus) AAL as a Percentage of Covered Payroll ((b-a)/c)
Municipal
Employees'
2013
2014
2015 Laborers'
2013
2014
2015 Policemen's
2013
2014
2015 Firemen's
2013
2014
201'5 City of Chicago
2013
2014
2015
12/31/2013 $
12/31/2014
12/31/2015
-12/31/2013 12/31/2014 12/31/2015
12/31/2013 12/31/2014 12/31/2015
12/31/2013 12/31/2014 12/31/2015
12/31/2012 12/31/2013 12/31/2014
27,573 17,495 8,147
7,074 4,593 2,133
28,376 18,762 9,255
7,692 4,995 2,399
997,281 964,626 780,637
27,573 17,495 8,147
-7,074 4,593 2,133
28,376 18,762 9,255
7,692 4,995 2,399
997,281 964,626 780,637
% $ 1,580,289 1,602,978 1,643,481
%
200,352 202,673 204,773
%
1,015,426 1,074,333 1,086,608
%
416,492 460,190 465,232
2,385,198 2,425,000 2,487,787
1.74 %
1.09
0.50
3:53 %
2.27 1.04
2.79 %
1.75
0.85
1.85 %
1.09
0.52
%
41.81 39.78 31.38
-61 -
|1010|
ADDITIONALSUPPLEMENTARY INFORMATION
-62 -
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
ADDITIONAL SUPPLEMENTARY INFORMATION
SENIOR LIEN GENERAL AIRPORT REVENUE BONDS
CALCULATIONS OF COVERAGE COVENANT
FOR THE YEAR ENDED DECEMBER 31, 2015
(Dollars in thousands)
Sec 404 (a) Sec 404 (b)
REVENUES:
Total revenues—as defined $ 843,641 $855,626
Other available moneys (passenger facility charges for debt service) 93,860 93,860
$ 1,010,311 $ 949,486
$ 4,190 926
730
3.98,203
$ 404,049
$ 486,116 $486,116
Cash balance in Revenue Fund on the first day of fiscal year (Note 2) 72,810
TOTAL AVAILABLE FOR COVERAGE COVENANT
COVERAGE REQUIREMENTS—Deposits required: Operation and maintenance reserve Maintenance reserve Special capital projects Senior lien debt service fund
V- O; • V: « 0 1;/:' ?¦ v' 9- & Ty\f; U ~,j" ¦: i 3.: /¦.:/ TOTAL DEPOSITS REQUIREMENTS
(20,053) 466,063
AGGREGATE SENIOR LIEN DEBT SERVICE
LESS AMOUNTS TRANSFERRED FROM CAPITALIZED INTEREST ACCOUNTS (20,053)
NET AGGREGATE DEBT SERVICE 466,063
COVENANT REQUIREMENT 1.10
NET AGGREGATE DEBT SERVICE $ 512,669
COVERAGE REQUIREMENT (Greater of total deposit requirements or
110% of net aggregate debt service) $ 512,669 $
$ 981,095 $939,637
OPERATION AND MAINTENANCE EXPENSES—As defined 468,426 473,574
TOTAL REQUIREMENT
TOTAL AVAILABLE FOR COVERAGE COVENANT $ 1,010,311 $ 949,486
See notes to calculations of coverage.
-63 -
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
SENIOR LIEN GENERAL AIRPORT REVENUE BONDS NOTES TO CALCULATIONS OF COVERAGE FOR THE YEAR ENDED DECEMBER 31, 2015
RATE COVENANT
In the Master Indenture of Trust securing Chicago O'Hare International Airport Senior Lien Obligations:
The City covenants that it will fix and establish, and revise from time to time whenever necessary, the rentals, rates, and other charges for the use and operation of the Airport and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys deposited with the Trustee with respect to that Fiscal Year and any cash balance held in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in any Fund or Account, will be at least sufficient: (i) to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year; and (ii) to provide for the greater of (A) the sum ofthe amounts needed to make the deposits required to be made pursuant to all resolutions, ordinances, indentures and trust agreements pursuant to which all Outstanding Senior Lien Obligations or other outstanding Airport Obligations are issued and secured, and (B) one and ten-hundredths times Aggregate Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during that Bond Year to pay principal of and interest on Senior Lien Obligations.
The City further covenants that it will fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of the Airport and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys consisting solely of (i) any passenger facility charges deposited with the Trustee for that Fiscal Year, and (ii) any other moneys received by the City in the immediately prior Fiscal Year and deposited with the Trustee no later than the last day of the immediately prior Fiscal Year, will be at least sufficient: (i) to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year, and (ii) to provide for the payment of Aggregate Debt Service for the Bond Year commencing during that Fiscal Year reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during the Bond Year to pay the principal of and interest on Senior Lien Obligations.
Ofthe $339.5 million of pension expense for 2015, $25.8 million is the portion of the City's pension contribution payable in 2015 to the pension funds and allocable to O'Hare Airport. The remaining portion of the pension expense for 2015 $313.7 million is recognized on the income statement of O'Hare Airport for 2015 pursuant to GASB 68 but is not due and payable by the City during 2015; accordingly, that portion is not included in Operating Expenses for purposes of calculation ofthe debt service coverage ratios.
REVENUE FUND BALANCE
The Revenue Fund balance includes all cash, cash equivalents and investments held in any Airport account which were available to the Revenue Fund to satisfy the coverage requirement under the terms of the Bond Ordinance.
******
-64-
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CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
DEBT SERVICE SCHEDULE (Dollars in thousands)
(Unaudited)
The following table sets forth aggregate annual debt service for outstanding General Airport Revenue Bonds (GARB), PFC revenue bonds and CFC revenue bonds:
Year Ending December 31
2016.
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
Total Debt Service on Senior Lien Bonds (1)
$ 484,436 535,241 561,351 557,988 521,824 466,679 466,466 445,414 443,297 443,073 438,703 439,266 439,134 434,240 436,090 435,664 435,336 476,647 474,857 494,926 313,894 312,073 309,680 306,076 194,999 145,067 48,545 48,504 48,444 21,674 21,653
Total GARB Debt Service
$
484,436 535,241 561,351 557,988 521,824 466,679 466,466 445,414 443,297 443,073 438,703 439,266 439,133 434,240 436,090 435,664 435,336 476,647 474,856 494,926 313,894 312,074 309,680 306,076 194,999 145,067 48,545 48,504 48,445 21,674 21,653
Total PFC Debt Service
1 65,918 65,500 65,454 49,738 47,786 47,671 47,637 47,590 47,558 50,657 50,605 50;664 50,618 50,562 50,410 50,347 46,285 10,187 6,917 6,910 6,901 6,898 6,887 6,880 6,873
Total CFC Debt Service
I 13,554 13,554 18,161 18,154 18,160 18,143 18,125 18,129 18,113 18,099 18,082 18,072 18,081 18,072 18,059 18,044 18,029 18,014 17,976 17,955 17,939 17,920 17,902 17,881 17,862 17,838 17,815 17,785
Total Debt Service
563,908 614,295 644,966 625,880 587,770 532,493 532,228 511,133 508,968 511,829 507,390 508,002 507,833 502,874 504,559 504,055 499,650 504,848 499,750 519,791 338,734 336,891 334,469 330,837 219,734 162,905 66,360 66,289 48,444 21,674 21,653
$11,201,241 S11,157,914 $943,453 $495,518 $ 12,640,212
(i)
Assumes an interest rate effective at December 31, 2015, on $240,600,000 of Senior Lien Bonds that are variable-rate demand obligations.
Note: The annual debt service tables in the Official Statements for the above debt were presented with a year ended January I. The information above is presented with a year ended December 31. I he change has been made to facilitate reconciliation to revenue bonds payable at December 31, 2015.
Source: City of Chicago Comptroller's Office.
- 66 -
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
CAPITAL IMPROVEMENT PLAN (CIP), 2016-2020 (Dollars in thousands)
(Unaudited)
ESTIMATED USES—Five-Year Capital ImprovementProgram:
Airfield improvements - • $ i 366,874
Terminal improvements 341,141
Noise mitigation 12,000
Parking/roadwayrprojects \ .689,784
Heating and refrigeration '''. ' '"."' '. '223,726
Safety and security ' ' ' ' 99,485
Planning and other costs ;-; • .;• 4,000
Implementation 41,483
• Sound
TOTAL ESTIMATED USES, - $ 1,778,493
ESTIMATED,SOURCES:
Existing PFC revenue bond proceeds $ 26,156
PFC revenues i(pay-as-youTgo) Future Airport revenue bond proceeds •
Federal AIP discretionaryrgrants u „.y„y; \. 5-9.99
Federal AIP entitlement grants 32,500
TSA funds 89,536
Prior airport revenue bond proceeds 285,413
Future Airport obligation proceeds 749,972
CFCPayGo 140,000
CFC Senior Lien Revenue Bonds 126,917
CFC Backed TIFIA Loan 272,000
Other airport funds 50,000
TOTAL ESTIMATED SOURCES $ 1,778,493
Source: City of Chicago Department of Aviation.
-67 -
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
OPERATIONS OF THE AIRPORT
FOR EACH OF THE TEN YEARS ENDED DECEMBER 31, 2006-2015
(Unaudited)
Airport Activity
According to statistics compiled by Airports Council International, the Airport was the second busiest airport in the world as measured by total aircraft operations and the fourth busiest airport as measured by total passengers. In North America, the Airport is the sixth busiest airport in terms of total cargo tonnage handled. According to the Official Airline guide, as of December 31, 2015, nonstop service was provided from the Airport to 232 destinations, 167 domestic airports, and 65 foreign airports.
Chicago O'Hare International Airport Historical Connecting Passengers
Total Total Connecting
Total Originating Connecting Enplanements
Enplanements Enplanementsl1) Enplanements(1) Percentage
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
37,784,336 37,779,576 34,744,030 32,047,097 33;232,412 33,207,302 33,244,515 33,297,578 34,952,762 38,395,905
18,058,904 18,223,460 17,685,020 15,708,291 17,419,794 15,972,745 16,867,283 17,044,643 17,115,535 20,096,191
19,725,432 19,556,116 17,059,010 16,338,806 15,812,618 17,234,557 16,377,232 16,252,935 17,837,227 18,299,714
52.
51
49,
51
47
51
49
48.
51
47,
.2 % ,8
.0 ,6 9 ,3 8 ,0 ,7
Average Annual Compound Growth Rates
0.2% 1.2%
Originating enplanements, resulting connecting enplanements and percentages have been recalculated based on updated information.
Source: City of Chicago Department of Aviation.
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CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
HISTORICAL PASSENGER TRAFFIC
FOR EACH OF THE TEN YEARS ENDED DECEMBER 31, 2006-2015
(Unaudited)
Year
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Domestic Passengers
64,573,153 64,376,479 59,404,334 54,114,214 56,615,214 57,233,467 56,857,637 56,728,189 59,321,544 65,943,490
Percent of Total Passengers
84.6 %
84.5.
83.9
83.8
84.5
85.7
85.1
84.8
84.7
85.7
Total International Passengers
11,726,137 11,801,376 11,414,681 10,439,179 10,410,977 9,558,683 9,977,294 10,181,394 10,753,660 11,006,014
Percent of Total Passengers
15.4 %
15.5
16.1
16.2
15.5.
14.3
14.9
15.2
15.3
14.3
Total Passengers
76,299,290 76,177,855 70,819,015 64,553,393 67,026,191 66,792,150 66,834,931 66,909,583 70,075,204 76,949,504
Annual Percent Change
0.2 % (0.2) (7.0) (8.8)
3.8 (0.3)
0.1
0.1
4.7
9.8
Average Annual Compound Growth Rates
(0.7)%
2006-2015 0.2 %
Source: City of Chicago Department of Aviation.
-70-
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
HISTORICAL TOTAL ORIGIN AND DESTINATION (O&D) ENPLANEMENTS CHICAGO REGION AIRPORTS. .
FOR EACH OF THE TEN YEARS ENDED DECEMBER 31, 2006-2015
(Unaudited) • •
Year
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
.".* Chicago O'Hare International Airport
Total O&D Enplanements (1)
18,058,904 18,223,460 17,685,020 -15,708,291 17,419,794 15,972,745 16,867,283 17,044,643 17,115,535 20,096,191
Chicago Midway International Airport
Total O&D
Enplanements (1)
6,708,494 6,532,362 5,910,045 5,647,591-- " 5,485,191. 5,693,938 6,045,841 6,505,206 6,446,497 ¥ 6,682,549
Total O&D Enplanements
24,767,398 24,755,822 23,595,065 21,355,882 22,904,985 21,666,683 22,364,651 23,549,849 23,5.62,032 26,778,740
0.3 %
Average Annual Compound Growth Rates
1.2 %
2006-2015
(l) Originating enplanements, resulting connecting enplanements and percentages have been recalculated based on updated information.
Source: City of Chicago Department of Aviation.
-71 -
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
Domestic
Year Air Carrier
32,136,521
32,126,121
2008. 29,111,375
26,863,092
28,100,388
28,306,173
28;288,427
28,195,077
29,559,975
32,877,967
Domestic Total Commuter Domestic(1
32,136,521 32,126,121 29,111,375 26,863,092 28,100,388 28,306,173 28,288,427 28,195,077 29,559,975 32,877,967
Percent Total
of Total International
O'Hare Enplanements
85.1 % 5,647,815
85.0 5,653,455
83.8 5,632,655
83.8 5,184,005
84.6 5,132,024
85.2 4,901,129
85.1 4,956,088
84.7 5,102,501
84.6 5,392,787
85.6 5,517,938
Percent
of Total Total (2)
O'Hare Enplanements
14.9 % 37,784,336
15.0 37,779,576
16.2 34,744,030
16.2 32,047,097
15.4 33,232,412
33,207,302
33,244,515
33,297,578
34,952,762
14.4 38,395,905
Average Annual Compound Growth Rates
2006-2015 0.3 % 0.3 % (0.3)% 0.2 %
(1) Total Domestic Enplanements equals Total Domestic Air Carrier Enplanements plus
Total Domestic Commuter Enplanements.
(2) Total Enplanements equals Total Domestic Air Carrier Enplanements plus Total Domestic Commuter
Enplanements plus Total International Enplanements.
Source: City of Chicago Department of Aviation.
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
AIRCRAFT OPERATIONS
FOR EACH OF THE TEN YEARS ENDED DECEMBER 31, 2006-2015
(Unaudited)
Year
2006'
2007
2008'
2009
2010
2011
2012...
2013
2014
2015
Annual, Aircraft Operations
Domestic International Total General
Air Carrier Air Carrier Air Carrier Commuter All-Cargo Aviation Total
821,586 ; 83,986 905,572 "' - " 21,165 31,906 958,643'
802,933 87,043 889,976 20,702 16,295 926,973
762,995 81,211 844,206 : 17,542 19,818 881,566
721,169 ' 74,842 796,011 13,988 17,900 827,899
771,550 72,144 843,694 17,248 " 21,675 882,617
69,704 842,411 17,149 19,238 878,798
783,371 66,992 - ,850,363 ¦._;„ . 16,887 .: ... 10,858 878,408
784,681 71,858 856,539 16,326 10,422 883,287
76,258 855,966 15,433 10,534 881,933
775,091 70,729 845,820 17,698 11,618 875,136
(0.8)%
Average Annual Compound Growth Rates
2006-2015 (0.6)% (1.9)%
Source: City of Chicago Department of Aviation.
-73 -
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
NET AIRLINE REQUIREMENT AND COST PER ENPLANED PASSENGER FOR THE YEAR ENDED DECEMBER 31, 2015 (Dollars in thousands)
(Unaudited) ' ',-
Calculation of cost per enplaned passenger:
Operating and maintenance expenses(l) $ 466,426
Net debt service (1) 369,661
Debt service coverage requirement(2) 1,067
Fund deposits(3) 5,846
Total airport expenses(,) 843,000
Less:
Non-airline revenue(1) (277,674)
PFC revenue applied to eligible debt service (6,685)
Other
Net airline requirement(4) 558,641
Enplaned passengers 38,395,905
Cost per enplaned passenger $ 14.55
(1)This analysis excludes the Land Support Cost Revenue Center,
(2)
Airport Development Fund, Emergency Reserve Fund and PFC Fund.
Incremental adjustment required which provide 10 percent coverage on aggregate debt service.
(3)
Deposits to the Operations and Maintenance Reserve, Maintenance Reserve, Emergency Reserve and Special Capital Project Funds. (4) Revenue required to be collected from all Airline Parties under the 1983 Airport Use Agreements and the 1990 International Terminal Use Agreements.
Source: City of Chicago Comptroller's Office and Department of Aviation.
-74-
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
HISTORICAL PFC REVENUES -
FOR EACH OF THE TEN YEARS ENDED DECEMBER 31, 2006-2015
(Dollars in thousands)
(Unaudited)
Year
2006 2ti07 2008 2009 2010 201-1 2012 2013 2014 2015
Total Enplanements
37,784,336 37,779,576 34,744,030 32,047,097 33,232,412 33,207,302 33,244,515 33,297,578 34,952,762 38,395,905
PFC
Enplanements (1)
33,765,769 34,243,364 30,720,227 27,533,048 29,493,621 28,503,338 28,067,538 29,516,583 31,962,719 32,425,502
PFC Revenues (Net of Airline Collection
Fees)(2)(3)
$ 148,232 150,329 130,922 117,103 129,477 125,130 123,215 129,578 140,316 142,348
PFC Interest Income .
$. 10,052. 18,922' 3,940 3,767 2,596 2,631 ' 1,575 1,527
, .1,275.;:
918
Total PFC; Revenues
$ 158,284 "169,251 134,862 . 120,870 132,073 1-27,76-1 124;790 131,105
¦ji'141^591 143,266
(2)
(1) Historical collection information reflects an actual percentage of eligible PFC enplanements of 84.5% in 2015.
This amount is net of the airline collection fee of $. 11 per enplaning passenger since May 1, 2004.
(3) Actual amounts above are recorded on a cash basis but are reported in the Airport's audited financial statements on an accrual basis. The cash basis PFC audit for 2015 has not yet been issued.
Source: City of Chicago Comptroller's Office and Department of Aviation.
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
PASSENGER FACILITY CHARGE (PFC) DEBT SERVICE COVERAGE FOR EACH OF THE TEN YEARS ENDED DECEMBER 31, 2006-2015 (Dollars in thousands)
(Unaudited) '
PFC PFC Bonds Coverage by
Bond Year Ended Revenues (2) Debt Service PFC Revenues (1)
January 1,2006 $149,518 $73,502 2.03 %
January 1,2007 158,284 73,502 2.15
January 1,2008 169,251 73,498 2.30
January 1,2009 134,862 50,048 2.69
January 1,2010 120,870 49,411 2.45
January 1,2011 132,073 59,077 2.24
January 1,2012 127,761 77,497 1.65
January 1,2013 124,790 66,163 1.89
January 1,2014 131,105 70,860 1.85
January 1,2015 141,591 65,307 2.17
January 1,2016 143,266 66,791 2.14
^ Ratio represents the amount of PFC revenues to debt service:
For bond years ended 2006 through 2008. (2) Actual amounts above are recorded on a cash basis and includes interest earnings.
Source: City of Chicago Comptroller's Office.
- 76 -
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CITY OF CHICAGO, ILLINOIS
CHICAGO MIDWAY INTERNATIONAL AIRPORT
STATISTICAL DATA
PRINCIPAL EMPLOYERS (NONGOVERNMENT)
CURRENT YEAR AND NINE YEARS AGO (SEE NOTE AT THE END OF THIS PAGE)
(Unaudited)
2015'
Number of Employees Rank
Percentage of Total City Employment
Number of Employees
(4)
2006
Percentage of Total City Rank Employment
Advocate Health Care University of Chicago Northwestern Memorial Healthcare JP Morgan Chase & Co. m . United Continental Holdings Inc. Health Care Service Corporation Walgreen Boots Alliance Inc. Presence Health Abbott Laboratories Northwestern University Jewel Food Stores, Inc Northern Trust Corporation Accenture LLP SBC/AT&T<3) American Airlines Ford Motor Company Bonded Maintenance Company Bank of America
18,308 16;i97 15,317 14,158. 14,000 13,006 13,006 10,500 10,000 9,708|1010|2 3
.4,. 5 6 7 8 9 10
1.44 %
1.27
1.20
1.11
1.10
1.02
1.02
0.82
0.79
0.76
8,979 5,944
5,453 4,610 4,470 3,834 3,750 3,480 3,298 3,108
3 4 5 6 7 8 9 10
0.82 0.55
; 0.50 0.42 0.41 0.35-0.34 0.32 0.30' 0.29
Notes (0
(2)
Source: Reprinted with permission. Cram's Chicago Business [January 18, 2016], Crain Communications, Inc. J.P. Morgan Chase formerly known as Banc One.
(3)
(AT&T Inc. formerly known as SBC Ameritech. 2015 number of employees is a state wide number. Source: City of Chicago, Department of Revenue, Employer's Expense Tax Returns.
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CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
SUMMARY—2015 TERMINAL RENTALS, FEES AND CHARGES
FOR THE PERIOD COMMENCING JULY 1, 2015
Signatory Non-Signatory
DOMESTIC TERMINAL
DESCRIPTION:
Landing fee/1,000 lbs. $'• 7.87 $9.84
Base rent $ 5.00
Existing footage $ 64.40
Special facility additional footage - N/A
Additional footage ¦¦. $^91.23
Ultimate additional footage . i N/A
INTERNATIONAL TERMINAL
DESCRIPTION:
Landing fee/1,00.0 lbs. . $ 7.87 $9.84
Terminal rent/sq. ft./annum:
Long-term signatory . $ 95.86
Short-term signatory :" ¦ N/A;
Month-to-month $ 129.41
ENPLANED PASSENGER USE CHARGE:
Long-term signatory $ 12.30
Short-term signatory N/A
Month-to-month $ 16.61
DEPLANED PASSENGER USE CHARGE:
Long-term signatory $ 9.64
Short-term signatory N/A
Month-to-month $ 13.02
-83 -
CITY OF CHICAGO, ILLINOIS
CHICAGO O'HARE INTERNATIONAL AIRPORT
AIRPORT MARKET SHARE OF RENTAL CAR BRANDS OPERATING ON-AIRPORT
(Unaudited)
Corporate Entity<1)
Enterprise Holdings, Inc.
Avis Budget Group, Inc.
Hertz Global Holdings, Inc.
Brand(s)
Enterprise Rent-A-Car
Alamo Rent-A-Car
National Rent-A-Car
Avis Car Rental Budget Rent-A-Car
Hertz Rent A Car Dollar Rent A Car Thrifty Car Rental
2015 . Airport Market
. 10.1 %
%
%
19.5 %
9,2 %
%
% 4.7 %
3^2 %
33.7 % 100.0 %
(1) Alamo and National are reported jointly.
Sources: City of Chicago Department of Aviation, Ricondo & Associates, Inc. Source: Chicago Department of Aviation
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Appendix E REPORT OF THE AIRPORT CONSULTANT
[This Page Intentionally Left Blank]
Appendix E
¦ RIDOIIBIIIi:OIHDI9IBIIIIlllBli?IIIIIIIinBliaifll;"!8IIISIIIIIiaiIlllCIIIII
Report of the Airport Consultant
City of Chicago
Chicago O'Hare International Airport
General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT) General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT) General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT) General Airport Senior Lien Revenue Bonds, Series 2016D General Airport Senior Lien Revenue Bonds, Series 2016E General Airport Senior Lien Revenue Bonds, Series 2016F
PREPARED BY:
RICONDO & ASSOCIATES, INC. 20 North Clark Street, Suite 1500
Chicago, Illinois 60602
(312) 606-0611 (phone)
(312) 606-0706 (facsimile)
IN ASSOCIATION WITH: Partners for Economic Solutions
RICONDO'
1 ASSOCIATES
November 3, 2016
Ricondo & Associates,, Inc (R&A) prepared this document for the stated purposes as expressly set forth herein and for the sole use of The City of Chicago and its intended recipients. The techniques and methodologies used in preparing this document arc consistent with industry practices at the time of preparation and this Report should be read in its entirety for an understanding of the analysis, assumptions, and opinions presented. Ricondo & Associates. Inc is not registered as a municipal advisor under Section I SB of the Securities Exchange Act of 1934 and docs not provide financial advisory services within the meaning of such Act
i
[E-2]
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RICONDO'
4 ASSOCIATES
November 3, 2016
Ms. Ginger S. Evans Commissioner
City of Chicago, Department of Aviation 10510 West Zemke Road -Chicago, Illinois 60666
RE: City of Chicago, Chicago O'Hare International Airport
General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT) General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT) General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT) General Airport Senior Lien Revenue Bonds, Series 2016D General Airport Senior Lien Revenue Bonds, Series 2016E General Airport Senior Lien Revenue Bonds, Series 2016F
Dear Ms. Evans:
Ricondo & Associates, Inc. (R&A) is pleased to present this Report of the Airport Consultant (the Report) for inclusion as Appendix E in the Official Statements for the 2016 Bonds, defined herein and described in detail in this Report. The 2016 Bonds, comprised of the 2016 Refunding Bonds and 2016 New Money Bonds, described herein, will be issued pursuant to an ordinance adopted by the Chicago City Council on September 14, 2016 (the Bond Ordinance) and the Master Indenture of Trust securing Chicago O'Hare International Airport Senior Lien Obligations dated as of September 1, 2012 (the Senior Lien Master Indenture) between the City of Chicago (the City) and U.S. Bank National Association, Chicago, Illinois (the Trustee), as supplemented by the Supplemental Indentures from the City of Chicago (the City) to the Trustee. The Senior Lien Master Indenture, as supplemented by the Supplemental Indentures, and as it may be amended and supplemented from time to time in accordance with its terms, is herein referred to as the Senior Lien Indenture.
The 2016 Bonds will be secured under the Senior Lien Indenture by a lien on and pledge of all Revenues and in some cases Other Available Moneys and will be payable from amounts that may be withdrawn from the Debt Service Fund created under the Senior Lien Indenture, as described in the Report.
The City will use the proceeds from the sale of the 2016 Refunding Bonds, together with other available funds, to:
refund certain outstanding Airport Obligations to generate debt service savings,
fund the related reserve requirements for the 2016 Refunding Bonds, and
20 NORTH CLARK STREET, SUIT!:" 1500. CHICAGO, II. 60602 TEL (312) 606-0611 ¦ l-AX (312) 606-0706
RipdNDO'
& A^isbcfi AtES
Ms. Ginger S. Evans
Chicago Department of Aviation
Chicago O'Hare International Airport
November 3, 2016
Page 2
(iii) pay costs and expenses incidental thereto and to the issuance of the 2016 Refunding Bonds.
The City will use the proceeds from the sale of the 2016 New Money Bonds, together with other available funds, to:
pay the costs of the-2016 Projects, as herein defined
fund the related reserve requirements for the 2016 New Money Bonds,
fund capitalized interest on'a portion ofthe 2016 New Money Bonds, and
pay costs and expenses incidental thereto and to the issuance of the 2016 New Money Bonds.
Unless otherwise defined herein, all capitalized terms in this Report are used as defined in the Official Statements for the 2016 Bonds and/or the Senior Lien Indenture.
This Report presents the analysis undertaken by R&A to demonstrate the ability of the City to comply with the requirements of the Senior Lien Indenture for Fiscal Years (FYs) 2016 through 2025 (the Projection Period) based on the assumptions regarding the planned issuance of the 2016 Bonds established by the City through consultation with its financial advisors, underwriters, and the financing team. In developing its analysis, R&A has reviewed historical trends and formulated projections based on the assumptions put forth in this Report, which have been reviewed by the City, regarding the ability of the Air Trade Area (as defined herein) to generate demand for airline service at Chicago O'Hare International Airport (the Airport), the amount of airline service and passenger activity at the Airport, and the generation of Revenues and Other Available Moneys at the Airport through the Projection Period. The Report is organized as follows:
Summary of Findings
. Chapter 1: The 2016 Bonds
Chapter 2: The Airport Facilities, Capital Program, and 2016 Projects
Chapter 3: Demographic and Economic Analysis
Chapter 4: Air Traffic
Chapter 5: Financial Analysis
IE-4]
On the basis of the analysis set forth in this Report, R&A is of the opinion that the Revenues and Other Available Moneys generated each year of the Projection Period are expected to be sufficient to comply with the Rate Covenants established in the Senior Lien Indenture, and that the resulting projected airline
RICONDO*
4 ASSOCIATES
Ms. Ginger S. Evans
Chicago Department of Aviation
Chicago O'Hare International Airport
November 3, 2016
Page 3
costs should remain reasonable. Although summary information is provided, a complete understanding of the justification for our conclusion cannot be attained without reading the Report in its entirety.
Founded in 1989, R&A is a full-service aviation consulting firm providing airport physical and financial planning services to airport owners and operators, airlines, and federal and state agencies. R&A has prepared Reports ofthe Airport Consultant in support of over $26 billion of airport related revenue bonds since 1996. R&A is not registered as a municipal advisor under Section 15B of the Securities Exchange Act of 1934. R&A is not acting as a municipal advisor and has not been engaged by the City to provide advice with respect to the structure, timing, terms, or other similar matters concerning the issuance of municipal securities. The assumptions regarding such matters included in this Report were provided by the City or the City's financial advisors or underwriters, or, with the City's approval, were derived from general, publicly available data approved by the City. R&A owes no fiduciary duty to the City. The City should discuss the information and analysis contained in this Report with internal and external advisors and experts that the City deems appropriate before taking any action. Any opinions, assumptions, views, or information contained herein are not intended to be, and do not constitute, "advice" within the meaning of Section 15B of the Securities Exchange Act of 1934.
The techniques and methodologies used by R&A in preparing this Report are consistent with industry practices for similar studies in connection with airport revenue bond sales. While R&A believes that the approach and assumptions used in this Report are reasonable, some assumptions regarding future trends and events detailed in this Report, including, but not limited to, the implementation schedule and the projections of passenger activity and financial performance, may not materialize. Therefore, actual performance will likely differ from the projections set forth in this Report and the variations may be material. In developing its analysis, R&A used information from various sources, including the City, the underwriters, the financial advisors, federal and local governmental agencies, and independent private providers of economic and aviation industry data, as identified in the notes accompanying the related tables and exhibits in this Report. R&A believes these sources to be reliable, but has not audited the data and does not warrant their accuracy. The analysis presented is based on conditions known as of the date of this letter. R&A has no obligation to update this Report on an ongoing basis.
Sincerely,
RICONDO & ASSOCIATES, INC.
[E-5]
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table of Contents
Summary of Findings E-15
The 2016 Bonds E-16
The Airport Facilities, Capital Program, and 2016 Projects E-17
Demographic and Economic Analysis E-19
Air Traffic E-20
Financial Analysis E-22
1. The 2016 Bonds E-27
The 2016 Bonds E-27
1.1.1 2016 REFUNDING BONDS E-27
" 1.1.2 2016 NEW MONEY BONDS.. «, E-27
Indenture of Trust E-29
2. The Airport Facilities, Capital Program, and 2016 Projects E-33
2.1 Airport Facilities E-33
AIRFIELD E-33
TERMINAL AREA E-33
RENTAL CAR FACILITIES E-35
AIR CARGO AREAS E-35
' MAINTENANCE/AIRPORT SUPPORT AREAS E-35
SURFACE ACCESS/PARKING AREAS E-36
2.2 Overview of Capital Program E-36
O'HARE MODERNIZATION PROGRAM E-37
2016-2020 CAPITAL IMPROVEMENT PROGRAM E-42
OTHER RECENTLY ANNOUNCED CAPITAL PROJECTS E-44
2.3 The 2016 Projects E-46
3. Demographic and Economic Analysis E-47
The Air Trade Area E-47
Demographic Analysis E-49
3.2.1 POPULATION E-49
3.2 2 AGE DISTRIBUTION AND EDUCATION E-50
PER CAPITA PERSONAL INCOME E-52
HOUSEHOLD INCOME DISTRIBUTION AND MEDIAN HOUSEHOLD INCOME E-53
[E-7]
Report of the Airport Consultant
Ci I Y OF CHiCAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table of Contents (continued)
3.3 Economic Analysis fj-54
PER CAPITA GROSS DOMESTIC/REGIONAL PRODUCT E-54
EMPLOYMENT TRENDS „... :...„ E-55
BUSINESS CLIMATE E-56
TRADE BY AIR E-57
., 3.3.5 MAJOR EMPLOYERS AND FORTUNE 500 HEADQUARTERS .... E-58
3.3.6 MAJOR INDUSTRY SECTORS E-59
3.3:7 AIR TRADE AREA TOURISM INDUSTRY.. l.:„:.:.; ..: .E-61
3.4 Economic Outlook E-63
"3.4.1 SHORT-TERM ECONOMIC OUTLOOK 1.7. .1...11 ." E-63
LONG-TERM ECONOMIC OUTLOOK E-64
. CONCLUSIONS : E-65
4. Air Traffic E-67
National and Global Perspective of the Airport ^a::.:.......^..^ E-67
Airlines Serving the Airport E-69
Historical Airport Activity E-74
ENPLANED PASSENGER ACTIVITY AND AIRLINE OPERATIONS E-74
AIR SERVICE E-78
AIRCRAFT OPERATIONS E-86
LANDED WEIGHT E-88
AIR CARGO VOLUMES E-88
4.4 Factors Affecting Aviation Demand at the Airport E-90
NATIONAL ECONOMY E-90
STATE OF THE AIRLINE INDUSTRY E-90
AIRLINE MERGERS AND ACQUISITIONS E-91
COST OF AVIATION FUEL E 9.3
THREAT OF TERRORISM AND GEOPOLITICAL ISSUES E-94
OPERATIONAL CAPACITY OF THE NATIONAL AIRSPACE SYSTEM E-94
OTHER AIRPORTS IN THE REGION E-94
4.5 Importance of the Airport to Airlines E-97
HUB AIRLINES E-97
LOW-COST AIRLINES E-101
[E-8]
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table of Contents (continued)
4.6 Forecasts of Aviation Demand ; E-103
ASSUMPTIONS-UNDERLYING THE FORECASTS.....v-.-. E-103
NEAR-TERM (2016 AND 2017) ENPLANED PASSENGERS AND OPERATIONS FORECAST
METHODOLOGY AND RESULTS E-104
LONGER-TERM (2018 THROUGH 2025) ENPLANED PASSENGERS FORECAST
METHODOLOGY E-107
AIRCRAFT OPERATIONS AND LANDED WEIGHT FORECASTS E-113
COMPARISON OF ACTIVITY FORECASTS E-116
5. Financial Analysis E-119
5.1 Financial Framework E-120
AIRPORT USE AGREEMENT E-120
AIRPORT FEES AND CHARGES E-121
LAND SUPPORT AREA E-122
5.2 Operating and Maintenance Expenses E-122
HISTORICAL O&M EXPENSES E-122
CITY PENSION OBLIGATIONS E-124
BUDGETED AND PROJECTED OPERATING AND MAINTENANCE EXPENSES E-125
5.3 Non-Signatory Airline and Non-Airline Revenues E-128
BUDGETED AND PROJECTED NON-SIGNATORY AIRLINE REVENUES E-129
BUDGETED AND PROJECTED NON-AIRLINE REVENUES E-130
5.4 Other Available Revenue E-137
PASSENGER FACILITY CHARGE REVENUE E-137
FAA AIRPORT IMPROVEMENT PROGRAM GRANTS AND OTHER FEDERAL FUNDING E-139
Debt Service E-141
5.5.1 GENERAL AIRPORT REVENUE BOND DEBT SERVICE E-141
Net Signatory Airline Requirement E-144
Calculation of Airline Parties' Airport Fees and Charges E-145
AIRFIELD AREA E-145
TERMINAL AREA E-146
INTERNATIONAL TERMINAL AREA E-146
FUELING SYSTEM E-147
5.8 Reasonableness of Airport User Fees E-147
5.81 AIRLINE COST E-147
[E-9]
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
: r ^ : : Table of Contents (continued)
General Airport Revenue Bond Debt Service Coverage E-149
Assumptions Underlying the Financial Projections E-150
List of Appendices
Appendix A Historical Budgeted versus Actual Operating Results Appendix B Financial Projection Tables
•"'V.;' ;. . ... ¦ ¦ - ¦ ¦ ¦
List of Tables
: Table S-l: Summary ofthe 2016 Bonds E-17
'—Table S-2:- Projected Economic-Variables- Used -in Passenger Demand Projections"^(2015-2025). ...-:.J. E-20
Table S-3: GARB Debt Service Coverage '. ..E-24
Table S-4: Projected Airline Cost per Enplanement E-26
... Table 1-1: Estimated Uses of Proceeds from the Sale ofthe 2016 New Money Bonds......... E-28
Table 1-2: Summary ofthe 2016 Bonds E-29
Table 2-1: Estimated Sources and Uses of Funds for Remaining OMP Airfield Projects and 2016-2020 CIPE-39
Table 2-2: Estimated Uses of the 2016 New Money Bonds Construction Fund Deposit . E-46
Table 3-1 Historical and Projected Population (1995-2025) E-50
Table 3-2: Age Distribution and Educational Attainment (2015) E-51
Table 3-3: Total Trade by Conveyance (2015) E-57
. .Table 3-4: Largest Employers in the Air Trade Areal/ (2015) E-58
Table 3-5: Top Destination Cities for Overseas Visitors (2015) E-63
Table 3-6: Projected Select Economic Variables (2015-2025) E-64
Table 4-1: Top 20 Worldwide Ranking of Activity E-68
Table 4-2: Airlines Serving the Airportl/ E-70
Table 4-3: Scheduled United States Passenger Air Carrier Base E-71
Table 4-4: Foreign Flag Air Carrier Base E-72
I Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
List of Tables (continued)
Table 4-5: Historical Enplaned Passengers 1/. .-E-75
Table 4-6: Historical Total Enplaned Passengers by Airline E-79
Table 4-7: Historical O&D and Connecting Enplaned Passengers E-81
Table 4-8: Top 50 Domestic O&D Passenger Markets - 2015 E-83
Table 4-9: Historical Aircraft Operations E-87
Table 4-10: Historical Landed Weight by Airline E-89
Table 4-11: Historical Enplaned and Deplaned Cargo Weight E-90
Table 4-12: Historical Enplaned Passengers at O'Hare and Midway E-95
Table 4-13: Comparison of O'Hare and Midway Domestic Fares and Yields E-96
. Table 4-14: Share of United Hub O&D Passengers E-99
Table 4-15: Share of American Hub O&D Passengers E-99
Table 4-16: Chicago O'Hare Ranking of Seat Capacity within United and American Route Networks E-100
Table 4-17: Low-Cost Carrier Enplanements at O'Hare 2009-2015 E-101
Table 4-18: 2009 vs 2016 Low-Cost Carrier Activity 1/ E-102
Table 4-19: Historical and Forecast Domestic and International Enplaned Passengers E-105
Table 4-20: Historical and Forecast Aircraft Operations E-106
Table 4-21: Range of Forecast Revenue Growth (2015 Report) E-lll
Table 4-22: Results of Revenue Regression Analysis and Passenger Conversion (2015 Report) E-112
Table 4-23: Historical and Forecast Landed Weight E-115
Table 5-1: Historical O&M Expenses, 2011 - 2015 E-123
Table 5-2: Historical Concession Revenues, 2011 - 2015 E-129
Table 5-3: Schedule of FAA LOI Grant Receipts for 2016E New Money Bond Debt Service E-141
Table 5-4: Assumed Future GARB Issuances E-143
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
List of Exhibits
Exhibit 1-1; Flow of Funds before and after the Transition Date E-31
Exhibit 2-1: Existing Airport Layout E-34
Exhibit 2-2: Airport Capital Program '.: .:..:.: .....E-38
Exhibit 2-3: O'Hare Operations and FAA Reported Number of Delayed Flights E-42
Exhibit 3-1; Air Trade Area ..E-48
Exhibit 3-2: Ten Largest Metropolitan Regions in the United States (2015) E-49
Exhibit 3-3; Per Capita Personal Income (2005-2015) 1/ E-53
Exhibit 3-4: Household Income Distribution (2015):.;. E-54
Exhibit 3-5: -Per Capita Gross Domestic/Regional Products (2005-2015) l/~::.:.::::i™::.:::::...:.:::..:...:.:::::.E-55
Exhibit 3-6: Unemployment Rate (2005-2016) 1/ E-56
Exhibit 3-7: Fortune 500 Companies Headquartered in the Air Trade Area (2016) E-60
' Exhibit 3-8: Jobs'by Major Industry Sectors'(2015) l/.:...'...:;:„: ::...•...:•.!:„::.:.;• ::.:-„...:.: .v.:: v.;:...E-61
' '¦ Exhibit 4-1: Large Hub Airport Foreign Flag Carrier Count ...:...„'...„:...: .„.„::„.: E-73
Exhibit 4-2: 2015 Airline Market Share (measured by enplaned passengers) .E-73
Exhibit 4-3: Domestic Enplanements and Operations' E-75
Exhibit 4-4: United and American Enplaned Passenger Trends E-76
Exhibit 4-5: International Enplanement and Operations E-77
Exhibit 4-6: Top 20 United States Airports by International Enplaned Passenger Volumes - 2015 E-78
Exhibit 4-7: 2010 and 2015 Airline Market Shares E-80
Exhibit 4-8: Average Domestic O&D Passengers and Fares at O'Hare and Average Annual Price of Oil E-82
Exhibit 4-9: Nonstop Domestic Markets E-84
Exhibit 4-10: Nonstop International Markets :E-85
Exhibit 4-11: Operations at Other North American Airports (2006-2015) E-86
Exhibit 4-12: Growth Trends of United States Passengers and Gross Domestic Product E-92
Exhibit 4-13: Growth Trends of United States Domestic Passengers, Passenger Revenue, and Gross
Domestic Product E-92
Exhibit 4-14: Historical Monthly Averages of Jet Fuel and Crude Oil Prices E-93
Exhibit 4-15: CY 2015 Estimated Relative Hub Profitability United and American Hubs E-98
Exhibit 4-16: CY 2015 Hub Airport Revenue Contribution E-98
. . . , . IE"12!
j Report of the Airport Consultant
CITY Of CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
List of Exhibits (continued)
Exhibit 4-17: United Seat Capacity by Hub and Region E-100
Exhibit 4-18: American Seat Capacity by Hub and Region E-101
Exhibit 4-19: 2014-2016 Low-Cost Carrier Seat Capacity Growth E-103
Exhibit 4-20: Growth Trends of Chicago Passengers and United States Gross Domestic Product (2015
Report) E-109
Exhibit 4-21: Growth Trends of Chicago Passenger Revenue and United States Gross Domestic Product
(2015 Report) E-110
Exhibit 4-22: Components of Revenue Growth since Calendar Year 2009 Top 30 United States Airports by
Departures - United States Carriers Data Only (2015 Report) E-110
Exhibit 4-23: 2014 Average Yield (cents/passenger mile) Top 30 United States Airports by Departures -
United States Carrier Data Only (2015 Report) E-lll
Exhibit 4-24: Enplaned Passenger Forecast Comparison E-116
Exhibit 4-25: Aircraft Operations Forecast Comparison E-117
Exhibit 5-1: Projected Impact of Estimated Pension Contributionsl/ over Baseline Growth E-125
Exhibit 5-2: 2016 Operating and Maintenance Expenses by Cost Category (in millions) E-126
Exhibit 5-3: Projected Operating and Maintenance Expenses E-128
Exhibit 5-4: Projected Non-Signatory Airline Revenues E-130
Exhibit 5-5: 2016 Concession Revenues by Category (in millions) E-131
Exhibit 5-6: Projected Non-Airline Revenues E-137
Exhibit 5-7: Projected PFC Revenue E-139
Exhibit 5-9: Projected Net Debt Service E-143
Exhibit 5-10: Projected Net Signatory Airline Requirement E-144
Exhibit 5-11: Projected Landing Fees E-146
Exhibit 5-12: Projected Terminal Rental Rate E-147
Exhibit 5-13: Projected Airline Cost per Enplanement E-148
j Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
THIS PAGE INTENTIONALLY LEFT BLANK
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Summary of Findings
The City of Chicago (the City) engaged Ricondo & Associates, Inc. (R&A) to prepare this Report of the Airport Consultant (the Report) to provide an independent assessment of the City's ability to meet its obligations regarding the issuance of the Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT) (the 2016A Refunding Bonds), Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT) (the 2016B Refunding Bonds), and Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT) (the 2016C Refunding Bonds and, collectively with the 2016A Refunding Bonds and 2016B Refunding Bonds, are referred to as the 2016 Refunding Bonds), Chicago O'Hare International Airport General Airport Senior Lien Revenue Bonds, Series 2016D (the 2016D New Money Bonds), Chicago O'Hare International Airport General Airport Senior Lien Revenue Bonds, Series 2016E (the 2016E New Money Bonds), and Chicago O'Hare International Airport General Airport Senior Lien Revenue Bonds, Series 2016F (the 2016F New Money Bonds, and, collectively with the 2016D New Money Bonds and 2016E New Money Bonds, are referred to as the 2016 New Money Bonds).1 The 2016A Refunding Bonds, the 2016B Refunding Bonds, the 2016C Refunding Bonds, the 2016D New Money Bonds, the 2016E New Money Bonds, and the 2016F New Money Bonds are referred to collectively as the 2016 Bonds.
Unless otherwise defined herein, all capitalized terms in this Report are used as defined in the Official Statements for the 2016 Bonds and/or the Senior Lien Indenture.
On the basis of the analysis set forth in this Report, R&A is of the opinion that the Revenues and in some cases Other Available Moneys generated each year of the Projection Period (Fiscal Year [FY] 2016- FY 2025) are expected to be sufficient to comply with the Rate Covenants established in the Senior Lien Indenture and that the resulting projected airline costs should remain reasonable. The following summary provides key information and findings that support this opinion. Additional detail is included in Chapters 1 through 5 of the Report.
R&A prepared this document for the stated purposes as expressly set forth herein and for the sole use of the City and its intended recipients The techniques and methodologies used in preparing this document are consistent with industry practices at the time of preparation and this Report should be read in its entirety for an understanding of the analysis, assumptions, and opinions presented. R&A is not registered as a municipal advisor under Section 15B of the Securities Exchange Act of 1934 and does not provide financial advisory services within the meaning of such Act
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
The 2016 Bonds
The 2016 Bonds are comprised of the 2016 Refunding Bonds and the 2016 New Money Bonds.
The City will use the proceeds from the sale of the 2016 Refunding Bonds, together with other available funds,
to: "" - ¦ ¦," '•• '¦. : .
refund certain outstanding Airport Obligations to generate debt service savings,
fund related reserve requirements ofthe 2016 Refunding Bonds, and
pay costs and expenses incidental thereto and to the issuance ofthe 2016 Refunding Bonds.
It is expected that annual debt service savings of between $2.1 million and $7.5 million will result from the issuance of the 2016 Refunding Bonds and the refunding of certain Airport Obligations. The expected savings from the,2016 Refunding Bonds have been assumed.in the debt service projections included in the financial analysis in this Report.
The City will use the proceeds from, the sale of the 2016. New Money Bonds, together with other available funds, to:
pay the costs of the 2016 Airport Projects, as herein defined,
fund the related reserve requirements ofthe 2016 New Money Bonds,
fund capitalized interest on a portion ofthe 2016 New Money Bonds, and
pay costs and expenses incidental.thereto and to the issuance ofthe 2016 New Money Bonds.
Pursuant to the terms of the Senior Lien Indenture, the 2016 Bonds will be secured by a first lien pledge of Revenues (meaning, generally, all amounts received or receivable, directly or indirectly, by the City for the use and operation of Chicago O'Hare International Airport [the Airport] [excluding the Land Support Area]) and certain Other Available Moneys, on a parity basis with the City's Outstanding Senior Lien Bonds and such other Senior Lien Obligations as may be outstanding from time to time, and will be paid from amounts that may be withdrawn from the Debt Service Fund created under the Senior Lien Indenture. Revenues are defined in the.Official Statement.
Additional information on the 2016 Bonds is provided in Chapter 1 of this Report.
Table S-l presents a summary of the tax status and security of each series of the 2016 Bonds.
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
table S-i: ' Summary of the 2016 Bonds
SERIES 2016A SERIES 2016B 1
Refunding
Tax-exempt; AMT
Revenues
Refunding
Tax-exempt; Non-AMT
Revenues
Refunding
Tax-exempt; Non-AMT
Revenues, RFC ¦ Revenue through: 2018 •,; v
, New! Money
Tax-exempt; Non-AMT
Revenues
. New Money
Tax-exempt; Non-AMT
Revenues, Grant; 1 Receipts .', v
. New Money *¦¦¦
Tax-exempt; Non-AMT
Revenues, PFC Revenues.:-through maturity
SOURCE' Chicago Department of Aviation; Katten Muchin Rosenman, LLP, September 2016. PREPARED BY: Ricondo 81 Associates, Inc., September 2016.
The Airport Facilities, Capital Program, and 2016 Projects
The Airport is the largest commerciaL-service airport.serving .Chicago and the.surrounding region. Its primary facilities consist of the airfield, terminal area, rental car facilities, air cargo areas, maintenance/airport support areas, and surface access/parking areas. The airfield consists of eight active runways; the terminal area consists of four terminal buildings with a total of 189 gates. The Airport's airfield, terminal area, and other facilities are described in Chapter 2 of this Report.
The City has been undertaking major capital planning initiatives at the Airport, including airfield and facility development, while also maintaining a 5-year Capital Improvement Program (CIP) to address the Airport's ongoing capital needs. The Airport's capital program includes the O'Hare Modernization Program (OMP) Airfield Projects, the 5-year (2016-2020) CIP, and other recently announced capital projects, as described briefly in this section and further described in Chapter 2 of this Report.
OMP Airfield Projects2 are changing the airfield from a layout with intersecting runways to a modern parallel runway system. The OMP, which includes the construction of one new runway, the relocation of three existing runways and the extension of two existing runways, is being undertaken in phases that began in 2005. To date, three of the four runways have been completed and one of the two runway extensions has been completed. The Airport has experienced a reduction in operational delays and an increase in airfield capacity with the completion of the OMP projects. The remaining OMP Airfield Projects include one runway (under construction), and an extension to an existing runway, which is expected to further reduce delays and increase capacity. Funding for the OMP Airfield Projects has been undertaken in phases. OMP Phase 1, a $3.21 billion project, included two runways and an extension and was completed in 2013. A $1.07 billion funding agreement with the Airline Parties for OMP Phase 2A included a runway and enabling projects for a future runway. This
The OMP also includes the construction of a terminal complex on the west side of the Airport The Chicago Department of Aviation has indicated it will pursue the Western Terminal Complex only as demand dictates the need for the facilities, and costs for the Western Terminal Complex have not been included in the financial analysis included in Chapter 5 of this Report. For additional information on terminal facility plans, see Section 2 2.1. -
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
-phase is fully- funded;-the;runwayrpro|ect.was.comply 2015 and the remaining, projects
are anticipated to remain within budget. A $1.3 billion infrastructure plan that includes another OMP runway was agreed upon in. a funding agreement among United.Airlines (United) and American Airlines (American); and the City in January 2016 and Majority-In-Interest funding authority, for the plan was approved by the Airline Parties in February 2016. The plan, which includes Runway 9C-27C,
. an OMP Airfield Project, and additional airfield improvements not part of the remaining OMP Airfield Projects, which include a centralized deicing pad, a cross-field taxiway system and relocation of Taxiways A and B; are expected to be funded with proceeds from the 2016 New Money Bonds, and is
. expected tq.be completed by December 2020, For purposes of the financial analysis included in Chapter 5 of this Report, additional future General Airport Revenue. Bonds (GARBs) have been included for funding of the construction of the remaining OMP runway extension project.
2016-2020 CIP includes ongoing repair and maintenance and other capital projects, such as the construction of .a> Mujtimpdal Facility, .which jncludes/.a consolidated, rental, car and, public parking facility and an extension ofthe Airport Transit System (ATS); airfield improvements associated with the third-party construction of a cargo facility in the northeast area of the Airport; the expansion of the Airport Maintenance Complex; additions and modifications to terminal facilities, including an ¦ expansion of the Terminal 5 Federaklnspection Station; safety and security projects, including an inline baggage system in'Concourse1 L and checked baggage inspection station optimization in-Terminal 1; and noise mitigation.:The;cost of the^2016-2020^GIP ^' approximately $1t78 .billion and includes planning and implementation costs. The 2016-2020 CIP is expected to ¦• be funded through a combination of federal grants and loans (Federal Aviation Administration [FAA] Airport Improvement Program [AIP] entitlements, FAA AIP discretionary .grants, Transportation Security Administration [TSA] grants, U.S Department of Transportation [U.S. DOT] loan), Customer Facility Charge (CFC) pay-as-you-go, proceeds from previously issued, bonds, assumed proceeds from future bond issuances, and other Airport funds. The City estimates that approximately, $773.3 million of 2016-2020 CIP project expenditures is expected to be funded using proceeds from future bonds; these future bond issuances are also incorporated into the financial analysis of this Report; No 2016-2020 CIP projects are anticipated to be funded with proceeds from the 2016 New Money Bonds.
Other Recently Announced Capital Projects include an expansion of Terminal 5 and Concourse L in Terminal 3. These projects will add gates at the domestic and international terminals, are expected to be completed over the next two to three years, and do not require airline approval. The expansion of Terminal 5 is expected to be funded using proceeds from PFC Revenue Bonds anticipated to be issued in 2017, discussed in Section 5.4.1 of this Report. Additional long-term terminal development and redevelopment options (Terminal Area Plan) are being evaluated in coordination with airline representatives to address long-term terminal capacity. A redevelopment of the existing terminal hotel and the construction of two new hotels on Airport property are also planned and expected to be complete between 2020 and 2022. The feasibility of a future express rail third-party project connecting the Airport to the central business district is currently being studied. The expansion of Concourse L is under construction and is being funded directly by American Airlines. The $266.8 million Terminal 5 Expansion is anticipated to be funded by Passenger Facility Charge (PFC) Revenue (pay-as-you-go and PFC Revenue Bonds) and Airport discretionary funds. The Terminal Area Plan (TAP) is still in preliminary conceptual planning and discussion phases, and while funding for the TAP
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CITY OF CHICAGO .
CHICAGO O'HARE INTERNATIONAL AIRPORT
is expected to include future bond proceeds with debt service payable during the Projection Period, due to the uncertainty of timing and project costs the financial analysis in Chapter 5 of this Report does not include debt service associated with the funding of the TAP. The total investment for the three hotel development projects is estimated to be approximately $350 million and is planned to be funded by-a-special-facility loan(s) backed by hotel revenues. Because a detailed funding plan does not yet exist for the hotel development, the financial analysis in this Report does not include future funding of this project.
The 2016 Projects
The 2016 Projects will be funded with proceeds from the 2016 New Money Bonds and include the construction of Runway 9C-27C and enabling projects, including airline facility relocation; a centralized deicing pad; and a cross-field taxiway system and relocation of Taxiways A and B. The 2016 Projects total approximately $1.3 billion, of which approximately $1.0 billion is expected to be funded with proceeds from the 2016 New Money Bonds. PFC Revenue and Grant Receipts from a FAA Letter.of Intent (LOI) Grant, both used on a pay-as-you-go basis, are anticipated to fund the portions of the 2016 Projects not funded with the 2016 New Money Bonds. Airline Party approval has been received for the 2016 Projects.
Additional information on the Airport and projects included in its capital program is provided in Chapter 2 of this Report.
Demographic and Economic Analysis
The demand for air transportation is, to a degree, dependent upon the demographic and economic characteristics of an airport's air trade area. This relationship is particularly true for origin and destination (O&D) passenger traffic, which has historically accounted for approximately 50 percent of demand at the Airport (with connecting passengers accounting for the remaining 50 percent). Demand for airline travel at the Airport, therefore, is influenced by the local characteristics of the area served, along with individual airline decisions regarding service in support of connecting activity.
The Airport's Air Trade Area has a large, diverse economic base that supports business and leisure travel. Projected economic variables indicate that the Air Trade Area will remain a destination that attracts both business and tourist visitors, positively affecting the demand for future inbound airline travel. Projected Air Trade Area economic variables further support the continued growth of local outbound passengers. Table S-2 presents selected 2015 and 2025 economic figures for the Air Trade Area and for the United States, as projected by Woods & Poole Economics, Inc.
Additional information on the demographic and economic characteristics of the Air Trade Area is provided in Chapter 3.
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
VARIABLE 1
Air Trade Area Population ; ' United States Population
(• Air Trade Area.Total Employment
United States Total Employment j Air Trade Area Total Personal Income ($ billion).
2015
9,713,451
¦ 321,545,081
5,897,355
184,227,823 ~ $502.83 :
2025
. 10,273,007
352,566,429
6,628,674.
212,927,611 $619.49 •
CAGR 2015-2025
0.6%., 0.9%
1.2% 1.5%
"-'¦'• 2.1%
United States Tot'al Personal Iricoine ($ billion)
¦ Air Trade Area Per Capita Personal Income
-,)-,¦ ;,,;nv:L-'i-yviv^,^t»7,-;'^^;i-,ruii, ^-rtiit-:,
United States Per Capita Personal Income
VV?.' . $615.95 $17,839.32
$63,412 '¦-
$749.82'
$22,263.58
= $72,989:!
:'.; 2.0%: . . 2.2% 1.4%,;
United States Per Capita Gross Domestic Product
NOTES:
1/ Dollar amounts are in 2015 dollars.
71 CAGR = Compound Annual Growth Rate
SOURCE: Woods & Poole Economics, Inc, 2016 Complete Economic and Demographic Data.Source (CEDDS), May.2016.
PREPARED BY- Partners for Economic Solutions, August 2016. . " ' ' ' ¦ '
Air Traffic
Chicago's location along the heavily traveled east/west air routes and its large population base make it a natural location for airline hubbing operations. United and American3, two of the world's largest airlines in terms of revenue passenger miles, operate major connecting hub facilities at the Airport. The City is also served by Chicago Midway International Airport, a major airport for Southwest Airlines. Together the two airports provide a complementary, three-hub airport system for the area's O&D passenger base.
The Airport consistently ranks among the busiest airports in the world. According to preliminary data from Airport Council International, in 2015 the Airport was 4th busiest in terms of passenger volume (second in the United States behind Hartsfield Atlanta International Airport), the 2nd busiest in terms of aircraft movements, and the 17th busiest in terms of cargo tonnage (6th in the United States) Based on U.S. DOT survey data, the
In December 2013, American and US Airways merged under the same parent corporation. The FAA granted American a single operating certificate on April 8, 2015. References to "American" in this Report reflect the combined American/US Airways unless otherwise designated.
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CHICAGO O'HARE INTERNATIONAL AIRPORT
Chicago market4 was ranked 4th in the nation in terms of domestic O&D passengers for the year 2015— following the New York,5 Los Angeles,6 and San Francisco7 markets.
The Airport served approximately 76.9 million enplaned and deplaned passengers in 2015, an increase of 9.8 percent from the previous year. Through thei first eight months of 2016, enplaned passenger activity at the Airport has increased 2.5 percent from the same period in 2015.
In the 12 months ended August 2016, a total of 21 United States flag carriers, 36 foreign flag carriers, 5 nonscheduled charter airlines, and 22 all-cargo airlines provided service at the Airport. In 2015, United and American, combined with their affiliates, accounted for 44.2 percent and 35.8 percent, respectively, of enplaned passengers at the Airport. In addition, other significant United States airlines serving the airport include Alaska Airlines and Delta Air Lines, as well as low-cost airlines Frontier Airlines, JetBlue, Spirit Airlines, and Virgin America. Low-cost airlines have been a significant source of new seat capacity at the Airport. Low-cost airlines increased scheduled seat capacity by 21.1 percent in 2014 and by 65.4 percent in 2015, and they will increase scheduled seat capacity by another 3.8 percent in 2016. Between 2006 and 2014, O&D passenger traffic at the Airport decreased at a compound annual rate of 0.7 percent. However, more recent growth resulted.in a 17.4 percent increase in O&D traffic in,.2015,. Between 2006 and 2015, the airlines' domestic O&D revenue at the Airport grew at a compound annual growth rate (CAGR) of 2.3 percent, reflecting strong revenue growth by the airlines serving the Airport.
Forecasts of aviation demand (i.e., enplaned passengers, aircraft operations, and landed weight) were developed considering:
Historical activity, including passenger volume and revenue trends at the Airport and across the industry;
Recent trends and future forecasts of local and national socioeconomic factors; and
Anticipated use of the Airport by American, United, low-cost airlines, and other airlines.
Passenger activity is forecasted to grow at a CAGR of 0.8 percent from the base year of 2015 through the end ofthe Projection Period in 2025.
Additional information on air traffic is provided in Chapter 4 of this Report.
Includes Chicago O'Hare International and Chicago Midway International Airports.
Includes John F Kennedy International, Newark Liberty International, and La Guardia Airports
Includes Los Angeles International, John Wayne An port-Orange County, LA/Ontario International, Burbank Bob Hope, and Long Beach Airports
Includes San Francisco International, Metropolitan Oakland International, and Mineta San Jose International Airports
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Financial Analysis
R&A completed an analysis that demonstrates the ability of the City to comply with the requirements of the Airport Use Agreement and Senior Lien Indenture in each year ofthe Projection Period.
The current Airport Use Agreement expires in May 2018. For purposes of the financial analysis in this Report, the existing residual rate-making methodology defined in the Airport Use Agreement is assumed to continue throughout the Projection Period. However, the'rate-setting methodology could be different following the expiration of the current Airport Use Agreement in 2018. Even with a different methodology, the City's obligations to bond holders set forth in the Senior Lien, Indenture, including the dbligatiph to set rates and charges sufficient to meet the Rate Covenants, remain. Based on the financial analysis in Chapter 5 of this Report, R&A is of the opinion that the Net Revenues Available for Senior Lien Coverage generated by the Airport in each year of the Projection Period are expected to'be sufficient to comply with'the Additional Bonds Tests and the Rate Covenants established in the Senior Lien Indenture.
The GARB'debt serviceincluded1 in the financial analysis reflects debt service on outstanding GARBs, the 2016 New Money Bonds, and1 future-GARBs necessary'for funding the OMP Airfield Projects and 2016-2020 CIP capital projects described in Chapter 2. Future PFC Revenue Bbrids,jahticip'ated to be issued in 2017 to fund a portion of Terminal 5 Expansion project and to potentially refund certain outstanding PFC Revenue Bonds, are described in Section 5.4.1. of this'Report.
In combination, the 2016 New Money Bonds and future GARBs assumed in the financial analysis reflect the following capital project funding assumptions;
approximately $1.3 billion, for remaining OMP Airfield Projects, including. $963.5 million for Runway 9C-27C funded with proceeds from the 2016 New Money Bonds and $361.4 million for the extension of Runway 9R-27L' funded with future GARB proceeds,
approximately $304.3 million for additional airfield improvements, including $118.0 million for the centralized deicing pad and $186.3 million for cross-field taxiway system and relocation of Taxiways A and B, both funded with proceeds from the 2016 New Money Bonds, and
approximately $773.3 million for the 2016-2020 CIP projects funded with future GARB proceeds.
Results of the financial analysis are as follows:
Operation and maintenance (O&M) Expenses are projected to increase to approximately $857.1 million, excluding Land Support Area expense, in FY 2025, representing a CAGR of 5.4 percent between FY 2016 and FY 2025. This increase is based on the type of expenses anticipated, the fulfillment of certain assumed City pension contributions described in Section 5.2.2, expectations of future inflation rates (assumed to be 3.0 percent annually) and projected increases to O&M Expenses associated with the completion of OMP Airfield Projects.
Non-Signatory and Non-Airline Revenues are projected to increase from $386.3 million in 2016 to $495.3 million in 2025, a CAGR of 2.8 percent. Non-Airline Revenues include revenues from the Chicago International Carriers Association Terminal Equipment Corporation (CICA TEC); and from
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
concessions, including automobile parking, automobile rentals, and concessions in the domestic and international terminals. These revenues are discussed in Section 5.3.2.
Net Debt Service (including debt service on the 2016 Bonds and projected debt service on future bonds necessary to complete"the OMP Airfield Projects and 2016-2020 CIP), net of capitalized interest, PFC Revenues, and Grant Receipts used to pay debt service, is projected to be approximately $423.4 million in FY 2016, then projected to increase throughout the Projection Period to a peak of approximately $533.9 million in 2022, and then projected to decrease slightly to $531.4 million in 2025.
The airline cost per enplanement (CPE) at the Airport is estimated to be approximately $17.49 in 2016 and is projected to increase to $25.38 in 2025 (which equates to approximately $19.45 in 2016 dollars).
The projected Airport user fees are evaluated in this analysis to be reasonable based on the expectation that these fees will not deter forecasted demand for air traffic at the Airport as airlines continue to deploy capacity to airports based on available resources. The projected Airport user fees in this analysis are deemed to be reasonable based on the following combination of factors;
large population and strong economic base,
attractive geographical location,
important hub for United and American, and
increases in debt are associated with capital projects that allow for growth.
Table S-3 presents the Debt Service coverage ratio projected for Senior Lien Bonds from 2016 through 2025. As contained in the Senior Lien Indenture:
The City covenants that it will fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of the Airport and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys deposited with the Trustee with respect to that Fiscal Year and any cash balance held in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in an Fund or Account, will be at least sufficient... to provide for... One and ten-hundredths times (l.lOx) Aggregate Senior Lien Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during that Bond Year to pay principal and interest on Senior Lien Bonds or Senior Lien Obligations.
Report of the Anpoil Consultant
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CJTY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
In addition to Airport Revenues, the City also pledged as Other Available Moneys PFC Revenues through 2018 equal to the amount of annual debt service on the Series 2008A and Series 2010F Bonds, and through maturity on the Series 2011A Bonds, plus any required coverage on all of those bonds. The City is evaluating the use of PFC Revenue after calendar year 2018 and-in its sole discretion plans to continue.to use PFC Revenues to pay debt service on the Series 2008A Bonds and the Series 2010F Bonds. Therefore, the financial analysis in this Report assumes that PFC Revenues will be applied to pay debt service on the Series 2008A and Series 2010F Bonds, or any bonds refunding those bonds (including the 2016 Refunding Bonds), from 2019 through the end of the Projection Period. PFC Revenues will be pledged as Other Available Moneys to the Series 2011A Bonds, or any bonds refunding those bonds, and the 2016F New Money Bonds through the maturity of those bonds.
The City has pledged as Other Available Moneys certain Grant Receipts from FAA Letter of Intent grants and other FAA discretionary grants to the debt service on the Series 2011B Bonds, in addition to Airport Revenues. It is assumed in this analysis that certain Grant Receipts from FAA Letter of Intent grants will be pledged to pay debt service on the 2016E New Money Bonds through the Projection Period. As shown, the Debt Service coverage ratio is projected to meet the minimum requirement of l.lOx in each year of the Projection Period.
Table S-4 presents the projected CPE from 2016 through 2025. The CPE includes estimated debt service and expenses of OMP Airfield Projects and the 2016-2020 CIP during the Projection Period. The aforementioned assumptions on projected costs, along with the forecast passenger activity, provide the basis for R&A's opinion that costs at the Airport remain reasonable through the Projection Period.
Additional information on the financial analysis is provided in Chapter 5 of this Report.
j Report of the Airport Consultant
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[E-26]
CITY OF CHICAGO'
CHICAGO O'HARE INTERNATIONAL AIRPORT
The 2016 Bonds
The 2016 Bonds
The 2016 Bonds will be issued pursuant to an ordinance adopted by the Chicago City Council on September 14, 2016 (the Bond Ordinance) and the Master Indenture of Trust securing Chicago O'Hare International Airport (Airport) Senior Lien Obligations dated as of September 1, 2012 (the Senior Lien Master Indenture) between the City of Chicago (the City) and U.S. Bank National Association, Chicago, Illinois, as supplemented by the Supplemental Indentures from the City to the Trustee. The Senior Lien Master Indenture, as supplemented by the Supplemental Indentures, and as it may be amended and supplemented from time to time in accordance with its terms, is herein referred to as the Senior Lien Indenture.
Unless otherwise defined herein, all capitalized terms in this Report are used as defined in the Official Statements for the 2016 Bonds and/or the Senior Lien Indenture. The 2016 Bonds are comprised of the 2016 Refunding Bonds and the 2016 New Money Bonds.
2016 REFUNDING BONDS
The City will use the proceeds from the sale of the 2016 Refunding Bonds, together with other available funds, to:
refund certain outstanding Airport Obligations to generate debt service savings,
fund the related reserve requirements ofthe 2016 Refunding Bonds, and
pay costs and expenses incidental thereto and to the issuance ofthe 2016 Refunding Bonds.
It is expected that annual debt service savings of between $2.1 million and'$7.5 million will result from the issuance of the 2016 Refunding Bonds and the refunding of certain Airport Obligations. The expected savings from the 2016 Refunding Bonds have been assumed in the debt service projections included in the financial analysis in this Report.
2016 NEW MONEY BONDS
The City will use the proceeds from the sale of the 2016 New Money Bonds, together with other available
funds, to:
(i) pay the costs of the 2016 Airport Projects, as herein defined
(ii) fund the related reserve requirements of the 2016 New Money Bonds,
Repor! of the Airport Consultant
CITY OK CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
fund capitalized interest on a portion ofthe 2016 New Money Bonds, and
pay costs and expenses incidental thereto and to the issuance of the 2016 New Money Bonds.
The Series 2016D New Money Bonds are anticipated to be issued to fund portions of the 2016 Projects, defined herein, and are payable from Revenues (as defined in the Senior Lien Indenture) pledged to the payment, thereof; under the Senior Lien Indenture and certain other moneys held by or on behalf of the • Trustee; '. '.' X¦ '
The Series 2016E New Money Bonds are anticipated to be issued to fund portions of the 2016 Projects, defined herein, and are payable from Revenues (as defined in the Senior Lien Indenture) pledged to the payment thereof under the Senior Lien Indenture and certain other rrfoYieys' he!cJJ'by-or on 'behalf of the Trustee. In addition to Revenues, the Series 2016E New Money Bonds are also payable from and secured by a pledge of Net Grant Receipts, consisting ;of .moneys received by the City from the FAA, pursuant to Grant Letters of Intent through maturity.
The Series 2016F. New Money Bonds are anticipated to be issued to fund portions of the 2016 Projects, defined herein, and are payable from Revenues (as defined in.the Senior Lien Indenture) and Pledged Other Available Moneys (as defined in the Senior Lien Indenture) pledged to^the payment thereof, underthe Senior Lien Indenture and certain other moneys held by or on behalf of the Trustee. In addition to Revenues, the Series 2016F New Money Bonds are also payable from and secured by a pledge of Passenger Facility Charge (PFC) Revenues through maturity.
Table 1-1 presents the estimated uses of the proceeds, of the 2016 New Money Bonds assumed in the financial analysis in Chapter 5 of this Report. These preliminary numbers are for illustrative purposes and are subject to change.
¦¦¦¦• V ••.•'•^ . --'".V;... .--j-v,,- ¦¦^.-v.r/.-' :r ".'¦.¦¦'••.'".'
Table 1-1: Estimated Uses^Sf Proceeds from the Sale of the 2016 New Money Bonds f
SERIES 2016D SERIES 2016E SERIES 2016F
NEW MONEY NEW MONEY NEW MONEY TOTAL
¦ Sources ' „.;;._. ''^_;' "¦.¦¦ „¦¦'.
Par Amount of 2016 Bonds $821,600,000 $156,255,000 $144,490,000 $1,122,345,000
Net Original Issue Premium ; ^ • - ,-:> ,- . 90,300,237 . 26,573,887 ¦'- 16,105,603 ,. 132,979,727. ,j
Total _ _ ¦'. $911,'900;237 $182,828,887' $160,595,603 $1,255,324,727
I.UsesV:^. ^ill¦. .¦¦:'^''C;;; '¦'."¦•-'¦ ¦ 'i''.;'./:, '¦*; ¦': 'vt-M 'k '¦ ¦;' -'.¦' I.'1 ¦'¦:¦'.';>'.¦' :'¦ 6;';,V.v-'; • i-.'.:
Deposit to 2016 Projects Construction Fund $722,800,000 $140,000,000 $150,000,000 $1,012,800,000
' Reserve Fund Deposits _ i?.2oT354_ - 9,665.199 '. '. 9.145,589 7.^' 67,^18,141 H
Capitalized Interest Deposit _132,675,778 31,598,233 164,274,011
;^7^'S^"^ ii.232.575 .;
Total $911,900,237 $182,828,887 $160,595,603 $1,255,324,727
NOTE.
1/ Includes Underwriters' Discount and other costs of issuance
SOURCE Frasca & Associates, November 2016 PREPARED BY Ricondo & Associates, Inc , November 2016.
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table 1-2 presents a summary of the tax status and security of each series of the 2016 Bonds.
; > ^ ^ 2016 Bonds o
SERIES 2016A SERIES 2016B
I . Use ' Status
• :.Security;':
Refunding
Tax-exempt; AMT
Revenues,;:
Refunding
Tax-exempt; Non-AMT
Refunding
Revenue's .
Tax-exempt; Non-AMT
Revenues, PFC
, ... Revenue through. ^2018 ' ''
New Money
Tax-exempt; Non-AMT
¦Revenues,
I!;-1' ('I' 'h(New Money
Tax-exempt; Non-AMT
! , Revenues, Grant Receipts [ .
New Money : >Tax-exempt; Non-AMT
Revenues, I
PFC Revenues I
through maturity j
SOURCE: Chicago Department of Aviation; Katten Muchin Rosenman, LLP,, September 2016 PREPARED BY: Ricondo & Associates, Inc, September 2016.
1.2 Indenture of Trust
Security for the Series 2016 Bonds
Pursuant to the terms of the Senior Lien Indenture, the 2016 Bonds will be secured by a first lien pledge of Revenues (meaning, generally, all amounts received or receivable, directly or indirectly, by the City for the use and operation of O'Hare (excluding the Land Support Area)), on a parity basis with the City's Outstanding Senior Lien Bonds and such other Senior Lien Obligations as may be outstanding from time to time, and will be paid from amounts that may be withdrawn from the Debt Service Fund created under the Senior Lien Indenture. Revenues are defined in the Official Statement.
Under the Senior Lien Indenture, the City has covenanted to establish rentals, rates, and charges for the use and operation of the Airport so that Revenues, together with certain other moneys deposited with the Trustee, are sufficient to pay the Operation and Maintenance (O&M) Expenses at the Airport and to satisfy the debt service coverage covenants contained in the Senior Lien Indenture.
The City is a party to the Airport Use Agreements with certain airlines serving the Airport, which Airport Use Agreements are scheduled to expire on May 11, 2018. Following the expiration of the Airport Use Agreements on May 11, 2018, the Senior Lien Indenture provides that, beginning on the first Business Day of June 2018, or another date as the City may select and designate in a Certificate filed with the Trustee (the Transition Date), certain new Funds and Accounts will be established and the application of moneys in the Revenue Fund will be revised. See Section 5.1.1. of this Report for additional information regarding the Airport Use Agreement and assumptions made in the financial analysis.
Debt Service Coverage Covenants
The City covenants in the Senior Lien Indenture to fix and establish, and to revise from time to time whenever necessary, the rentals, rates, and other charges for the use and operation of the Airport and for services
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with-Other Available Moneys deposited with the Trustee with respect to that Fiscal Year and any cash balance held in the Revenue Fund on the first day of that Fiscal -Year not then.-,required to be deposited in any Fund or Account, will be at least sufficient:
to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year; and
to provide for the greater of (A) the sum of the amounts needed .to make the deposits required-to be made pursuant to all resolutions, ordinances, indentures, and trust agreements pursuant to which all Outstanding Senior Lien Obligations or other Outstanding Airport Obligations are issued and secured,
, and. (B) one and ten hundredths times the Aggregate "Debt Service for the Bond Year commencing during that Fiscal Year, "reduced by any proceeds of Airport' Obligations held by the Trustee for disbursement during that Bond Year to pay principal of and interest on Senior Lien Obligations.
The City further covenants in the Senior Lien Indenture to fix and establish, and revise from time to time whenever necessary, the rentals, rates, and other charges for the use and operation of the Airport and for services rendered by the City in the operation of it in order that Revenues in each Fiscal Year, together with Other Available Moneys consisting solely of: (a) any PFC revenues deposited "with: theiTrustee for that Fiscaj Year; and (b) any other moneys received by the City in the immediately prior Fiscal Year and deposited with the Trustee no later than the last day of the immediately prior Fiscal Year, will be at least sufficient:
to provide for the payment of Operation .and Maintenance Expenses for the Fiscal Year; and
to provide for the payment of Aggregate'Debt Service for the Bond Year commencing during that Fiscal Year, reduced by'any proceeds of Airport Obligations "held by the Trustee for disbursement during the Bond Year to pay the principal of and interest on Senior Lien Obligations.
Flow of Funds
Airport Revenues and expenses are accounted for as a separate enterprise fund of the City, subject to the provisions of the Senior Lien Indenture and, prior to the Transition Date, the Airport Use Agreements. The Flow of Funds identified in the Senior Lien Indenture, both before and after the Transition Date, is illustrated graphically on Exhibit 1-1. Additional information regarding the Flow of Funds, including the flow of PFC Revenues, is described under "Flow of Funds" in the Official Statements for the 2016 Bonds and in the Senior Lien Indenture.
Additional Bonds
Additional Senior Lien Bonds, except in the case of Refunding Bonds and Completion Bonds (both as defined in the Senior Lien Indenture), may be issued only upon the satisfaction of certain conditions, as described in the Official Statements for the 2016 Bonds.
The City may issue Refunding Bonds, such as the Series 2016A Refunding Bonds, the Series 2016B Refunding Bonds, and the Series 2016C Refunding Bonds, and Completion Bonds either by satisfying the debt service coverage requirement, or by satisfying the applicable requirements in the Senior Lien Indenture.
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
Exhibit 1-1: Flow of Funds before and after the Transition Date
BEFORE TRANSITION DATE
; Revenue Fund'
Operation & Maintenance Fund (monthly)-'
(Senior Lien) Debt Service Fund''
Operation & Maintenance Reserve Fund;!
'Maintenance Reserve F.und -**' -i- '.
¦". junior Lien Obligation Debt Service Fund "
'Airport General Fund
NOTES
+ Transition Date means the first Business Day of the Trustee in the month of June 2018 unless, prior to May 1, 2018, the City files with the Trustee a Certificate electing to select another date as the Transition Date in which case the Transition Date shall be the date selected by the City in a Certificate filed with the Trustee not less than 30 days prior to the date selected by the City
+ + Balance at year end transferred to Revenue Fund
+ + i Moneys in the Airport Development Fund and the Airport General Fund may be applied, used and withdrawn by the City for any lawful corporate purpose of the City, free from any lien or security interest in favor of the Trustee and the owners of Senior Lien Obligations
SOURCE Senior Lien Indenture, as defined herein. PREPARED BY Ricondo & Associates, Inc , September 2016.
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
THIS PAGE INTENTIONALLY:LEFT BLANK: V-:-
'.:.:*:
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
" ~2~The Airport Facilities,
Capital Program, and 2016 Projects
The Airport is the primary commercial-service airport serving Chicago and the surrounding region. This
chapter presents a summary of existing Airport facilities and describes the ongoing capital program at the
Airport-rinc-luding the 2016-Projects.- - -~~ --V
2.1 Airport Facilities
The Airport occupies over7,200 acres of land 18 miles'northwest of downtown Chicago. Its primary facilities consist of the airfield, terminal area, rental car facilities, air cargo areas, maintenance/airport support' areas, and surface access/parking areas. These facilities are described in the following sections.
AIRFIELD ' 3'
Currently, the airfield contains eight active runways. The existing Airport layout is shown on Exhibit 2-1. The O'Hare Modernization Program (OMP) includes a reconfiguration of the airfield from intersecting runways to a predominantly east-west parallel runway layout. To date; three of the four runways included in the OMP have been completed and one of the two planned runway extensions has been completed. A discussion of the OMP is provided' in Section 2.2.1. A network of taxiways, aprons, and aircraft holding areas supports the runways. All runways have electronic and other navigational aids that permit aircraft to land in most weather conditions. The Airport's first runway to meet Airplane Design Group (ADG) VI standards, for the Airbus A380 and the Boeing 747-8, opened in 2013.
TERMINAL AREA
The airlines serving the Airport operate from four terminal buildings with a total of 189 gates.1 Three terminal buildings, with a total of 170 gates, serve domestic flights and certain international departures. The domestic terminal complex is centrally located within the airfield area. The domestic terminal complex includes Terminal 1 (Concourses B and C), Terminal 2 (Concourses E and F), and Terminal 3 (Concourses G, H, J, K, and L). Gates in the domestic terminal complex are leased by the airlines on an exclusive-use basis, with the exception of eight gates in Terminal 3 that are leased on a preferential-use basis and one gate in Terminal 2 and nine gates in Terminal 3 that are accessed on a common-use basis.
A gate is an active aircraft parking position that is accessed through the terminal building, either via a passenger loading bridge or other means, customarily used for enplaning and deplaning passengers. The number of gates is subject to change based on the configuration of aircraft parking
Report of the An port Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
Terminal 5 (Concourse M), also known as the International Terminal, is located in the eastern portion of the terminal area and has 19 gates.and 4 hardstand2 aircraft parking positions. The International Terminal serves most international departures and all international arrivals requiring Federal Inspection Services (FIS). In July 2016, the reconfiguration of a gate in the International Terminal to accommodate Airbus A380 aircraft was completed. Gates in the International Terminal are all common-use. The Airport Transit System (ATS) .provides transportation among the four terminals and the long-term pa
Also located within the terminal area are a hotel, a parking garage, and the Airport heating and refrigeration plant. The 10-story hotel, leased and operated by Hilton Hotels Corporation and located directly across from Terminals 1, 2, and 3, provides approximately 860 guest rooms, as well as restaurants and meeting facilities. The 6-story parking garage adjacent to the domestic terminals contains approximately 9,300 spaces for public and employee parking. The heating and refrigeration plant, located northeast of the domestic terminals, provides heating and air conditioning for all terminal buildings. A discussion of recently announced capital projects that will impact the terminal facilities, including terminal expansion and hotel redevelopment, is provided in Section 2.2.3 of this Chapter.
RENTAL CAR FACILITIES
On-Airport rental car facilities are currently located on Airport property remote from the terminals; company-specific shuttle buses operate between the rental car facilities and .the terminals. Eight rental car .brands currently operate on-Airport: Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, and Thrifty. Off-Airport rental car operators include Advantage Rent A.Car, EZ Rent-A-Car, Payless Car Rental, and Silvercar. As part of the Airport's capital program, the City is constructing a Multimodal Facility, which will include a consolidated rental car facility (CRCF) with an associated quick turnaround (QTA) area and access to the Airport terminals via an extension to the Airport's ATS. Section 2.2.2 provides additional information on the Multimodal Facility.
AIR CARGO AREAS
The Airport is a major center for air cargo shipments; it ranked second in the United States in 2014 in terms of the value of shipments.3 In the area surrounding the airfield, 16 buildings are used for air cargo operations. A new 820,000-square-foot cargo center is being developed by Aeroterm, a third-party developer, in the northeast cargo area. The first two phases of the Northeast Cargo Facility are under construction and scheduled to be open in 2016.
MAINTENANCE/AIRPORT SUPPORT AREAS
Nine aircraft maintenance facilities leased by airlines are in the northwest corner of the Airport (the North Maintenance Hangar Area), along with four additional buildings used for airline ground equipment maintenance, two flight kitchens, and a large aircraft service center. In addition to the North Maintenance Hangar Area, other Airport support areas surround the airfield. The Airport Maintenance Complex, which is used to store snow removal and other Airport maintenance equipment, an additional flight kitchen, and miscellaneous ground support equipment facilities are located within the Airport support area on the
A hardstand is a paved area for parking airplanes that is remote from the terminal building. Hardstands can be used for repairs and overnight parking, as well as for enplaning and deplaning passengers.
Chicago Department of Aviation, http.//www.flychicago com/business/EN/media/news/stories/pages/NewsDetail.aspx7ItemID = 1064 (accessed August 31, 2016)
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
southeast side of the Airport. A former military area in the northeast quadrant of the Airport is now being
used for general aviation activity, air cargo operations, aircraft fuel distribution, and the Chicago Department
of Aviation (CDA) office. ' <-¦'•¦'
2.1.6 SURFACE ACCESS/PARKING AREAS
Access to the passenger terminal complex is provided via Interstate 190 (1-190) from the east side of the Airport. This roadway may be accessed from 1-90 or Mannheim Road, which borders the Airport to the east. Other roadways that surround' Air'p'drt property include'I:294'to the east, West Higgins'Road and Touhy Avenue to the north, York Road to the west, and Irving Park Road to the south. The Elgin-O'Hare Western Access (EOWA)' Project, a major Illinois Tollway capital project currently underway/includes an extension ofthe Elgin-O'Hare Expressway and the creation of a Western Bypass'along the'west side of d'Hare'that connects 1-90 and 1-294. Construction of the EOWA Project began in 2013 and is expected'to be completed in 2025. Once complete, EOWA will provide "new access' 'to the'west side of O'Hare via York Road and the south side of O'Hare via Taft Avenue. The passenger terminal complex is also accessible via public'transit', with the Chicago Transit Authority O'Hare Blue Line station located in the lower level of terminal 2.
The ATS includes approximately 2.7 miles of dedicated guideway. The ATS provides passengers with
transportation, free'of charge, among the four terminals and the long-term-parking lots. The ATS is also being
extended to the Multimodal Facility, expected'to-be opened in^2019.'• • ¦*
¦ Parking is provided: in!vario'us:ldcatioris thro'ughbut:the AirportI~A'9;300-space parking garage adjacent to the domestic terminals accommodates a major portion ofthe Airport's 'public parking demand. Valet; parking is located within the garage. The garage is.supplemented by adjacent surface lots that provide approximately 2,800 spaces and additional surface parking in various locations throughout the Airport. Current public long-term surface parking capacity consists of approximately 10,700 spaces. Employee parking consists of approximately 20,600 spaces. The main employee surface parking lots are within the'North Maintenance Hangar Area, and public surface parking lots arelocated within the terminal area and in the Airport support area along Mannheim Road. A cell phone lot northeast of the Airport is available for people waiting to pick up arriving passengers; it is intended to alleviate congestion.on the terminal roadways. There is no charge to users ofthe cell phone lot, but parking in the lot is limited to 60 minutes.
2.2 Overview of Capital Program
The City has been undertaking major capital planning initiatives at the Airport, including airfield and facility development, while also maintaining a 5-year Capital Improvement Program (CIP) to address the Airport's ongoing capital needs. The Airport's capital program includes the OMP Airfield Projects, the 5-year (2016-2020) CIP, and other recently announced capital projects, which are briefly described in this section and further described in Sections 2.2.1 through 2.2.3.
OMP Airfield Projects are changing the airfield from a layout with sets of intersecting runways to a modern parallel runway system. The OMP, which includes construction of'one new runway, relocation of three existing runways, and the extension of two existing runways, is being undertaken in phases that began in 2005. To date, three of the four runways have been completed and one of the two
j Report of the Airport Consultant ^
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
runway extensions has been completed. The remaining OMP Airfield Projects include one runway (under construction) and an extension to an existing runway. Additional information on the OMP, the remaining OMP Airfield Projects, and the additional airfield improvements included in the infrastructure plan expected to be funded with the 2016 New Money Bonds is provided in Section
2.2.1. , ;
— ....—2016^2020-.CIR-includes.-ongoingrepair-andmaintenanceand-other-capital-projects, such as .the-.
construction of a Multimodal Facility, which indu'des a" consolidated rental car facility and public parking facility and an extension to the ATS; airfield improvements associated with the construction of a cargo facility in the northeast area of the Airport; the expansion of the Airport Maintenance Complex; additions and modifications to terminal facilities, including an expansion of the International Terminal'FIS facility; safety and security projects, including an inline baggage system in Concourse L and checked baggage inspection station optimization in Terminal 1; and noise mitigation. Additional information on the major 2016-2020 CIP projects is provided in Section 2.2.2;
. • Other;Recently Announced Capital. Rrojects include an expansion of-Terminal.5 and-Concourse L in-
Terminal 3. Additional long-term terminal development and redevelopment options (Terminal Area Plan) are being evaluated in coordination, with airline representatives A redevelopment of the existing hotel and the construction of two new hotels on Airport property are also planned. The feasibility of a future express rail third-party project connecting the. Airport to the central business district is currently being studied. Additional information on the recently, announced capital projects is provided in Section 2.2.3.
Exhibit 2-2 depicts the future airport layout following completion of the remaining OMP Airfield Projects. Also included in this exhibit are additional capital projects at the Airport that are currently under construction, design, or consideration.
Table 2-1 presents the estimated costs and sources of funds for the remaining OMP Airfield Projects and 2016-2020 CIP. Additional information on the sources and uses of funding for these projects can be found in Sections 2.2.1.1 and 2.2.2.1. The other recently announced capital projects are still in preliminary conceptual planning and discussion phases; due to the uncertainty of timing and project costs these projects are not included in Table 2-1.
2.2.1 O'HARE MODERNIZATION PROGRAM
Under the OMP, the airfield is being reconfigured into a modern parallel runway system, allowing for more efficient operations. Prior to OMP, the airfield included sets of intersecting runways built upon the original runway configuration of the 1940s. The OMP is a reconfiguration of the airfield into an east-west parallel runway layout, which results in reduced delays and enhanced capacity. The nearly completed OMP is a comprehensive program providing for the phased reconfiguration of the airfield from sets of converging parallel runways in three main directional orientations (northeast/southwest, east/west, and northwest/southeast) to six parallel runways in the east/west direction and two crosswind runways in the northeast/southwest direction."
The O'Hare Modernization Act, passed by the State of Illinois in 2003, restricted the number of active runways at O'Hare to eight The OMP includes a plan to decommission three existing intersecting runways, two of which have already been closed, as the east-west parallel runways are constructed, resulting in no more than eight active runways in any phase. A state law signed in 20.15 allows up to 10 active runways at the Airport.
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
NOTE
Airfield projects are preliminary and subject to change
LEGEND
[_ _ | Pre OMP Runways
Q Completed OMP Runways Hfl Runway 9C-27C and Additional Airfield Projects
Planned OMP Runway Project
EFffH Other Capital Projects
Property Line
SOURCE Chicago Department ol Aviation. Septnmtyv ^016. O Han? Irncrnationcil Airport, Airport Layout Plan, September 200'i PREPARED BY Ricondo St Associates, Inc, September 2016
Airport Capital Program
Drs* i;j 1 r.r."-.ij;';
Report of the? Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table 2-1: Estimated Sources and Uses'of Funds for Remaining OMP Airfield Projects and 2016-2026 CIP
(Dollars in Thousands)
FUNDING SOURCES
L'*.S{!??!.nin9^MP5i!^ Additional Airfield Improvements
OMP Phase 2A ".
; FAA LOI Grant Receipts :"pAYG6: .- . .-'
FAA AIP Grants _
! Jbfi.PS* GranTll^' ¦; ¦ ;L.J ~ ¦ '. ~T
Previously Issued PFC-Backed GARBs
["previously .Issued FAA-LOI Grant Receipts-Backed GARBs
Previously Issued GARBs
[¦Total Estimated Funding Sources- Phase 2A . '.~
$235,000 , ; OMP Phase 2A (Including Runway 10R;28I. . - X-',
I • L NorthAirfield Enabling Projects. Taxiway.LL
¦ U ¦.¦ ¦ ¦' ¦¦ phase ^j" ¦ '< ,/¦ ¦ " ¦ _a
19,000
; 33,089 -365,000
45,poo__.
376,600
$1,073,689 TqtaTUses'of Funds- Phase 2A
{ Runway 9C-27C and .Additional 'Airfield Improvement Projects. - •:,j^;i\::U^.";!.v i;;".-;"'-'¦-.-'" ,:. V^-jj.-; -'.0 ¦¦
FAA LOI Grant Receipts - PAYGO $205,000 Runway 9C-27C (Including Enabling Projects,
_ Relocation of Airline Facilities)
2016E New Money Bonds (FAA LOI Grant Receipts-Backed) 140,000 Cross-Field Taxiway System and Relocation of
'"'I
$963,500
_.2_U8.^I00','{ 186,300
r,2016F New Money Bonds (PFC-Backed)";
PFC pay-as-you-go
j. fotal'Estimated Funding.Sdurces' - Runway 9C:27C antfT^ V
Future OMP Projects,
Future GARBs
Total Estimated Funding Sources - Future OMP Projects
pTotal-Estimated Funding Sources'- Remaining OMP and"
! Additional Airfield Improvements / ¦/ ¦ ¦'• -
$361,443 Extension of Runway 9R-27L t TaxjwayLl Phase'2V
$361,443 Total Uses of Funds - Future OMP Projects
' $2,702,932.: -1 Total Uses of Funds - Remaining OMP and t
^ J Additional Airfield Improvements -Jj''-'
$342,943 ^''18.500? $361,443
$2i702;932
FAA AIP Discretionary Grants r^AA'-AlR ErititlemlinTGTah
TSA Funds _ [: Future GARBs ' : ¦¦"¦»', 'S '
Previously Issued GARBs I'.PTevibusiy.issuedPFcVRevenue Bonds'
Previously Issued Senior Lien CFC Revenue Bonds
l.?fp. PL^".^.'^^^? . 1 • ..' j.1'.
TIFIA Loan
:.Othjsr Airpprtfunds, '¦ ¦' .,, ...j;.. ;¦;.'.';... '.'; Total Estimated Funding Sources: 2016-2020 CIP
$5,999
Airfield Improvements2'
32,^500_V: Terminal Improve^ 89,536 Noise Mitigation "',0 773,292 ~~ Pa^r^oadwayPr^>&yC;
262,093 Heating and Refrigeration Systems Lj2K156 V> Safety.ard Security-5. '¦ i,I*v"\T¦' > ' v.":'"•' 126,917 Planning, Implementation, and Other Costs
iid.ooo • 'T;. '" ¦; •¦;7.'--^y.c."£.
272,000
:,'.";' 50",6oo ,T"':t";}.: y-.S"". ;r>'<
$1,778,493 Total Uses of Funds: 2016-2020 CIP
$366,874
341.141 '
12,000 ; 689783 223,726 ;'99.485-' 45,483
$1,778,493
NOTES
1/ Runway 10R-28L was commissioned in October 2015 Approximately $146.5 million of projects in OMP Phase 2A remain to be completed in 2016 and 2017
2/ Includes the Northeast Cargo Facility. 3/ Includes the Multimodal Facility
SOURCES Chicago Department of Aviation, Comprehensive Annual Financial Report for the Yean Ended December 31, 2015 and 2014, July 2016, Chicago Department of Aviation, September 2016
PREPARED BY Ricondo & Associates, lnc , September 2016
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
The first phase of the OMP Airfield projects (OMP Phase. 1) was completed in 2013 with the commissioning of Runway 10C-28C. This phase also included the construction of Runway 9L-27R, the extension of Runway 10L-28R, and a new airport traffic control tower, which were all commissioned in 2008. The second phase, OMP Phase 2A, includes the construction of.Runway 10R-28L,,north airfield enabling projects, and the first phase of the construction of Taxiway LL Runway 10R-28L was completed and commissioned in October 2015. The remaining OMP Phase 2A projects are anticipated to be completed by early 2017.
The Airport, in accordance with criteria established by the O'Hare Noise Compatibility Commission, is providing sound insulation of eligible schools andhomes as a part of each phase ofthe OMP.5
In February 2016, the Airline Parties approved Majbrity-In-Interest (Mil) funding authority for an infrastructure plan and airfield development program that continues the runway modernization. This program includes the construction of Runway 9C-27C, an OMP Airfield Project, alorig-.with''additi6nal -airfield improvements which include a deicing pad to allow aircraft to be.deiced away from the gate, and a cross-field taxiway system and relocation of Taxiways A and B,. alhexpected to be funded with the 2016 New Money Bonds. The'additional airfield improvements are not part of the remaining OMP Airfield Projects. Runway 9C-27C will increase the arrival and departure capacity ofthe airfield and:is anticipated to be completed in 2020. The remaining OMP Airfield Projects include an extension to an existing, runway, which is planned to be completed in 202i, but a funding agreement with the airlines has not yet been completed.
Sources and Uses of Fundsior the Remaining OMP Airfield Projects . ....
OMP Phase 1 was completed and fully funded. The total cost for OMP Phase. 1 was approximately $3.2.billion. A-.$l.l. billion funding agreement was agreed upon by the City--and the airline parties for-the construction of the second phase, OMP 'Phase' 2A. This bhase is fully funded and anticipated to' remain Within 'the budget. A $1.3 billion infrastructure plan that includes another OMP runway was agreed upon in a funding agreement among United, American, and the City in January 2016 and Mil funding authority for the plan was approved by the Airline Parties in February 2016. The plan, which includes Runway 9C-27C and additional airfield improvements, will be funded, in part, with proceeds from the 2016 New Money Bonds. Additional sources of funding include PFC Revenues (pay-as-you-go) and FAA Airport Improvement Program (AIP) grant receipts. For purposes ofthe financial analysis included in Chapter 5 of this report, additional future GARBs, described in Section 5.5 of this Report, have been included for funding approximately $361.4 million of the remaining OMP runway extension project.
As shown in Table 2-1, the remaining OMP Airfield Projects are funded by a combination of FAA grants, previously issued bonds, the 2016 New Money Bonds, future GARBs, and PFC Revenues (pay-as-you-go).
OMP Airfield Project Benefits
The OMP was developed to address severe aircraft delays at the Airport. The OMP Airfield Projects are reducing delays and enhance airfield capacity. The projects provide the ability to operate triple independent, simultaneous approaches in poor weather conditions and quadruple independent, simultaneous approaches
Sound insulation may include the following installation of heating and air conditioning systems, replacement of existing windows and exterior doors with sound-insulating windows and doors, addition of dry wall to interior walls, and addition of baffling devices to exterior vents
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CHICAGO O'HARE INTERNATIONAL AIRPORT
in clear weather conditions. Additionally, the OMP includes construction of two ADG Vl-capable runways, Runways 10C-28C (completed in 2013) and 9C-27C (anticipated completion in 2020), which meet standards for aircraft with wingspans exceeding 214 feet. ADG VI aircraft include the Airbus A380 and Boeing 747-8.
Since the implementation of the OMP Airfield Projects, the arrival and departure throughput rates at the Airport have increased. With the opening of Runway 9R-27L and the Runway 10L-28R extension in 2008, Runway 10C-28C in 2013, and Runway 10R-28L in 2015, the average ho.urly arrival throughput rates have increased approximately 20 percent. The runway projects eliminated "converging runway operations," which were addressed by the FAA. in 2014 nationwide with the implementation of new rules to manage runways with converging flight paths,.which further decreased the efficiency of O'Hare's intersecting .runways. Without the OMP Airfield Projects, the 'Airport's capacity could have been further reduced as a result of the "converging runway operations" rule.
Annual aircraft operations at O'Hare reached a high in 2004 of nearly 1 million total annual operations. Since the peak in 2004, annual-Operations have-;remained-relatively-'steady, averaging^approximately 880,000 total operations per year since -2010. While annual operations have remained steady,, peak hourly demand at O'Hare was at a 10-year high.in 2014 and at a similar level in 2015. This peak hourly demand is partially due to the rebanking of flight schedules by both major airlines at O'Hare—allowing them to concentrate and reduce connection times during peak travel periods. The increase in throughput gained from implementation of the OMP has provided the airfield capacity necessary to handle this flight schedule rebanking.
Exhibit 2-3 shows the general decrease in system delayed flights at the Airport and historical operations following the implementation of OMP Airfield Projects. Also shown are periods of restricted operations at.the Airport due to the High Density Rule6 and FAA flight caps7.
The High Density Rule is a federal regulation established in 1969 to manage congestion at five high density airports, including O'Hare The rule established limits on the number of all take-offs and landings during certain hours. The rule was relaxed by the U S Congress in 2000 and was phased out completely at O'Hare by July 2002.
In November 2004, the FAA and the airlines serving the Airport agreed to voluntarily limit scheduled domestic and Canadian arrivals at the Airport In October 2006, the FAA implemented a formal flight reduction rule at the Airport (with the same limitations that were voluntary), which expired in October 2008.
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
100,000
90,000
80,000
60,000
Aj? 70,000
o v E
OJ.
JJ- 50,000 H. 40,000
(0
a 30,000 2o;oo'6 ip,*66o. o
High Density Rule Phase Out
- Runway 1GR-28L
Converging Runway Operations Rule
2012 ¦ 2013 ' 201*'
1,000,000
900,000 .800,000 ¦700,000 .600,000
•50o;6qo
.400,000 .300,000
'20;o,6oo
100,000
,0 .
o £
01
a
o
-Total Delays
SOURCE' Federal Aviation Administration Operations Network, August 2016. PREPARED BY: Ricondo & Associates^ Inc., August 2016'.
2:2.2'-¦ ,2Oli6^2O2O;CAPIT'ALTMPROVEMENT^PR0Gr^M;'! * • ¦ r~<-.:- .-.«
The 2016-2020 CIP includes development projects'at the Airport that generally address the Airport's ongoing capital needs, in addition to other capital projects, such as the construction of the Multimodal Facility and the airfield improvements associated with the Northeast Cargo Facility. In general, the primary focus of the 2016-2020 CIP is for rehabilitation of airfield pavement; upgrades to the heating and refrigeration plant and additional heating and refrigeration projects in the terminals; construction of the Multimodal Facility; terminal area projects, including roof replacement in Terminal 1 and upgrades to Concourses E and F in Terminal 2, as well as an upgrade to the emergency standby power system; and safety and security projects.
Airfield Improvements
Airfield improvement projects comprise approximately $366.9 million, or 20.6 percent of the total 2016-2020 CIP. Major airfield improvements in the 2016-2020 CIP include: comprehensive maintenance of Runway 4R-22L and numerous apron ramps, which consist of the removal and replacement of the apron pavement and drainage improvements at the passenger terminal and concourses; rehabilitation of Taxiway T; and Airport Maintenance Complex campus infrastructure construction. Also included in the airfield improvements is airfield work associated with the Northeast Cargo Facility, which makes up approximately $42.2 million of the $366.9 million total for airfield improvements in the 2016-2020 CIP.
Terminal Improvements
Terminal improvement projects comprise approximately $341.1 million, or 19.2 percent ofthe total 2016-2020 CIP. Major terminal improvements in the 2016-2020 CIP include: expansion of the International Terminal FIS
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facility; repair and maintenance to the domestic terminals, including roof replacement in Terminal 1 and upgrades to Concourses E and F in Terminal 2; and an upgrade to the emergency standby power system.
Noise Mitigation
Noise mitigation projects comprise approximately $12.0 million, or 0.7 percent of the total 2016-2020 CIP. The noise mitigation costs included in the 2016-2020 CIP are the estimated costs of the remaining residential sound insulation program described in Section 2.21.
Parking and Roadway
Parkway and roadway projects comprise approximately $689.8 million, or 38.8 percent of the total 2016-2020 CIP; approximately $638.5 million of the $689.8 million is the remaining costs of the Multimodal Facility. The" Multimodal Facility is a six-story, 4.5 million square foot structure that will house a CRCF and public parking. The project includes an extension to the Airport's ATS and additional ATS vehicles that will provide direct access between the facility and the Airport terminals. It will/also provide connection to Metra commuter rail's North Central Service line. Multimodal Facility construction began in August 2015 and is scheduled to be complete in March 2019. Other major parkway and roadway projects in the 2016-2020 CIP include the extension ofthe taxi lot and painting ofthe ATS structures, stations, and bridges.
Heating and Refrigeration Systems
Heating and refrigeration systems projects comprise approximately $223.7 million,' or 12.6 percent ofthe total 2016-2020 CIP. Major heating and refrigeration system improvements in the 2016-2020 CIP include: replacement of the south cooling tower; replacement of five chillers; replacement of six high-temperature water generators; structural restoration/modification ofthe utility ring tunnel; and heating, ventilation, and air conditioning system upgrades in multiple terminals.
Safety and Security
Safety and security projects comprise approximately $99.5 million, or 5.6 percent of the total 2016-2020 CIP. Major safety and security improvements in the 2016-2020 CIP include: Terminal 3 baggage screening machine replacement; International Terminal optimization; inline baggage system in Concourse L (Terminal 3); and, in conjunction with Transportation Security Administration (TSA), upgrades to the inline baggage systems for Terminal 1.
Planning and Implementation
Planning and implementation costs comprise approximately $45.5 million, or 2.6 percent of the total 2016-2020 CIP. Planning and implementation projects in the 2016-2020 CIP include: program planning, financial feasibility, construction management and field supervision, program management, program security, and allocable CDA staff costs.
2.2.2.1 Capital Improvement Program Sources and Uses of Funds
The sources and uses of funds for the 2016-2020 CIP projects can be found in Table 2-1. As shown, the 2016-2020 CIP projects are funded by a combination of FAA grants, TSA funds, and a U.S. Department of Transportation (U.S. DOT) loan secured through the Transportation Infrastructure Finance and Innovation Act (TIFIA) program; previously issued bonds and future GARBs; previously issued Senior Lien Customer Facility
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Charge (CFC) Revenue Bonds; previously issued PFC Revenue Bonds; CFC pay-as-you-go revenue; and other airport funds. - The financial analysis-presented in Chapter^ of this Report assumes that 2016-2020 CIP projects not already funded will be funded through future GARB issuances, as described in Section 5.5 of this Report.
The Multimodal Facility is a major portion of the 2016-2020 CIP. As of September 1, 2016, $260.5 million of the $782.08 million "total estimated cost for the Multimodal Facility included in the 2016-2020 CIP has been spent on construction. Remaining sources of funds include previously issued GARBs, previously issued CFC revenue-backed bonds, U.S. DOT TIFIA direct loan, CFC pay-as-you-go revenue, and Other Airport Funds. Airfield projects associated with the third-party Northeast Cargo Facility are being funded by a combination of FAA AIP'Passenger and Cargo Entitlement Grants arid other Airport funds. The remainder of the 2016-2020 CIP is being funded by FAA'AlP Discretionary arid Entitlement Grants, TSA Funds, previously issued GARBs, and future'GARBs. ¦
2.2i3 OTHER RECENTLY ANNOUNCED CAPITAL PROJECTS
The City is undertaking capital projects intended to provide Airport facilities witfi the ability to accommodate long-term demand into the 21st Century. Recently announcedcapital projects that support this demand are described in the following sections.
Concourse L Extension -
In February 2016, the City announced an-exparisibn'projecrbf existing-1 Concourse; L in Terminal'3; Five hew gates will be added to Concourse L to accommo'date existing ahdfuture demand. The new Concourse! gates comprise the first expansion of gate capacity since the International Terminal was built in 1993; this is also the first domestic gate expansion since Terminal 1 was built in 1987. The Concourse L Extension'is expected to be completed in 2018 and is being funded directly by American Airlines. No other airline approval is required for this project.
Hotel Development
In June 2016, the City announced three hotel development projects to add capacity at the Airport. The projects include the construction of two new hotels and the modernization ofthe existing'terminalhotel. CDA intends to develop a new hotel adjacent to the International Terminal, accessible to the ATS, with 300^00 rooms, 25,000-65,000 square feet of conference space, banquet rooms, and other amenities. A second 150-200 room hotel is expected to be developed by a third party as part of a new mixed-use commercial development adjacent to the Multimodal Facility and adjacent to a 200,000 square foot office complex. Both will also be accessible to the terminals via the ATS. Plans also exist for a renovation and modernization of the existing terminal hotel when the current lease expires in 2018. The total investment for the three development projects is estimated to be approximately $350 million, planned to be funded by a special facility loan backed by hotel revenues, and construction is expected to be complete between 2020 and 2022.
The total estimated tost of the Multimodal Facility included in the 2016-2020 CIP is $732 million, which is fully funded through a combination of previously issued GARBs and the Airport Development Fund ($158 million), PFC Revenue (pay-as-you-go) ($3 million), CFC pay-as-you-go revenue ($166 million), previously issued CFC revenue-backed bonds ($183 million), and a U.S DOT TIFIA direct loan ($272 million) secured by CFC revenues on a subordinate basis to the CFC bonds. The total estimated project cost is currently $785 4 million, which reflects an additional $3 4 million of project costs agreed to pursuant to a letter agreement between the City and the rental car companies.
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Requests for Proposals for an Operator Agreement for the terminal hotels and for a Development Agreement for the mixed-use commercial development are expected to be issued' in .the fall of 2016. Because a detailed funding plan does, not yet exist for the hotel development, the financial analysis in this Report does not include future funding of this project.
Terminal 5 Expansion
The City is undertaking an expansion and set of modifications to Terminal 5 to accommodate increased traffic at the Airport. The current gate configuration in the terminal does not provide optimal scheduling of aircraft, as smaller gate sizes are not compatible with capacity demand. The Terminal 5 Expansion increases both the number (from 19 to 28) and the size of gates in Terminal 5. The project includes an extension of the east concourse of Terminal 5, which includes the addition of approximately 279,000 square feet of gross floor area; the addition of 9 aircraft parking positions and installation of associated passenger loading bridges; and the extension of sterile corridors feeding the FIS facility. The project also includes the expansion of the existing terminal apron by approximately 1.5 million square feet, increasing total linear feet of gate frontage by approximately 25 percent.
The Terminal 5 Expansion also includes the reconfiguration of gates on the west concourse of Terminal 5. Gates Ml through M6 will be modified to accommodate eight narrowbody aircraft. Existing passenger loading bridges will be modified, and new passenger loading bridges will be added to provide access to the terminal for the reconfigured gates. Existing Terminal 5 facilities will also be modified to accommodate additional activity anticipated from the terminal expansion and the modification of existing . gates. Modifications to systems include the expansion of the security screening checkpoint; the modification of the baggage system, ticket counter lobby facilities, and FIS inspection areas; and other projects: Also included in the project is the'Airport's second Airbus A380-capable gate, with holdroom space specifically designed for the aircraft.
It is anticipated that the Terminal 5 Expansion will be completed in 2019 at a cost of $266.8 million. The project will be funded with PFC Revenue (pay-as-you-go and PFC Revenue Bonds anticipated to be issued in 2017 to fund approximately $188.6 million of project costs) and Airport discretionary funds, and no airline approval is required. Additional information regarding future PFC Revenue Bonds is provided in Section 5.4.1 of this Report.
Terminal Area Plan
In addition to near-term gate expansion projects, long-term terminal development and redevelopment options are being evaluated as part of a recently announced Terminal Area Plan (TAP). The City's goals include strengthening the Airport's connectivity, capacity, and efficiency; improving passenger experience; and modernizing existing terminals and their functional and commercial spaces. The City and airline representatives are collectively evaluating terminal development options. Current plans under consideration for the TAP include the redevelopment of Terminal 2 into a new central terminal within the existing terminal complex. Amenities in the new terminal could include a new U.S. Customs and Border Protection facility, a departure hall with additional space for TSA passenger screening, concessions, and passenger amenities. The TAP also examines new concourses to be constructed to the west. The TAP is still in preliminary conceptual planning and discussion phases, and while funding for the TAP is anticipated to include future bond proceeds with debt service payable during the Projection Period, due to the uncertainty of timing and project costs, the financial analysis included in Chapter 5 does not include any debt service payments associated with the TAP.
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The TAP would allow the Airport and airlines serving the Airport to address the constraints of the existing terminal infrastructure in order to enable long-term growth: The-International Terminal, which was completed 'in -1993, was the last'major addition to O'Hare's terminal'gate: capacity:' Since then", significant'investments in increasing airfield capacity have been made to address airfield delays and to provide long-term capacity. Concurrently, the airline industry has pursued several changes that have built additional pressure on the Airport's existing terminal infrastructure. Increasing aircraft gauge has impacted the capacity of existing gates. The industry -has. also experienced, changes in.functionah-ar.eas;, such. as .security screening,.impacting the usability of the existing terminals.; Therefore, the TAP. could provide-increased capacity of aircraft gates and terminal processing areas, while also meeting functional:needs in several-areas
23 . ! The:2q'i6;.Projects' ' ^ t^.^.\% .1-, ''.^ ¦¦«,;-'¦ C - =,
A portion of the proceeds ofthe 2016. New: Money Bonds is .anticipated tobe used to.fund.the 2016 Projects, which consist of the construction of Runway 9C-27C and enabling projects including,airline facility relocation; the centralized deicing pad; and the cross-field taxiway system and relocation of Taxiways A and B, which are described in this section. .
.The-2016 Projects total-approximately $1.3,•billion, oftwhich approximately: $1.0 billion-will be funded with ' proceeds from ;the 2016 New Money Bonds. PFCcRevenues and .Grant>Receipts.from .an FAA LOI Grant, both , used-on-a,pay-as-you-go basis, are anticipatedto/fundithe .remaining!portion (approximately $255 million) of
the 2016 Projects cost , that is. not.funded with ;the 2016. New? Money .Bonds.: Airline Partyapproval has been • received, for the 2016 Projects. The City has- also'-obtained; all .required approvals :fromi the, ChicagorGary
Authority for the 2016 Projects. '/¦: .... .-.
Table 2-2 presents the estimated uses of the 2016 New Money Bonds construction fund deposit on the 2016 Projects. The 2016 New Money Bonds construction fund deposit is being used to 'fund $473.5 million in construction of Runway 9C-27C and enabling projects, $235.0 million in: airline facility relocation, $118.0 million in centralized deicing pad, and $186.3 million in cross-field taxiway. system and relocation of Taxiways A and B. .-''•.
Table 2-2: Estimated Uses ofthe 2016 New Money Bonds Construction Fund Deposit^,'. .v->.:
l ..;.-^-^ ,:,y.'c ;- ¦,-',¦ ;—j_i —¦ ,' ¦ > ^-.wV,'-W^^^ '¦¦V.'-.vi.
(Dollars in Thousands)
2016 PROJECTS '
: Runway, 9C-27C and Enabling Projects'V ';-.,r ;-¦ ¦i-'--.a"''; ; ' .::;: •' -rl'h;^-'' ¦'-^;?'$473;50p;- -r'^
Runway-9C-27C Airline Facility Relocation , ' . ~"" . ¦ •'• ¦ " ¦" " :' . 235^000
CAfP.^^il^ifi^fe'^sl^ i ". .il ';7:_.:: r~ T... ' Li Jl'V '118.000 'T.r'j
. Cross-Field Taxiway System and Relocation of Taxiways A and B 186,300
i total Estimated 2dl6,Nm MbrieyTlonds C5~^ ''': $iT6l2,800. '"~;
SOURCE' City of Chicago, Department of Aviation, August 2016 PREPARED BY: Ricondo & Associates, Inc, September 2016
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
3. Demographic and Economic Analysis
The demand for air transportation is, to a large degree, dependent upon the demographic and economic characteristics of the geographical area served by an airport, commonly referred to as an airport's air trade area. This dependence is particularly significant for O&D passenger traffic, which has historically accounted for approximately half of the passenger traffic at the Airport. The major portion of demand for air transportation at the Airport, therefore, is influenced more-by the local characteristics of the area served by the Airport than by individual airline decisions regarding service patterns in support of connecting activity. This chapter1 presents data indicating that the Airport's 15-county Air Trade Area has an economic base capable of supporting increased airline traffic demand through the Projection Period (ending FY 2025).
3.1 The Air Trade Area
The borders of an airport's air trade area are influenced by such factors as the location of other metropolitan areas and their associated airport facilities. For purposes of this Report, the Air Trade Area for the Airport consists of the Chicago-Naperville-Elgin Metropolitan Statistical Area (MSA)2 and the Kankakee MSA. As presented on Exhibit 3-1, the Air Trade Area encompasses 15 counties in three states: Cook County, DeKalb County, DuPage County, Grundy County, Kane County, Kankakee County, Kendall County, Lake County, McHenry'County, and Will County in Illinois; Jasper County, Lake County, Newton County, and Porter County in Indiana; and Kenosha County in Wisconsin.
This chapter was prepared, in part, by Partners for Economic Solutions, a consulting firm based in Washington, D C that specializes in regional economic analysis.
A Metropolitan Statistical Area is a geographic entity delineated by the Office of Management and Budget (OMB) for use by Federal statistical agencies in collecting, tabulating, and publishing Federal statistics. Metropolitan Statistical Areas have at least one urbanized area with a population of 50,000 or more, plus adjacent territory that has a high degree of social and economic integration with the urbanized area, as measured by commuting ties
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
WINNEBAGO
Q
Chicago Rockford International Airport
WILL.-%':,^:-',;J;
' / y /
KANKAKEE-'.
LEGEND
I I Chicago-Napdm Counties Outside o( Chicago Region O'Hare International Airport Q Existing Airports Within MSA Q Existing Airports Outside MSA
SOURCES TIGLR/l me Shapehies. Accessed Online Novcrnbei 2014, USGS Shapef.les. Accessed Online Augusi 2016 PREPARED BY Ricondo fit Associates. Inc . August 2016
Air Trade Area
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3.2 Demographic Analysis
POPULATION
With a population of mo.re.than 9.7 million, in 2015, .the. 1.5-county Air Trade Area is the third .most populous metropoljtan.region in the United States (see. Exhibit. 3-2). and is a major.air transportation market.
LEGEND'
CSA Area Estimated Population © 6,000,000
12.000.000 ¦Hi 18,000,000
NOTE.
CSA = Combined Statistical Area
SOURCES' Woods 8t Poole Economics, Inc. 2026 Complete Economic and Demographic Data Source (CEDDS), May 2016; ESRI Basemap Database, 2016 PREPARED BY. Ricondo & Associates, Inc., August 2016.
Population growth is a key factor creating demand for airline travel. Data in Table 3-1 show that the Air Trade Area added approximately 329,000 to its population between 2005 and 2015, or approximately 32,900 per year. The Air Trade Area's historical rate of population growth was higher than that of the Midwest population, but it was lower than that of the United States—a relationship that is expected to prevail through 2025. The Air Trade Area population forecast for the period 2015 through 2025 reflects a compound annual growth rate (CAGR) of 0.6 percent—a rate that is higher than what is projected for the Midwest (0.4 percent) but lower than what is projected for the United States (0.9 percent). The projected increase of approximately 560,000 new residents in the Air Trade Area during this period is expected to generate additional demand for airline service at the Airport.
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CHICAGO O'HARE INTERNATIONAL AIRPORT
HISTORICAL PROJECTED
["AREA""'' ~"" 7 """" Tii9??~~7r;~r~20o5 '" ¦ 'yy~- 2015 —~" 2025
Air Trade Area 8,795.306 ' ! 9,384,219 9>13,451 10;273,007
"chicago-Nap^ryjlle-Elgin MSA1'^' ' 8,693,383 ~ ' ¦ - 9,276,302 " ' 9,601,676 ; "l0.156.621 ']
Kankakee MSA21 101,923 107,917 111,775 116,386
NOTES:-,:-- - ' "/;,;;;\.
VChic'ago-Naperville-Elgin MSA is defined as Cook County (IL), DeKalb.County,(IL), DuPage County (IL), Grundy County (IL), . Kane County (IL), Kendall'County (IL), Lake County (IL), McHenry County (IL); Will County (IL), Jasper County (IN), Lake County (IN), Newton County (IN), Porter County (IN), and Kenosha County (WI). 2/ Kankakee MSA is defined as Kankakee County (IL). 3/ Midwest is defined as Illinois, Indiana, Michigan, Ohio, and Wisconsin.
SOURCE:.Woods & Poole Economics, Inc. 2016 Complete Economic and Demographic Data Source (CEDDS), May 2016. PREPARED BY: Partners for Economic Solutions, August 2016
3.2.2 AGE DISTRIBUTION AND EDUCATION
Demand for airline travel varies by age group, and this is a factor influencing O&D passenger activity at the Airport. According to Consumer Expenditure Survey data from the U.S. Department of Labor, Bureau of Labor Statistics, in the United States, persons between the ages of 35 and 54 account for 42 percent of expenditures on airfares.3
Table 3-2 shows that in 2015, residents in the 15-county Air Trade Area aged 35 to 54 accounted for 27.1 percent of the population. Thus, the age group that generates the most expenditures on airfares is represented in the Air Trade Area at a higher rate than the population in both the Midwest (25.9 percent) and the United States (26.0 percent).
Who's Buying for Travel, 11th ed Ithaca, NY New Strategist Publications, 2015, Data in Who's Buying for Travel are based on the U.S. Department of Labor, Bureau of Labor Statistics' "Consumer Expenditure Survey," an ongoing nationwide survey of household spending.
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: Table 3-2: Age Distribution and Educational Attainment (2015)*:
AIR TRADE AREA
AGE DISTRIBUTION
Total Population By Age Group-
19 and Under 20!o24~Years
25 to 34 Years
26.2% 6.8%".
14.3%
_25.5% 7:0%'
13.0%
25.6%
_7.1%s 13.7%
35 to 44 Years
r
45 to 54 Years
55 to 64 Years
65 and Above
Median Age FeDUc^TIONAL ATTAINMENT
13.7%
12.5%... 13.1%
100.0%. 36.9 years
13.6%
13.4%
15.2%
,100.0% '-38.6 years
13.4%
12.7%:
14.9%
:. 100.0% : 37.8 years
Population 25 years and over
'. By Highest Level Achieved
Less than 9th Grade
!»9th--l2th:Grade,:No;Diplbrna: High School Graduate
j GED/Alternative Credential Some College, No Degree
]¦ Post-Secondary Degree
Associate's Degree
'Bachelor's Degree Master's Degree or Doctorate ¦Total--' -.'"";"¦¦¦'¦;
6.1% :"'63%'^T 21.8%
".' 3.0%":"-
20.2% 42.6%"7.0%
14.0% ¦V0OS&'-.
3.9%
:>. ; :;. 7.0% 26.7%
21.5%
•¦ '1^%
8.5% .....,..-._„
10.7%
<1<'^o~6%
5.7%
7.5%. 23.5%
Hxi%"' 21.0%
38.'2%'
8.2%
18.6% ^
11.4%
i6o*6%7 '; • '
SOURCES: Woods & Poole Economics, Inc, 2026 Complete Economic and Demographic Data Source (CEDDS), May 2016; ESRI (Market Profiles for MSAs, states, and U.S), August 2016
PREPARED BY Partners for Economic Solutions, August 2016
According to Consumer Expenditure Survey data, persons with a college degree generate a high percentage of expenditures on airline travel. Data indicate that 77 percent of airfares are purchased by college graduates, while 17 percent are purchased by consumers who have had some college, and 6 percent are purchased by consumers who never attended college.'1 As shown in Table 3-2, 42.6 percent of the Air Trade Area's population over the age of 25 have a post-secondary degree (associate's, bachelor's, master's, or doctorate)— a higher percentage than the populations of both the Midwest (36.9 percent) and the United States (38.2 percent).
Who's Buying for Travel. 11th ed. Ithaca, NY New Strategist Publications, 2015
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In addition to having a. highly educated population, the Air Trade Area is .also home to 42 colleges and universities with total enrollment of approximately 292,000 students. These educational institutions generate demand for airjine service through .academic meetings and. conferences, visiting professorships, study abroad programs, and individual student and faculty travel.
3.2.3 PER CAPITA PERSONAL INCOME
Another key indicator of a region's demand for airline travel is per capita personal income.5 Per,.capita personal income indicates the relative affluence of a region's residents, as well as their ability to afford airline travel. It can also be an indicator of an area's attractiveness to business and leisure travelers. Regions with higher per capita personal income often have stronger business connections to the rest of the nation, as well as a more developed market for tourism.
Exhibit 3-3 presents historical per capita personal income for 2005 through 2015 for the 15-county Air Trade Area, the Midwest, and the United States. As shown, between 2005 and 2015, per capita personal income in the Air Trade Area was higher than that of the Midwest and the United States. Per capita personal income for the Air'Trade Area increased at a CAGR of 0.7 percent between 2005 and 2015, which is lowerthah' the rate in both the Midwest (0.9 percent) and the United States (1.0 percent) during the same period.'
Exhibit 3-3 also shows that projected per capita personal income in the Air Trade Area' is expected to increase at a CAGR of 1.5 percent, from $51,766 in 2015 to $60,303 in 2025.6 The projected growth rate for per capita personal income in the Air Trade Area (1.5 percent) is slightly lower than that of the Midwest (1:6-percent) and equal to that of the United States between 2015 and 2025.
Per capita personal income is the sum of wages and salaries, other labor income, proprietors' income, rental income, dividend income, personal interest income, and transfer payments, less personal contributions for government social insurance, divided by the region's population
Amounts are in 2015 dollars
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$37,500
$35,000 -I|99|, , >|99|.|999|¦|99|
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
—4— Air Trade Area - - Midwest —¦— United States
ANNUAL PER CAPITA PERSONAL INCOME GROWTH AIR TRADE AREA MIDWEST UNITED STATES
j 200.5r2015 '. ' .'. j ' ' '.',.¦.'.';''"' ¦ 0.7%' . ' 0.9% ' 1.0%. ,',
2015-2025 (Projected) 1.5% 1.6% ' 1.5%
NOTE:
1/ Amounts are in 2015 dollars
SOURCE. Woods & Poole Economics, Inc., 2016 Complete Economic and Demographic Data Source (CEDDS), May 2016 PREPARED BY. Partners for Economic Solutions, August 2016
3.2.4 HOUSEHOLD INCOME DISTRIBUTION AND MEDIAN HOUSEHOLD INCOME
Exhibit 3-4 shows the distribution of households among the income categories for the Air Trade Area, the Midwest, and the United States in 2015. The 15-county Air Trade Area's estimated 2015 median household income is significantly higher than that of both the Midwest and the United States. The Air Trade Area's median household income of $59,940 in 2015 was 17 percent higher than that of the Midwest ($51,230) and 13 percent higher than that of the United States ($53,217).
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jfExhibit«3-4l^
$200,000 or More •
$100,000 -$199,999
$75,000 -: $99,999
$50,000 -. $74,999
$25,000 to $49,999
Less than $24,999
HHBMMi Air Trade Area 7.0% Midwest 3:8% ¦K United States 5.1%
^Kmmmmmmmt Air Trade Area 21.6% "Midwest 16.79F3
United States 18.0%
_. Air Trade Area 12.6%
K Miclwest 12.5%
" United States 12.5%
.Air Trade Area 17.3%
^Midwest 18.3% 3nited States 17.6%
-AiiJiadeArea 21.7% tmmmm Midwest 24.9%
Ofiited States 23.7%
AifTradeAreal9.8%
.8%
-United States 23.1%:
30.0%
NOTE:
1/ Amounts are in 2015 dollars
SOURCE:' ESRI (Market Profiles for MSAs, states, and U.S.), August 2016. PREPARED BY: Partners for Economic Solutions, August 2016.
3.2.4.1 ' 'Households wit^ ;; ' " :/ ¦ ;i !
The percentage of higher-income households (defined as those earning $100,000 or more annually) within the Air Trade Area is another key indicator of potential demand for airline travel. According to Consumer Expenditure Survey data from the U.S. Department of Labor, Bureau of Labor Statistics, 54 percent of airfare expenditures are made by households with annual incomes of $100,000 or more.7 With approximately 1,021,000 households earning $100,000 or more in 2015, the Air Trade Area is among the wealthiest markets in the United States.
3.3 Economic Analysis
3.3.1 PER CAPITA GROSS DOMESTIC/REGIONAL PRODUCT
Per capita gross domestic product (GDP; U.S.-level data) and per capita gross regional product (GRP; state-and county-level data) are measures of the market value of all final goods and services produced within a defined geographic area, divided by the total population of the area. These indicators are broad measures of the economic health of a particular area and, consequently, of the area's potential demand for airline travel.
Who's Buying for Travel, 11th ed Ithaca, NY New Strategist Publications, 2015
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Exhibit 3-5 presents historical per capita GRP data for the 15-county Air Trade Area and the Midwest, as well as per capita GDP data for the United States for 2005 through 2015.8 The Air Trade Area's per capita GRP increased from $60,745 in 2005 to $63,412 in 2015. Exhibit 3-5 also indicates that per capita GRP for the Air Trade Area increased at a CAGR of 0.6 percent between 2005 and 2015,. compared with a 0.5 percent CAGR for the Midwest and a CAGR of 0.6 percent for the United States during the same period.
Per capita GRP for the Air Trade Area is projected to increase from-$63,412 in 2015'to $72,989 in 2025. This increase represents a CAGR of 1.4 percent for the Air Trade Area, which is slightly lower in regards to the Midwest (1.5 percent) but slightly higher relative to the United States (1.3 percent) over the same period.
$45,000
$40,000
$35,000 -I .|999999|.|999910|2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
? Air Trade Area -^--Midwest —¦— United States
ANNUAL PER CAPITA
GDP/GRP GROWTH AIR TRADE AREA MIDWEST UNITED STATES
'2005-2015- •• ¦¦;';.'¦¦ - - p.4%. ;-'-;;.V->¦>;.' o.5% \ ;.' ¦/ o.6%
2015-2025 (Projected) 14% 1.5% 1.3%
NOTE:
1/ Amounts are in 2015 dollars
SOURCE: Woods 8i Poole Economics, Inc, 2026 Complete Economic and Demographic Data Source (CEDDS), May 2016. PREPARED BY Partners for Economic Solutions, August 2016
3.3.2 EMPLOYMENT TRENDS
Between 2005 and 2015, the Air Trade Area labor force grew at a CAGR of approximately 0.4 percent—higher than the rate of the Midwest (-0.1 percent) but lower than that of the United States (0.5 percent).
Amounts are in 2015 dollars
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Exhibit 3-6 shows that the annual unemployment rate in the 15-county Air Trade Area was higher than that of the United States in all years from 2005 through 2015, with the exception of 2006 when the two rates were equal.' The Air Trade Area's unemployment rate was higher thanrthat of the Midwest in 2005, as well as from 2011 through 2015. The Air Trade Area's unemployment rate was lower than orequal to that of the Midwest from 2006 through 2010:
In August 2016, the unemployment rate in the Air Trade Area was 5.4 percent (non-seasonally adjusted);9 this
was higher than the 4.9 percent non-seasonally. adjusted unemployment rate in the Midwest and 5.0 percent
in the United States.10 . , : ¦
.-^tV^VTSV'-.'vr;'.
Unemployment Rate
2015. August.' 2016
¦ Air Trade Area
NOTE:
1/ August 2016 data are not seasonally adjusted. In August 2016, the seasonally adjusted unemployment rate was 4.8 percent in the Midwest and 4.9 percent in the United States Seasonally adjusted unemployment data are not available for the Air Trade Area.
SOURCES. State of Illinois Department of Employment Security, Labor Market Information, U.S Department of Labor, Bureau of Labor. Statistics, September 2016 ...
PREPARED BY. Partners for Economic Solutions, September 2016.
3.3.3 BUSINESS CLIMATE
The 15-county Air Trade Area is the largest inland region in the United States with a global reach; if it were measured as a country, it would be the 30th largest economy in the world.11 Since adopting a regional Plan for Economic Growth and Jobs in 2014, World Business Chicago (WBC) has worked with numerous companies and economic development partners to attract, retain, and create new businesses in the Air Trade Area. The Plan for Economic Growth and Jobs is an effort by the government and businesses to promote regional economic prosperity. Its 10 strategies for growth include: expand advanced manufacturing; attract national and international headquarters; improve transportation and logistics; promote Chicago as a premier tourism destination; expand regional exports; improve workforce training; foster innovation and entrepreneurship;
Monthly unemployment data published for the Air Trade Area are not seasonally adjusted.
In August 2016, the seasonally adjusted unemployment rate was 4.8 percent in the Midwest and 4.9 percent in the United States World Bank, International Comparison Program database, site (accessed August 2016).
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invest in next-generation infrastructure; leverage neighborhood assets to support regional growth; reduce bureaucracy and streamline government services.12
As a result of the Plan for Economic Growth and Jobs and efforts by WBC, in 2015 Chicago was named "Top Metro for Corporate Investment" by Site Selection magazine. After targeting key industries, such as biotech, e-commerce, food products, and advanced manufacturing, companies such as Amazon, ConAgra Foods, Echo Global Logistics, Glassdoor, Google, GrubHub, Mead Johnson Nutrition, and Motorola Solutions have added jobs and expanded operations in the Air Trade Area. In 2015, 704 business expansions added more than 47,000 jobs to the Air Trade Area and contributed approximately $6.2 billion to the regional economy.13 According to Choose Chicago, there were approximately 11.7 million business visitors to the Chicago metropolitan area in 2015, an increase of 5.1 percent over the previous year. The Chicago area is also ranked seventh in the world in terms of the number of foreign direct investment projects (excluding projects of less than 10 jobs), the only North American city in the top 2014.
3.3.4 TRADE BY AIR
The Air Trade Area's outstanding access to overseas markets gives businesses in the region .the ability to operate internationally. Many of the Air Trade Area's major employers depend on offshore plants and suppliers for manufacturing-and-assembly, as well as for raw materials. This expanding international business activity generates demand for international airline travel and air freight services. In 2015, total trade activity (total imports and exports) between the Chicago Customs District15 and the rest of the world was valued at $180.0 billion. In 2015, more than $141 billion in trade through the Chicago Customs District was conveyed by air. This represents approximately 79 percent of all trade through the Chicago Customs District and more than 64 percent of the Midwest's value of total trade by air (see Table 3-3). The Air Trade Area's high rate of trade by air reflects the prevalence of the just-in-time inventory management of high-value goods (especially in the electronics and industrial components sectors), as well as an expanding global network of suppliers and manufacturers.
($ BILLIONS)
. CUSTOMS DISTRICT " VALUE OF TOTAL TRADE :/ -. VALUE OF TOTAL TRADE BY AIR PERCENT OF TOTAL TRADE BY AIR
Chicago _ $180.3 _ $141.8 78.8%
^ Midwest 2' "* 7 . " ..... ...Z... Ai^.-7 ~.T ." . ." $219.9 v ' ' r^.~, ^S^''-^'7'^'''''"''.^
UnitedStates $3746.0 $995.6 26.6%
NOTES
1/ Total Trade = Total Imports and Exports
2/ Data for the Midwest are an aggregation of the Chicago, Cleveland, Detroit, and Milwaukee Customs Districts.
SOURCE U S. Department of Commerce, Bureau of the Census, Foreign Trade Division, February 2016 PREPARED BY1 Partners for Economic Solutions, August 2016
World Business Chicago, Plan for Economic Growth &Jobs, wwwworldbusinesschicago.com/plan (accessed August 2016). World Business Chicago, 2015 Annual Report, www worldbusinesschicago com/annual-report (accessed August 2016). IBM institute for Business Value, Global Location Trends, 2016 Annual Report.
U.S. Customs Districts and Port Codes, http//www.census.gov/foreign-trade/schedules/ portcode.txt (accessed August 2016). The Chicago Customs District consists of 12 ports in Illinois and six ports in Indiana, Iowa, and Nebraska
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3.3.5 MAJOR EMPLOYERS AND FORTUNE 500 HEADQUARTERS
A list of the 25 largest employers16 in the Air Trade Area is presentee! in fable 3-4. In" addition' to providing an important source of local employment, the private sector employers, which make up approximately half of the list in Table 3-4, depend on airline passenger and freight services for the continued.health and.expansion of their enterprises. The Airport's role as an international passenger and air cargo hub makes it an important resource for employers in the Air Trade Area.
NUMBER OF FULL-TIME LOCAL EMPLOYEES t .,
U:S. Government
30,276 21,795
Chicago Public Schools
Cityof.Chicago_ Cook County
16,197
jAdvoca^e.Health'Care.f' University of .Chicago;
14,158
l Np^hwestem.Meffloriaj Healthcare^-:.j. 15,317 State of.Illinois 15,136
14,000
JPMprgan Chase 8t Co.
United Continental Holdings (#80)'
¦ Government1:
Government|1010|Government
Government
¦ Health" Care#i;C;
.Higher.Education
.f/.Health,Care'j: Government
:j v ¦' ¦ ¦r»:H-r*rt-'T'-,j.''J-'T7- "' ' ""M Financial Services: -.',: |
Airline
' Health'Cafe Service Corp. . 13;006
^.Presence Health" '•:/
10,000
Abbott Laboratories (#;138) {¦ .Northwestern JJniversity
• Healthcare ; . '-, Health jEareij 'j y.| . Pharmaceuticals
... Higher Education
9,660
Jewel-Osco
9,510,
9,212 ;-8,900~
Chicago Transit Authority j_ ^_ University of Illinois at Chicago American Airlines Group Inc.: .'¦
7,800 ¦ 7.700
Rush University Medical Center 8,273 AT&T Inc " "~ ' "'~' 8,000 ¦
7,409
. Allstate.Corp. '(#81) Wal-Mart Stores' Inc Employco USA Inc. Aon PLC
Retail
Government
Higher Education
Airline'.'
Health Care . Telecommunications
-Insurance . Retail. '. .'
Payroll Services Insurance
NOTES-
1/ Employers with the most full-time employees in Cook, DuPage, Kane, Lake, McHenry, and Will counties. 2/ For companies headquartered in the Air Trade Area, (#) indicates 2016 Fortune 500 Ranking
SOURCES' Crain's Chicago Business, "Chicago's Largest Employers," December 31, 2015, Fortune, "2016 Fortune 500," June 15, 2016. PREPARED BY1 Partners for Economic Solutions, August 2016
The list in Table 3-4 includes employers in Cook, DuPage. Kane, Lake, McHenry, and Will counties These six counties made up more than 90 percent of total employment in the Air Trade Area in 2015
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Major employers in the Air Trade Area represent a wide range of industries. These include: health care (Advocate Health Care, Northwestern Memorial Healthcare); airline companies (United Continental Holdings, American Airlines); higher education (University of Chicago, Northwestern University, University of Illinois at Chicago); financial services (JP Morgan Chase, CME Group), pharmaceuticals (Abbott Laboratories); insurance (Allstate, Aon); telecommunications (AT&T); and retail (Walgreens Boots Alliance, Wal-Mart Stores).
Each year Fortune magazine ranks the top 500 U.S. public companies in terms of annual revenue; in 2016, the 15-county Air Trade Area had the second highest number of Fortune 500 company headquarters in the nation, after the New York City metropolitan area. Corporations headquartered in the Air Trade Area include Walgreens Boots Alliance (ranked 19th among the Fortune 500), Boeing (ranked 24th), Archer Daniels Midland (ranked 41st), United Continental Holdings (ranked 80th), Allstate (ranked 81st), and Mondelez International (ranked 94th). Ofthe 15 new U.S. companies to join the Fortune 500 in 2oi6, three are headquartered in the Air Trade Area: Univar (ranked 315th), Baxalta (ranked 420th), and Arthur J. Gallagher (ranked 471st). A full listing of Fortune 500 companies headquartered in the Air Trade Area is provided on Exhibit 3-7.17 In 2016, the Air Trade Area's 34 Fortune 500 headquarters represent 94 percent of the 36 Fortune 500 headquarters in Illinois and 36 percent of the 95 Fortune 500 headquarters in the Midwest18
3.3.6 MAJOR INDUSTRY SECTORS
Data for nonagricultural. employment by major industry sector is presented on. Exhibit 3-8; which indicates the sources of jobs in the 15-county Air Trade Area's economy. This exhibit compares employment by industry in the Air Trade Area to data for the Midwest and the United States in 2015. .-:
The Air Trade Area had greater percentages of employment in services, finance/insurance/real estate, and transportation/utilities compared with the Midwest and the United States in 2015. Wholesale/retail trade, government, and construction jobs in the Air Trade Area accounted for lower shares of employment in 2015 compared with the Midwest and the United States. The percentage of manufacturing jobs in the Air Trade Area was lower compared with that of the Midwest and higher compared with that of the United States in 2015.
Data in'Exhibit 3-8 indicate that the Air Trade Area has a diversified employment base that is expected to provide the region with a stable foundation to withstand periodic downturns in the business cycle.
17 Exhibit 3-7 includes only those counties within the Air Trade Area in which Fortune 500 companies are located. See Exhibit 3-1 for a map
of the entire (15-county) Air Trade Area
18 The Midwest is defined as the states of Illinois, Indiana, Michigan, Ohio, and Wisconsin.
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v&T^uw^Ca'K E?Abbott: Laboratories - ¦./. , ]'.•*h'^-fik w^izh'SAVr -f¦ \V.*'-; ff;v=I
& f^Te"ne£°& ^Lake Forest ' ' ' '
arnnaton-. ^^¦.¦•.¦^i-r-.i fSu^--^ ... ,
~—:—-Qfg^--^^ . ,->.1 -Walgreens Boots;Alliance
flaE«:roocftu f .-.-si.'. ,.i-.v,,. ^- I _• ' -::~>\ k .-—>: -
?*?- r
.^: >-W.heatbn; -tvMcDonald's
-^i>v-V UnivargsfT;™ f f ^^'^i^L^over ¦iii In*; Navistar International
.':V.T-.';"-A -
Aurofa Nap.erville v - >
Bolingt rook f
Joliet WILL ' COUNTY
Tinley Park
" I V
I
¦ I
I
LEGEND
© Corporate Headquarters Location O'Hare International Airport I I County Boundary
Downtown 'Chicago: ¦ -Archer Daniels Midland -Boeing -Exelon
-Jones Lang LaSalle -LKQ Corporation -Old Republic -R.R. Donnelley & Sons -Telephone & Data Systems -United Continental Holdings
. LAKE ; COUNTY
NiSource
LAKE
EXHIBIT 3-7
SOURCES "2016 Fortune 500." Fortune. June 15. 2016 U S Census 2013 TIGER/Lme Shapeliles. Accessed Online November 201 a
o
https //www census gov/cgt-bin/geo/shapeliles2013/main. Ciiy of Chicago, Geographic Information Systems, City Data, Accessed Online November 2014 hup //www cilyolchicago org/city/en/depts/doit/provrirs/gis html PRF.PARED BY Ricondo & Associates, Inc , August 2016
Fortune 500 Companies Headquartered in the Air Trade Area
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• Exhibit 3-8: Jobs by Major Industry Sectors (2015) '
Wholesale/Retail Trade
Finance/Insurance/Real Estate
Manufacturing
Trans portation/Utilitics
00% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 55.0%
¦ Air Trade Area ¦ Midwest ¦ United States
AIR TRADE AREA
2015Jobs
2025 Jobs (Projected)
\CAGR 2015-20257'
5,897,355
6,628,674 1.5% ,
' J6,880,999
29,900,291
¦ :i.i% :
184,227,823
212,927,611 1.2%,.:'
NOTES:
1/ Nonagricultural employment only. Construction employment includes mining and forestry industries. 2/ CAGR = Compound Annual Growth Rate
SOURCE: Woods & Poole Economics Inc., 2016 Complete Economic and Demographic Data Source (CEDDS), May 2016. PREPARED BY Partners for Economic Solutions, August 2016.
3.3.7 AIR TRADE AREA TOURISM INDUSTRY
Approximately 52 million people traveled to the Air Trade Area in 2015,19 representing a 3.6 percent increase over the visitor level in 2014 (50.2 million). Chicago is one of only three U.S. cities that receive more than 50 million visitors annually.'0 Between 2010 and 2015, the number of visitors to the Air Trade Area increased by
Choose Chicago New Releases, "Mayor Emanuel Announces Record Tourism in June," choosechicago com/ articles/view/mayor-emanuel-announces-record-tourism-in-june-/1710 (accessed August 2016).
The two others were Orlando (66 million) and New York (58 million) Choose Chicago 2015 Annual Report, February 2016, ; Orlando Sentinel, "Visit Orlando hits 66 million tourists in 2015," May 2, 2016, http.//www orlandosentinel.com/business/tourism/os-visit-orlando-2015'tourist-numbers-20160502-story.html; The New York Times, "Record Number of Tourists Visited New York City in 2015," March 8, 2016, nurnber-of-tourists-visited-new-york-city-in-2015-and-more-are-expected-this-year.html?_r=0 (accessed August 2016).
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more than 31 percent.21 The Air Trade Area's visitors generated approximately $14.9 billion in direct spending and $935 million in state and local tax revenue in 2015.22
Chicago and its surrounding region host a variety of cultural institutions, including art museums, science
museums, performing arts facilities (symphony,-.opera, theater), and cpmedyyvenues. Other visitor attractions
include two zoos (Lincoln Park and Brookfield), an aquarium, Skydeck Chicago in Willis Tower (formerly Sears
Tower), and Millennium Park. Major league sports based in the ?Air Trade Area, include football, basketball,
hockey, and two baseball teams. The region's wide array of cultural'chbice^-and'entertainment.options is an
important factor supporting repeat visitation. The ability to see attra'cti6nsW;v0'ndertake activities that were
missed on a previous visit has been cited as a significant elementm a y[sitqr-s: intent to return to a travel
destination.23 - . ...
Numerous travel magazines, such as Travel + Leisure, Conde Nast Traveler, lonely Planet, and other publications, regularly name Chicago a top travel destination. Chicago and^ its iurrounding region have also been cited as a top location for commerce, sporting events, and cultural attractions by publications including Business Traveler, Site Selection, The Sporting News, and American Sry/e,;In. addition, Choose Chicago (the Chicago Convention & Tourism Bureau) has been a-frequent winner of the Pinnacle Award from Successful Meetings in recognition of its meeting planning services.
3.3.7.1 Convention Facilities, Tourism Marketing, and Special Events
Chicago ranks.second, in the.United. States, in terms of. the number of.conventions hosted.2,1 Containing 2.6 million'square feet of exhibit space, McCormick Place is the Air Trade Area's primary meeting and exhibition venue. With four separate buildings connected by concourses and sky bridges, McCormick Place is designed to be flexible in accommodating a range of events, and it can host two conventions simultaneously.
Support for tourism and conventions is a priority for the business community, civic organizations, and government officials in the Air Trade Area. In 2015, Choose Chicago launched its Corporate Leadership Circle in order to engage support from the region's business community for tourism and convention initiatives. Inaugural corporate partners that support Choose Chicago's initiatives include United Continental Holdings, Boeing, and PepsiCo. In addition, Choose Chicago's strategic marketing partners include American Airlines, American Express, Bank of America, BestCities Global Alliance, and Experient. Choose Chicago also launched the "Chicago Epic" national and international advertising campaign in 2015.
Chicago's lakefront was chosen as the first freshwater venue for the America's Cup catamaran race in 2016. Other highlights include the selection of Chicago to host the NFL Draft in 2015 and 2016 (New York had been the previous host since 1965). After 25 years in New York, the James Beard Foundation Awards moved its
Choose Chicago 2015 Annual Report. February 2016, http //www.choosechicago com/media (accessed August 2016)
Choose Chicago News Releases, "Mayor Emanuel and Choose Chicago Announce Record Tourism in 2015," April 26, 2016, www choosechicago.com/includes/content/docs/media/04-26-16-Tourism-Record-RELEASE pdf (accessed August 2016).
Jeffrey M. Caneen, "Cultural Determinants of Tourist Intention to Return," Consumer Psychology of Tourism, Hospitality and Leisure. Oxfordshire, UK CA8I Publishing, 2004
event's Top 50 Meeting Destinations in the United States, http.//www.cvent com/en/supplier-network/top-50/2016-top-destinations-us.shtml (accessed August 2016).
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venue to Chicago in 2015; Chicago hosted this internationally renowned culinary event again in 2016 and a return date is scheduled in 2017.
3.3.7.2 Overseas Visitors
Based on a survey from the U.S. Department of Commerce's Office of Tourism Industries, data in Table 3-5 show that more than 1.6 million travelers from overseas (excluding Canada and Mexico) selected Chicago as their destination city in 2015. Chicago was the 9th most popular U.S. destination for overseas travelers in 2015, ranking ahead of other major cities such as Boston, San Diego, Fort Lauderdale, Houston, Atlanta, Seattle, Philadelphia, Flagstaff, Anaheim, and Tampa.
Si A'Tablei3t5:/r6p: Destination Cities forOv.erseas Visitors,(2015)I
RANK DESTINATION CITY
¦ 1 •*¦ ¦ New^York City ¦ ¦Hi.'.'vy-|109|Miami
_3__ Los_ Angeles .-^|109|Orlando
Saij Francisco. Las Vegas •
Honolulu
10,132;000
5,509,000 '4,857,000' 4,718,000
3,632,000 3,409,000 2,380,000'|109|Washington, D.C.|10 9|' Chicago . '<
Boston
San Diego Fort Lauderdale
Houston ¦ Atlanta Seattle ~
Philadelphia
Flagstaff, AZ_ Florida Keys
Anaheim Tampa
2,135,000
1,1520,000
1,159,000
1.033,000
902,000 r"86S000r
837,000 783.000 680,000
672,000'
637,000
610,000 591,000
NOTE:
1/ Excluding visitors from Canada and Mexico.
SOURCE'. U S. Department of Commerce, International Trade Administration, Office of Tourism Industries, July 2016. PREPARED BY- Partners for Economic Solutions, August 2016
3.4 Economic Outlook
3.4.1 SHORT-TERM ECONOMIC OUTLOOK
The U.S. economy expanded at a modest and steady level in 2015, with employment growing by an average
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of 204,000 jobs per month." Between January and August 2016, U.S. employment growth averaged 182,000 jobs per month.26 Continued monthly job growth supports projections for wage gains and further declines in. unemployment. In addition, the outlook for consumer spending is optimistic, inflationary pressures are modest, and lower oil prices are projected to have a positive effect on U.S. growth.27
The most recently published projection by business economists from the National Association, for Business Economics (NABE) indicates consensus for real GDP growth of 1.5 percent in 2016 and 2.3 percent in 2017. The NABE estimates that the average annual U.S. unemployment rate will be 4.8 percent in 2016 and 4.6 percent in 2017.28
3.4.2 LONG-TERM ECONOMIC OUTLOOK
Table 3-6 presents selected 2015 and 2025 economic figures for the Air Trade Area and the United States
including population, employment, personal income,- and. GRP and GDP. • Growth expectations for these
variables in the 15-courity Air Trade; Area'are generally equivalent.to those of the United States and indicate
the ongoing capacity of the Air Trade Area to continue to generate demand for air travel services during the
projection period. . ....
VARIABLE u 2015 2025 CAGR v 2015-2025
|=»irTradeiArea;Pppulation ^9;713,451 = .j-T 10^?3;007:^ '".~0.6%:.3k.-
United States Population '"¦ 321,545,081 '¦ ¦ - 352,566,429 0.9%
I Air Trade Area Total Employment .; . .¦¦'¦ /¦¦;'-; -: 5,897,355 .,'' 6.628.674 ,'¦ " ' 1.2% "" H
United States Total Employment 184,227;823 _ 212,927,611 _ _1.5%_
l.;Air jrad7Area-TotaT^ •¦- ~^^~T~~r~! "~l6T9"49 ¦ "¦': 2.1%~-"*~ ^)
United States Total Personal Income ($ billion) _ $15,104.25 ¦ $19,257.53 2.5%
FAir trade Area Per Capita Personal Income . ¦ , $51,766 ~ . . $60,303-v" ¦ "• -1.5% ' ¦ ¦ . I
United States Per Capita Personal Income $46,974 . $54,621 _ 1.5%
j Air Trade Area Grbss'Regiqrial Pro.durtT$ .billion)"' "" $615.95 ' ':¦•¦"'" ; $749,82 '¦ - '"" 2.6% :A
United States Gross Domestic Product ($ billion) $17,839.32 _ $22,263.58 2.2%
| Air Trade Area Per Capita <5ross .Reg'ionai Product" ' " $63.412 $72,989~ ; ¦ ' 1.4% , i
United States Per Capita Gross Domestic Product $55,480 $63,147 1.3%
NOTES:
1/ Dollar amounts are in 2015 dollars
2/ CAGR = Compound Annual Growth Rate
SOURCE Woods & Poole Economics, Inc, Complete Economic and Demographic Data Source (CEDDS), May 2016. PREPARED BY Partners for Economic Solutions, August 2016
2b U.S. Department of Commerce, Bureau of Labor Statistics, 2015 Employment Situation, www bls.gov/schedule/ archives/empsit_nr.htm (accessed August 2016).
26 U.S. Department of Commerce, Bureau of Labor Statistics, 2016 Employment Situation, January-August 2016, www.bls gov/schedule/
archives/empsit_nr htm (accessed September 2016).
27 National Association for Business Economics, NABE Outlook, June 2016, Board of Governors of the Federal Reserve System, July 13, 2016
Summary of Commentary on Current Economic Conditions by Federal Reserve District,
www.federalreserve.gov/monetary policy/beigebook/beigebook201607 htm'summary (accessed August 2016)
28 National Association for Business Economics, NABE Outlook, September 2016
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
3.4.3 CONCLUSIONS
The 15-county Air Trade Area has a population of nearly 9.7 million that is projected to increase to more than 10.3 million by 2025.
Median household income and per capita personal income in the Air Trade Area are both higher than United States levels. Median household income in the Air Trade Area in 2015 is $59,940, 13 percent higher than in the United States. ($53,217). The Air Trade Area's 2015 per capita personal income ($51,766) is 10 percent higher than in the United States. ($46,974).
In terms of percentages, the industry sectors in the Air Trade Area with employment that exceeds levels in the United States are services, finance/insurance/real estate, manufacturing, and transportation/utilities.
The Air Trade Area's 5.9 million jobs contribute to a GRP of more than $615 billion in 2015. Jobs in the Air Trade Area are projected to increase by more than 731,000 to approximately 6.6 million by 2025. The Air Trade Area's GRP is projected to increase by 22 percent, in real terms, to approximately $750 billion by 2025.
The data cited in this chapter support the conclusion that the 15-county Air Trade Area has a large and diverse economy that is capable of supporting increased airline traffic demand through the Projection Period (ending FY 2025).
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
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Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
4. Air Traffic
This section describes the airlines serving the Airport, historical airport activity, factors affecting aviation demand, and forecast airport activity.
4.1 National and Global Perspective ofthe Airport
Based on U.S. DOT survey data, the Chicago market1 was ranked fourth in the nation in terms of domestic O&D passengers in calendar year 2015 - following the New York2, Los Angeles3, and San Francisco" markets. With its proximity to the center of the United States, its facilities to accommodate domestic and international passengers, and its status as the largest mid-continent international airport and the largest major "dual hub" airport in the United States (measured by enplaned passengers)5, the Airport is a key component of the national air transportation system.
Table 4-1 presents the Airport's worldwide rankings of activity for calendar year 2015. The Airport served approximately 76.9 million enplaned and deplaned passengers, or approximately 210,800 average daily passengers, during this period. This is an increase from the approximately 70.0 million passengers, or approximately 191,800 average daily passengers, in 2014. The Airport ranked second worldwide in total aircraft operations, with 875,136 takeoffs and landings; fourth worldwide and second in the United States in total passengers; and seventeenth worldwide and sixth in the United States in total cargo. The Airport has historically ranked at or near the top of the world's busiest airports in terms of passenger and operational activity. Through the first eight months of 2016, enplaned passenger volumes have increased 2.5 percent from the same period in 2015.
Chicago's location along the heavily traveled east/west air routes and its large population base make it a natural location for airline hub operations. American Airlines (American) and United Airlines (United), the world's largest and second largest carriers in terms of available seat miles (ASMs) operate major connecting hub operations at the Airport. United and American's use of the Airport as a hub is described in more detail later in Section 4.5. Southwest Airlines (Southwest) also serves the Chicago region at Midway International Airport. Additional discussion of Southwest is contained in Section 4.4.
Includes Chicago O'Hare International and Chicago Midway International Airports
Includes John F. Kennedy International, Newark Liberty International, and LaGuardia Airports.
Includes Los Angeles International, John Wayne Airport-Orange County, Ontario International, Bob Hope, and Long Beach Airports Includes San Francisco International, Metropolitan Oakland International, and Norman Y. Mineta San Jose International Airports. Based on 2015 U S DOT T-100 data.
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CITY Of CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
4.2 Airlines Serving the Airport
The Airport is an important O&D market within'^the networks of the passenger airlines that it accommodates. The Airport also" serves as a major connecting hub for both United and American. Table 4-2 lists the airlines serving the Airport during the 12 months ended August 2016, and includes seasonal service.
Table 4-3 presents the scheduled United States airlines that have served the Airport at any time since at least
2006. The Airport has had the benefit of a large and stable airline base, which has helped promote
competitive pricing and scheduling diversity in the Airport's major domestic markets. As of August 2016,
United and its regional affiliates provided nonstop service from the Airport to 141 domestic markets and 42
international markets6; American and its regional affiliates provided nonstop service to 111 domestic markets
and 19 international markets from the Airport. """"
In addition to United, American and their regional affiliates, other major United States airlines at the Airport include Alaska Airlines (Alaska), Delta Air Lines (Delta), and four low-cost carriers (LCCs): Fr.ontier Airlines (Frontier), JetBlue Airways (JetBlue), Spirit Airlines (Spirit), and Virgin America. Together, these airlines provide nonstop service to a total of 41 domestic markets and two international markets.
The foreign flag airlines that have served the Airport at any time since at least 2006 are listed in Table 4-4. Nineteen of the 37 foreign-flag airlines currently serving the Airport in 2016 have operated at the Airport each year since at least 2006. In addition, the number of new carriers has steadily grown. Twelve new foreign flag carriers have begun service to the Airport since 2013 (Air Berlin, Austrian Airlines, Hainan Airlines, Qatar Airways, Sky Regional and Volaris in 2013; Avianca and Emirates in 2014; Finnair in 2015; and China Eastern Airlines, EVA Air7, and Icelandair in 2016). As shown in Exhibit 4-1, the Airport has the fourth most foreign flag carriers operating in the United States (after John F. Kennedy International, Los Angeles International, and Miami International Airports). Exhibit 4-2 presents the market shares, as measured by 2015 total enplaned passengers at the Airport. In 2015, United and American, and their regional affiliates represented approximately 80 percent of the enplaned passengers at the Airport based on CDA data.
Includes seasonal service.
EVA Air is scheduled to begin service at the Airport in November 2016.
Report of the Aiiport Consultant
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Exhibit 4-1: Large Hub Airport Foreign Flag Carrier Count ¦
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NOTE: Foreign flag carriers scheduled in 2016. SOURCE: Innovata, August 2016.
PREPARED BY Ricondo and Associates, Inc., August 2016
<• • Exhibit 4r2:t 2015'Airline MarketSh'are (measured by enplaned passengers): /: ^^iW^^
Delta, including regional affiliates 2.5%
NOTE American includes US Airways Affiliates refers to branded regional affiliates only SOURCE" City of Chicago, Department of Aviation Management Records, August 2016 PREPARED BY Ricondo & Associates, Inc , August 2016
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
4.3 Historical Airport Activity
The following sections present a review of the Airport's historical passenger activity and air service.
4.3.1 ENPLANED PASSENGER ACTIVITY AND AIRLINE OPERATIONS
Table 4-5 presents historical data on enplaned passengers at the Airport. Total enplaned passengers at the Airport increased by a CAGR of 0.2 percent from 2006 to 2015. In 2015, the airport set a record for passenger enplanements. Enplanements at the Airport grew 9.9 percent from the prior year, with domestic enplanements increasing by 11.2 percent and international enplanements increasing by 2.3 percent: Through July 2016, passenger enplanements have increased 2.7 percent from the record volumes over the' same period in 2015. Further detail regarding recent passenger enplanemerit growthis 'provided" throughout this chapter.
4.3.1.1 Domestic Enplaned Passengers and Operations ".[ z }{
Exhibit 4-3 depicts trends in domestic enplanements 'andSoperatiohs over a 12:year period, included in the exhibit are major.events that impacted:do'mestic:enp.lanements and operations during the period.
Despite the imposition of flight "caps restricting operations beginning in 2004, the Airport reached a record high number of enplanements in 2005. In 2006, the FAA implemented mandatory flight restrictions on operations from the Airport to destinations within the United States and Canada8 due to continued congestion. Though this mandatory restriction limited operations at the Airport, domestic enplanements decreased slightly in 2007, but fell significantly in 2008 and 2009, as a result of the economic recession that began in December 2007 as well as self-imposed capacity reductions by the carriers in response to the economic recession. In 2008, airlines .furtherreduced capacity through consolidation, and aircraft retirements in response to lower demand and record high oil prices. Airlines held capacity relatively flat as the economy began to improve, keeping control on costs and generating higher revenues through increased fares and new fees, while emphasizing service in profitable markets. Domestic enplanements grew in 2010 and then remained relatively constant from 2011 to 2013 as United worked through merger integration issues and American filed for ;bankrup'tcy. protection in 2011. Since 2008, United ,sysfem-wide enplanements have decreased 8.1 percent,while" atthe Airport United enplanements. have decreased.3.1 percent. Over this same timeframe, American system-wide enplanements have grown 3.3'percent while'decreasing 0.9 percent at the Airport. Both United and American have grown at O'Hare in recent years; increasing enplaned passengers 6.4 and 6.8 percent, respectively, since 2013. Exhibit 4-4 presents the system-wide enplaned passenger trends for United and American (including their respective merger partners and affiliates) since 2008.
3 Mandatory flight restrictions became effective October 29, 2006 They expired October 31, 2008 in conjunction with the opening of Runway 9L-27R.
' [E-74] | Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
^':^''\.'|^Tabte 4-5:; Historical Enplaned Passengers;1' > " ,
INTERNATIONAL
ENPLANED PASSENGERS
ANNUAL GROWTH.
ENPLANED ^PASSENGERS .
ANNUAL . GROWTH
enplaned passengers:
ANNUAL GROWTH"
2006
.2007 2008 ¦2009
2010
2011'
2012 2013
2014 2015 '.
(0.9%)
32,116,629
32,109,607 28,378,531 26,851,150
, (0.0%)^:;
(11.6%) (5.4%) ' '
5,647,815
5,653,455.
5,632,655
(1.0%)
5,131,768
4.6%
:::.5;i84,005r
4,901,12?,,
(4:5%)
0;7%
28,087,634
• 28;293;579
28,275,113 (0.1%) 4,956,088 1.1%
29,546,907
28,182,287 : y (03%) v^. ^ 5,102,501 '.' .¦ 3.0%
>32;863,551:
4.8% 5,392,787 5.7%
11.2% : i>^: 5,517,938'' . "'.-,' .2.3%:
37,764,444 37,763,662' 34,011,186 32,035,155.
33,219,402
33,194,708
33,231,201 33,284,788
34,939,694 38,381,489
(0.5%) (0.0%) ' (9.9%)
3.7%
(0.1%):; 0.1% .,0:2%:
5.0% 9.9% •
COMPOUND ANNUAL GROWTH RATE
j1'-"' 2006 - 2011- . ; 2011 - 2015
•2006 - 2015
J2;5%K-3.8%
¦0.3%
(2:8%):'; 3.0%
(0.3%)
. -(2:5%) 3.7% ' . 0.2% -
NOTE:
1/ Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's Airport Activity Statistics.
SOURCE City of Chicago, Department of Aviation Management Records, August 2016. PREPARED BY: Ricondo & Associates, Inc, August 2016.
Exhibit 4-3: Domestic Enplanements and Operations
AA
UA/CO Bankruptcy AA/US
Merger Filing Merger
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| 20.0
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Domestic Enplanements Domestic Operations
SOURCE City of Chicago, Department of Aviation Management Records, August 2016: Ricondo & Associates. Inc based on the analysis and assumptions described in the Report, August 2016 PREPARED BY Ricondo & Associates, Inc, August 2016
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
2008 2009 2010 2011 2012 2013 2014 2015
United System-wide American System-wide
United - ORD — — American - ORD
NOTE: Includes regional partners and merged carriers (Continental and US Airways). "'¦ '
SOURCE U S. DOT T-100, August 2016.
PREPARED BY- Ricondo and Associates, Inc. August 2016.
Low-cost carrier'gf'owth at th'e'Air'port has accelerated'since 2013. In' 2014, Spifit"'increase'd seat capacity at the Airport by 17.2 percent from the prior year and in 2015 increased scheduled seat capacity by another 39.6 percent. The airline has increased scheduled seat capacity by another 4.1 percent in 2016, serving 20 destinations by the end of 2016. In the third quarter of 2014, Frontier commenced domestic service at the Airport (prior to 2014 Frontier operated international charter service at O'Hare) and by the end of 2016 it will serve 24 destinations. Frontier has increased scheduled domestic seat capacity by 3.4 percent in 2016. In addition to Frontier and Spirit.low.-cost carriers JetBlue and Virgin America have served the Airport since 2007 and 2011, respectively. Combined, the two carriers offer service to five major destinations: Boston, New York-Kennedy, Los Angeles, San Francisco, and San Juan, Puerto Rico. Additional information on low cost carriers can be found in Section 4.5.2.
In 2015, domestic enplaned passengers increased 11.2 percent over 2014. Scheduled domestic seat capacity increased 5.7 percent during this period. Higher enplanement growth relative to seat capacity growth is due, in part, to United and American's schedule restructuring referred to as rebanking. By rebanking, airlines schedule flights to arrive and depart within a narrow window of time to facilitate efficient connecting itineraries, which maximize the number of connecting passengers that can be accommodated on existing flights and results in fuller aircraft on average. United and American increased domestic seat capacity at the Airport by 1.5 percent and 2.3 percent, respectively, in 2015, driven by increased seats per departure as smaller regional jets seating 50 passengers or less are being replaced by larger regional jets. United's scheduled domestic seat capacity at the Airport has increased another 4.5 percent in 2016, and American's scheduled domestic seat capacity has increased another 2.5 percent. Overall, domestic seat capacity at the Airport is scheduled to increase by 3.1 percent in 2016.
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CHICAGO O'HARE INTERNATIONAL AIRPORT
4.3.1.2 International Enplaned Passengers
Exhibit 4-5 depicts trends in international enplanements and operations over a 12 year period. Included in the exhibit are major events that impacted international enplanements and operations during the period.
.' /'.TT ~1 Exhibit'4-5:' InternationalEnplanement and Operations ;•• ¦'. ' ^- :<¥¦ ¦[
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SOURCE: City of Chicago, Department of Aviation Management Records, August 2016: Ricondo & Associates, Inc. based on the analysis and assumptions described in the Report, August 2016 PREPARED BY Ricondo & Associates, Inc, August 2016
International enplanements and operations at the Airport remained relatively flat through 2007. Operations began to decline in 2008 as airlines reacted to the worsening economic environment by reducing seat capacity. The recession continued to negatively impact international activity in 2009, and was further impacted by the H1N1 swine flu outbreak that reduced demand to Asia, Mexico, and South America.
Lagging demand for international travel, United's merger integration issues, and the bankruptcy of Mexicana (which at the time was the second largest foreign flag carrier at the Airport) combined to further depress international activity in 2010 and 2011. International enplanements declined to their lowest point of the last 10 years in 2011. International activity began to increase again in 2012 and experienced further growth in 2013 and 2014 as a result of service provided by new foreign flag carriers and the expansion of international service by United and American.
In 2015 new international service was initiated by United to Vieux-Fort, Saint Lucia (UVF), Providenciales, Caicos Islands (PLS), and Ixtapa, Mexico (ZIH). In 2016, new international service was initiated by Icelandair to Reykjavik, Iceland (KEF), and EVA Air is scheduled to begin service to Taipei, Taiwan (TPE) in November 2016. Icelandair and EVA Air are foreign flag carriers that have not previously served the Airport.
In 2015, international enplanements increased 2.3 percent from the prior year. As depicted in Exhibit 4-6, the Airport ranked fourth among United States airports as measured by international enplaned passenger volumes in 2015.
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
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PREPARED BY: Ricondo and Associates, Inc. August 2016
Table 4-6 presents total enplaned passengers by airline at the Airport from' 2011 through 201-5. The' total enplanement share of United and its regional affiliates has declined since 2011 (from 47.3 percent to 44.2 percent). This is the result of a combination of minor capacity reductions by United and growth by other airlines at the Airport, which is consistent with nationwide trends. American and its regional affiliates have also experienced a reduced share of enplaned passengers over the same period (from 37.7 percent to 35.8 percent), despite growth in the total number of enplaned passengers, as a result of growth by other airlines at the Airport. Exhibit 4-7 provides further detail of the-shares of United, American and their regional affiliates at the Airport in 2010 and 2015.
4.3.2 AIR SERVICE
Table 4-7 presents the historical O&D and connecting enplanement shares at the Airport. The share of O&D passengers increased from 47.8 percent in 2006 to a high of 52.4 percent in 2010. In 2015, 08iD passengers comprised 52.3 percent of total Airport enplanements. O&D passenger growth was facilitated by hew domestic seat capacity introduced by United, American, and the low-cost carriers. Further supporting O&D growth was a decline in fares enabled by a decline in oil prices. Through higher passenger volumes, airlines were able to increase passenger revenues despite the lower fare environment.
Exhibit 4-8 shows historical O&D passengers and fares at the Airport and the average annual oil prices. Between 2009 and 2014, O&D passenger volumes grew at a CAGR of 1.7 percent, while average domestic fares grew at a CAGR of 6.0 percent. As the average price of oil hovered above $90, airlines elected to drive revenue growth through higher fares. As a result of declining oil prices in 2015, O&D passengers grew 17.4 percent while fares fell by 11.7 percent. The cost of operating additional capacity has decreased, and airlines have been able to profitably fly passengers at those lower fares. Should the price of oil return to the levels of 2012 and 2013, airlines may reduce capacity and capture revenue growth through higher fares.
I Report of the Airport Consultant
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[E-81]
j CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
NOTES' Domestic O&D revenue passengers and fares. Fares exclude ancillary fees. Price of oil averaged over the calendar year All values are nominal.
SOURCES U.S. Department of Transportation DBlb Survey; U.S Department of Energy, July 2016 PREPARED BY- Ricondo & Associates, Inc. July 2016.
An important characteristic of airport activity is the distribution of the Airport's O&D markets, which is a function of air travel demand and available services and facilities" Table 4-8 presents.data on'the Airport's top 50 domestic O&D markets in 2015, the latest full year of data available, as measured by the number of passengers. Given the Airport's central location in the United States, the domestic O&D markets are predominately medium-haul markets (between 601 and 1,800 miles). The Airport's top 50 domestic O&D markets had an average length of haul (i.e., actual passenger trip distance flown) of 1,019 miles, compared to an average length of haul of 1,141 miles nationwide.
Also shown in Table 4-8 are the number of weekly nonstop departures in each of the Airport's top 50 domestic O&D markets for the week of August 8, 2016. The week of August 8, 2016 represents an average week of the busiest month of the year as measured by scheduled departures. Exhibit 4-9 illustrates the domestic markets served nonstop from the Airport as of August 2016. An average of 1,105 domestic departures per day were flown to 161 nonstop destinations in August 2016, which was the most destinations of any airport in the United States during that month and reflects an increase of 29 destinations since August 2009. Exhibit 4-10 illustrates the international markets served nonstop from the Airport as of August 2016. During the month of August, the Airport averaged 128 international departures per day to 56 nonstop destinations.
Report of the Airport Consultant
CITY Or CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table 4-8: Top 50 Domestic O&D Passenger Markets - 2015
TOTAL O&D PASSENGERS 21
WEEKLY NONSTOP DEPARTURES"
NUMBER OF AIRLINES "
.•--,Mw.yo.ri.fi'y_.:..l
Los Angeles''
San Francisco7?
Washington, DC
.-Boston; 'J. .......
Dallas"
:'.. .^Atlanta Orlando
^Las_Vegas_;
Denver
10
14
12 __PWLpdeTphia_^" iv"-'!?¦•¦' '¦ .Mlnneap^^PMii^
Houston"
-Miami
.19
20
2iJ
_22 ...23"'
24 "is"
26 "?7" _28 .29.
30
31
32
34 '.35 . 36
Fort Lauderdale Seattle" 7 '->'
Tampa
^-San Diegp,_^^.
Fort Myers
Charlotte
Austin
.RaleigVPjjrham _ Detroit
: Portland, OFT* . ;'.
Nevy Orleans ., Salt Lake City '.-.; 77
San Juan
Cleveland
_ Kansas City St Louis .. Pittsburgh
Nashville^
Columbus
U-.37-38
'7 .39 40
42
7Haj^prd77;7 Palm Beach
_ Honplulu/Oahu
San Antonio
^Cincinnati.
Jacksonville
.^?.rnp.hi-sl!::i. 7 ¦*.
Omaha Richmond,.;. 44 Buffalo
7„*5 ::X .•:.-C^jestOT.7.7!: 46 Myrtle Beach
Zl. .47.:. .\: ... Sacramentojr. 48 Tucson
7v-49.[LPM.'.sv1!]e7.„."77 50 Norfolk
l'. v. '¦¦"' -'.' ,°.,her Markets . Total
:' weighted Average:"""
Airport
"United States¦"" ¦'"".'-'
MH
LH
MH
SH
"mh-
MH
MH.
MH
MH
. MH
SH
LH_
IMF!":
MIH
MIH
_sh;
MH
MH
run".
SH
17sh 7
LH
SH . MH
SH " MH
MH
1,543,419,.,
1,385,562
„1,170,79?_
1.134,567~
__5.3,qS3 . 942,762
861,712
833,438
806,333
805,625.
705,303
.642,384/
_£64,813_
436,074
342,037
.327,959;
. 318,947
318,206
274,570
¦243,076
220.817 .
"215,680*
203,345
179,649
J_6?,77__
169,347 7141,032. '146,095"
119,665
_1_19,594
1113:6657
108,461
' • -10L613
96,459 .:"9U69' 89,175
84,184',
83,220
3,970,245
miles miles
30.554,048
TRIP LENGTH
1,019 1.141 ~
~212, 277
160
184
91
"iii"
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105
'SL 42
____'. 70 _ 17
108-
58 7.66 .
.136.
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92_ ""l09. 83
_41 _122_'
35
55
75 761
75
_25^
10 . . 28 .
14
48 "3,002"
7,845
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NOTES
= 601 to 1,800 miles; (LH) Long Haul - over 1,800 miles
1/ (SH) Short Haul = 1 to 600 miles; (MH) Medium Haul : 71 Passengers travelling in both directions
3/ For the week of August 8, 2016, regional affiliates are counted as part of their mainline carrier.
4/ AA-American, AS-Alaska, B6-JetBlue, DL-Delta, F9-Frontier, NK-Spint, UA-United, VX-Virgin America
5/ Includes John F Kennedy International, Newark Liberty International, and LaGuardia Airports
6/ Includes Los Angeles International, John Wayne Airport-Orange County, Ontario International, Bob Hope, and Long Beach Airports 7/ Includes San Francisco International, Metropolitan Oakland International, and Norman Y. Mineta San Jose International Airports 8/ Includes Washington Dulles International, Washington National, and Baltimore-Washington International Airports 9/ Includes Dallas/Fort Worth International and Dallas-Love Field Airports 10 Includes Houston-Intercontinental and Houston-Hobby Airports 11/ Weighted average calculated for all of the Airport's O&D markets SOURCE U S DOT DB1B Survey, August 2016, Innovata, August 2016. PREPARED BY Ricondo & Associates, Inc , August 2016
Report of the Airport Consultant
[E-84]
[E-85]
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
AIRCRAFT OPERATIONS
Table 4-9 presents aircraft operations levels at the Airport by major user group between 2006 and 2015. A notable trend in passenger airline operations through the period is the increasing number of regional/commuter affiliate operations relative to those of majdfs/nationals. As airline labor agreements have become less restrictive, airlines have increased the amount of capacity, flown using regional aircraft, specifically those seating more than 60 passengers, This has allowe&airlines to increase average seat capacity through the use of larger regional jets. The trend toward regional/commuter affiliate operations at the Airport began to change in 2015, however, as airlines increasingly replaced smaller regional jets with larger regional jets and mainline aircraft. Over the period shown. (2006;2015), relaxation of restrictive labor agreements has enabled a 1.0 percent compound annual decrease in total operations at the Airport, which, as shown on Exhibit 4-11, is similar to operations trends at the 10 largest; North American airports.
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SOURCE. Airports Council International - North America, 2015 North American Airport Traffic Report, July 2016 PREPARED BY- Ricondo & Associates, Inc, August 2016
4.3.3.1 General Aviation Operations
After an approximately 49 percent decline in 2007 (from 31,912 operations in 2006), general aviation operations have grown from 16,295 in 2007 to 21,828 in 2015. General aviation activity levels at the Airport are influenced by the lower costs and lower delays at outlying airports within the Chicago region. As a result, general aviation activity at the Airport has been relatively low, accounting for approximately 2.5 percent of total operations in 2015.
Report of the Airport Consultant
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[E-87]
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
All-Cargo Carrier Operations
Twenty-two all-cargo operators provide scheduled service at the Airport. FedEx provides the majority of the
all-cargo activity with approximately 6 daily departures. The second busiest all-cargo carrier at the Airport is
United Parcel Service (UPS) with approximately 3 daily departures. Approximately 54.9 percent of all-cargo
operations in 2015 were international flights. Operations by the all-cargo airlines at.the Airport were relatively
stable in 2006 and 2007, averaging approximately 21,000 operations during this period. All-cargo operations
at the Airport decreased 15.2 percent in 2008. from 2007 levels, primarily, due to the temporary
discontinuation of service at the Airport by Korean Air Cargo and. the decrease in service at the Airport by
FedEx and UPS due to increases in fuel prices during this period. High fuel prices' arid a weak economy led to
further reduction in all-cargo operations from 2008 to 2009. Cargo operations at the Airport increased in 2010
and have remained relatively stable since that time as. air .cargo demand, has recovered more slowly than
passenger demand. " 1
Military Operations
In 1996, the City purchased approximately 350 acres of land in the northeast quadrant of the Airport formerly used as a United States Air Reserve station. In 1999, the largest remaining military unit at the Airport, the 126th Air Refueling Wing, was deactivated and relocated:to Scott Air Force Base in St.'.CIair County, Illinois. As a result, no military aircraft operations have been recorded at the Airport between 2006 and 2015.
LANDED WEIGHT ¦ ' , : ;/ :*
Table 4-10 presents the shares of landed weight for the passenger and all-cargo airlines'serving the Airport from 2011 through 2015. Landed weight decreased in 2012 and 2013 but it increased in 2014 and 2015, for a compound annual increase of 1.4 percent over the 5-year period.
AIR CARGO VOLUMES'
In addition to all-cargo service, passenger airlines also served the cargo market, carrying approximately 41 percent of the Airport's cargo volume in 2015. Table 4-11 presents historical' enplaned and deplaned air cargo at the Airport between 2006 and 2015. Similar to the passenger airlines, the air-cargo industry has been impacted in recent years by the global economy, foreign currencies, uncertainties in the Middle East, and new security regulations. Between 2006 and 2015 cargo volumes at the Airport have increased at a CAGR of 0.4 percent. In 2014- and 2015, international cargo volumes increased by 13.1 percent and 13.6 percent, respectively, from the prior year as international cargo markets began to recover from the period of reduced demand for air cargo.
Report of the Airport Consultant
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CI TY OK CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table 4-ll:^Historica| EnglanejJ and Deplaned Garg
(In Tons)
DOMESTIC CARGO
ANNUAL GROWTH
INTERNATIONAL CARGO
ANNUAL GROWTH
TOTAL iCARGO
ANNUAL GROWTH
584,833;' -
2007
^2008 :
2009 . 2010 ¦'
530,838
; 443,036: 393,522?
522,042. f-
1,637,323
£^U93.84_9_ 1,155,366'
r,-:i;577,048
2011
2012 2013 2014 2015
476,595 -
¦431,533.
405,754
415.457
421,992-
(8:7%)
(9.5%)
(6.0%)
24%^ 1.6%
(2.5%)
r(1.6%)
1.7%
_13il% ¦ 13.6%-
1,505,218
,1,443,281
1,434,377
4,578,3317 1,742,501-^
(4.6%)
(4.1%).
(0.6%)
10:0%:
10.4%
COMPOUND ANNUAL , ¦ GROWTH RATE
2006 - 2015
SOURCE' City of Chicago, Department of Aviation PREPARED BY: Ricondo & Associates, Inc, August
Management Records, August 2016.
2016. - -v
4.4 Factors Affecting Aviation Demand at the Airport
This section discusses qualitative factors that could influence future aviation activity at the Airport. Data and information related to these factors have been either directly or indirectly incorporated into the development of activity forecasts for the Airport.
NATIONAL ECONOMY
Historically, trends in airline travel demand, measured by either passenger volumes or passenger revenue, have been closely correlated with national economic trends, most notably changes in GDP. Chapter 3 presents an analysis of general economic trends, both national and local, that may influence demand for air service over time. As noted in Chapter 3, national GDP is expected to increase at a 2.2 percent annual rate through the Projection Period, which should support increasing demand for air service. Actual economic activity is likely to differ from this forecast, especially on a year-to-year basis, with demand for air service likely reacting in kind.
STATE OF THE AIRLINE INDUSTRY
In the aftermath of the terrorist attacks on September 11, 2001, the United States airline industry experienced a material adverse shift in the demand for airline travel, which exacerbated problems for a United States airline industry already weakened by a slowing economy and rising labor and fuel costs. The result was 4 years of reported industry operating losses in 2001 through 2004, totaling more than $22 billion (excluding extraordinary charges and gains). Following these restructuring years, the airline industry gained ground from
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
2005 through 2007, with United States airlines posting combined operating profits in all 3 years.9 In 2008 and through the first half of 2009, the combination of record-high fuel prices, weakening economic conditions, and a weak dollar resulted in the worst financial environment for United States network and low-cost airlines ¦ since the September 11, 2001 terrorist attacks.
4.4.3 AIRLINE MERGERS AND ACQUISITIONS
Since 2009, airlines have merged or acquired competitors in an attempt to. increase operational synergies and become more competitive and cost efficient. In 2009, Delta completed its merger with Northwest Airlines, initiating a wave of United States airline mergers and acquisitions. That same year, Republic Airways Holdings, a regional airline, acquired Frontier Airlines of Denver and Midwest Airlines of Milwaukee. In October 2010, United and Continental merged, creating the world's largest airline in terms of operating revenue and revenue passenger miles. In 2011, Southwest Airlines acquired AirTran Holdings, Inc., the former parent company of low-cost competitor AirTran. Effective December 9, .2013,. American and US Airways merged, creating the largest airline in terms of operating revenue and revenue passenger miles (surpassing United). Additional consolidation in the United States industry could affect the amount of capacity offered to passengers and alter the competitive landscape.
4.4.3.1 Capacity Discipline —A Change in the Airline Business Model
In 2008, many domestic airlines announced significant capacity reductions, increases in fuel surcharges, airfares and fees, and other measures to address their financial challenges. In 2008 North American International Air Transport Association airlines recorded a $16.8 billion loss. The combination of airline mergers and capacity reductions has dramatically improved the financial conditions for the airlines. In contrast to earlier losses, North American International Air Transport Association airlines are projected to generate profits of $22.9 billion in 2016, after producing $21.5 billion in profits in 2015.10 Strict control on capacity, primarily in the domestic market, referred to as capacity discipline, is the principal driver behind the airline industry's financial turnaround.
Capacity discipline reflects a shift in the airline business model, from an environment where market share targets are pursued to one where financial targets are pursued. The new business model resulted in an approximately 7 percent decrease in United States domestic seat capacity between 2008 and 2014 as airlines shed less profitable capacity and passenger volumes not contributing toward the achievement of financial targets. By allocating the remaining seat capacity to a more profitable segment of passengers, airlines increased domestic load factors from approximately 75 percent in 2008 to approximately 83 percent in 2015. O'Hare experienced similar trends during the same period, as load factors increased from 76.4 percent to 86.2 percent. Exhibit 4-12 illustrates the change in United States airline industry passenger volumes since 2006 relative to the change in U.S. GDP, a driver of demand for air travel.' Both domestic and international passenger volumes followed GDP trends.until 2009, after which domestic passenger volumes remained largely unchanged, while GDP and international passenger volume growth resumed. More profitable international passengers have continued to be accommodated by airlines. Exhibit 4-13 illustrates the change in United States domestic passenger volume, passenger revenues, and United States GDP since 2006. While domestic
Airlines for America, 2009 Economic Report.
International Air Transport Association, Economic Performance ofthe Industry, June 2016
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
passenger volumes have not followed GDP trends since 2009, another measure of passenger demand, passenger revenue, has increased as United States airlines have focused on achieving financial targets through lower domestic passenger volumes and higher passenger fares. United States domestic seat capacity increased in 2015 and is scheduled to increase further in 2016 as airlines have taken advantage of lower fuel costs to increase capacity to achieve financial targets through growth of passenger volumes.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
U.S. Domestic Passengers U.S. International Passengers U.S. Gross Domestic Product
SOURCE: U S. Department of Commerce Bureau of Economic Analysis, July 2016; U S. Department of Transportation Form T100, August'2016: PREPARED BY Ricondo & Associates, Inc., August 2016.
SOURCE U S Department of Commerce Bureau of Economic Analysis, July 2016, U S Department of Transportation Form T100, August 2016; U S • Department of Transportation DB1B Survey, August 2016 PREPARED BY Ricondo & Associates, Inc, August 2016
[E-92]
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
COST OF AVIATION FUEL
The price of fuel is one of the most significant and volatile expenses for airlines. Historically, fuel has been the first or second largest operating expense for the airline industry, shifting with labor as the cost of fuel fluctuated. According to the International Air Transport Association (LATA), fuel was 31.6 percent and 27.5 percent of operating "costs" for^aiHines'in'2014'and'2015, respectively",' arid'is projected to be 19.7 percent of operating costs for 2016.11
Exhibit 4-14 shows the monthly average prices of jet fuel and crude oil from January 2007 through June 2016. Since 2007 the average monthly price of jet fuel fluctuated between a high of $3.84 per gallon in July 2008 to a low of $1.21 per gallon in February 2016. Since January 2014, the average price of jet fuel has declined 39.8'percent. The decreasing price of oil has provided airlines with more flexibility in terms of pricing and allocation of capacity, while still maintaining a disciplined approach to achieving return on invested capital and profitability goals. Between 2010 and 2014, airlines have managed seat capacity growth at or below United States GDP growth, as several United States airlines have stated as guidance to their capacity growth planning. In 2015 however, domestic seat capacity grew 3.4 percent, exceeding United States GDP growth of 2.6 percent12. In 2016, domestic seat capacity is scheduled to grow 4.2 percent while United States GDP is projected to grow 2.2 percent. Prolonged low' fuel prices have enabied this higher than expected seat capacity growth in a way that may not continue should fuel prices rise.
"™-> • • ¦ Exhibit 4-14: Historical Monthly AveragesW JetTFuel and Crude.Oil Prices
$4 50
r^r^r^i^r^r^cocoo3oocococr>c^cnc^ OOOOOOOOOOOOOO
ro ™ gjO ro "? -T^aTora^roJ^aTO ti S° ro J!? cd O ro -5 tuO m ™ ro J* a> O ro ™ D-^qj O nj™ ro -=! at O nj S2 ro ^ at O ro ro
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SOURCES1 U S Bureau of Transportation Statistics (Average Jet Fuel Prices). U S Energy Information Administration (Average Crude Oil Prices). June 2016
PREPARED BY Ricondo & Associates, Inc, August 2016
International Air Transport Association, Fact Sheet-Fuel, June 2016 Source- Woods and Poole Economics, Inc, CEDDS, 2016
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CHICAGO O'HARE INTERNATIONAL AIRPORT
Fluctuating fuel costs will continue to affect airline profitability and could lead to changes in air service as airlines restructure air service to address increases or decreases in the cost of fuel.
THREAT OF TERRORISM AND GEOPOLITICAL ISSUES
Since, the terrorist attacks of September 11, 2001, the recurrence, of. terrorism incidents against .either domestic or world aviation during the Projection Period remains a risk to achieving the activity forecasts: contained herein. Tighter security measures have restored the public's confidence in the integrity of United States and world aviation security systems. Any terrorist'incident aimed at aviation could have an immediate and significant impact on the demand foraviation services:
Additionally, .geopolitical, jss.ues may .affect;, aviation .activity • during -the- Projection Period.; Potential
governmental or regional instability in certain.co.untri.es or.Jocations may affect ^access. to, or demand for
aviation service in these places. As an international gateway, the Airport provides service,to nearly all major
regions of the world, Future governmental, prjregional,Instability may-have an impact .on international
.aviation service demand at the Airport. . . . ... ...-.: .T-~ ....... ,.(...
OPERATIONAL CAPACITY OF THE NATIONAL AIRSPACE SYSTEM
One of the FAA's concerns is how increased delays, at busy airports impact ,the efficiency. of :the National Airspace System (NAS). In its report Airport Capacity Needs in. the National Airspace System (January 2015), " the-FAA stated the--need^ to implement NextGen airspace system improvements. The report emphasized the need to continue to invest in system improvements with airfield enhancements and NextGen capabilities.
OTHER AIRPORTS IN THE REGION
There are two other commercial service airports in the area; Chicago Midway International Airport and General Mitchell International Airport. In addition, Gary/Chicago International Airport- and the proposed South Suburban Airport are focused ,on future air service ^development. These regional airports and their relationship to the Airport are described in this section.
Chicago Midway International Airport (Midway), classified as a large-hub commercial service airport, is located 15 miles south;of the Airport. The City owns both the Airport and Midway, and the City of Chicago's Department of/Aviation operates the airports. Midway is a hub for Southwest Airlines and serves as the largest airport in its system when measured by both enplaned passengers and operations. In 2015, 43 of Midway's top 50 domestic O&D markets were included in O'Hare's top 50 domestic O&D markets. International service from Midway includes flights to Canada, Mexico, and the Caribbean. Long-haul international markets cannot be served from Midway due to constrained runway lengths.
Table 4-12 presents enplaned passengers for the Airport and Midway between 2006 and 2015. The Airport maintained nearly 81 percent share of total enplaned passengers between 2006 and 2008 despite Southwest's expansion of service at Midway during the period after the bankruptcy of ATA Airlines. Between 2010 and 2013, however, as Southwest grew at Midway, enplanements at the Airport remained relatively stable. As a result, Midway achieved an enplanement share of greater than 23 percent by 2013. However, as the Airport outpaced Midway in enplaned passenger growth in both 2014 and 2015, the Airport's share of total enplaned passengers increased from the low experienced in 2013.
Report of the Airport Consultant
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co . cr> . rs i-i i>r'j o
rsj" so
rH O
. O j O
,-rsiil rsi
Q <
^
o
o <
z i
[E-951
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table 4-13 provides a comparison of average fares and yields for the Airport and Midway. The average fare and yield growth for the Airport and for Midway were similar in 2006 and 2007. In 2008 fares and yields grew more at Midway as a result of the bankruptcy of ATA Airlines. After decreasing in'2009 as a result of the economic recession, fares and yields began to recover at both airports in 2010.'. Fares and yields grew at Midway in 2011 and 2012 as Southwest added additional service on longer range routes.from Midway. After a slight drop in average domestic fares at the Airport in 2012, domestic fares and-yields at both airports grew by a modest rate in 2013 and 2014. In 2015, the Airport and Midway experienced a significant decrease in average domestic fares and yields, as a low fuel cost environment led airlines to expand domestic capacity, maximizing profitability by carrying additional, lower fare-paying passengers. 5 ~
21 U.
AVERAGE DOMESTIC ONE-WAY YIELD PER
PASSENGER MILE
CALENDAR YEAR
2006
2007
_2008 2009
2010
—2011^
2012_ "2013
2014
CHICAGO O'HARE CHICAGO c MIDWAY:^? CHI&GO~l^
O'HARE v CHANGE MIDWAY CHANGE.O^HARE CHANGE*'MIDWAYjjy'CHANGE- !
7.4%
$102
8%
6.6%
$0,146
7.2%
$0,111
0.2%
$103
1.3%
$0,147'
. 0.3% :. ' $0,113 .:
1:8%/'
18.1% ""-8.5%"
"19.7% ~;
-8.3% ""
J_0.0%"
rl6.6% '''."
$124j: $128,
_10.6% ^ti.1%] 11.4%
$148 $148
$0,134
$0rl62'
'$0,144
$0.123...r:.-$0,140 14.2%
,""13.1%
s $0:160^-
¦-¦ 10.8%i -
_$164_ $147
$140_ $144 '¦
-0.5% ''4.5%~
3.2% 3.2%
$0.176 77$0.'184~
$0.155_ '$0,160
_ 2.7% €4.8%?
0.0%
\ 2:9%.
$164
$176
$150'
3.2%
3.9%
3.9%
$0,165
$0:190
.3.2%-.
$184
$191
2015-
$169
-11.7%
-10.1%
$0,166
-12.8%
-8.4%
$137 .
$0,148,
note- . .:. ¦:
1/ Calculation includes frequent flyer passengers '".
21 Calculation includes frequent flyer passengers. Yield is calculated by dividing passenger revenue by revenue passenger miles'(flight length multiplied by passengers on board)
SOURCES. U.S Department of Transportation DB1B Survey, August 2016 (2006 - 2015),
PREPARED BY Ricondo & Associates, Inc., August 2016 ' ,
General Mitchell International Airport (General Mitchell) is the nearest medium^-of large-hub commercial service airport outside of Chicago. This medium-hub airport13 is located approximately 70 miles north of the Airport near Milwaukee, Wisconsin. General Mitchell serves the commercial air service needs of Milwaukee, southeast Wisconsin, and portions of northern Illinois. Although General Mitchell is in close proximity to the Airport (overlapping catchment areas include three counties in the northern Chicago region, which represent approximately 12 percent of the population in the region), the higher frequency of nonstop service to key markets from the Airport diverts a portion of potential traffic from the General Mitchell catchment area to O'Hare.
Gary/Chicago International Airport, which is owned by the City of Gary, Indiana and operated by the Gary/Chicago International Airport Authority, is also located in the Air Trade Area (see Exhibit 3-1 in Chapter 3). There is currently no scheduled passenger airline service offered at Gary/Chicago International Airport. In
'3 Medium hub airport enplane at least 0.25 percent but less than 1.00 percent of total nationwide enplanements
[E-96]
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CITY OF CHICAGO
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January 2014 Gary/Chicago International Airport entered into a Public Private Partnership with AFCO/AvPorts to further develop airport property and to increase the economic impact of the airport.
4.5 Importance of the Airport to Airlines
4.5.1 HUB AIRLINES
The Airport represents a strategically important element ofthe route networks of United and American, and is estimated to be the second and fourth highest contributor to their profit, respectively. Measured by seat capacity, it is currently the largest hub in United's network and the fourth largest hub in American's network, and has the second largest number of O&D passengers for both hub airlines.
Exhibit 4-15 presents the estimated operating profit and relative contribution of each of the airlines' hubs. Publicly available sources of financial and operational data were analyzed, and allocation methodologies commonly used in the airline industry were applied to derive estimates of hub financial performance. Ticket revenue was attributed to hubs using DOT O&D data and prorated to flight segments using a distance-based proration methodology. Non-ticket revenue was allocated using drivers that include passenger and cargo volumes. Cost allocation drivers include block hours, departures, passenger volume and Available Seat Miles (ASMs). Aircraft type-specific allocation rates were used where reporting is available in order to represent the economic impact of the mix of fleet types operating across the hubs. While this analysis has applied commonly used approaches to the alignment of costs and revenues with activity based allocation drivers, these estimates of hub profitability may differ from those developed by individual airlines, which employ many different methodologies incorporating detailed internal data sources. Based on this analysis, the Airport is the second highest contributor to profit for United and the fourth highest contributor to profit for American.
As shown on Exhibit 4-16, the Airport contributes the third most revenue among United's hubs and the fifth most revenue among American's hubs. Table 4-14 and Table 4-15 present the percentage of O&D passengers flown by United and American at their hub airports in 2015. The Airport serves 17.5 percent of United's hub O&D passenger base and 14.1 percent of American's hub O&D passenger base, and represents the second largest O&D passenger base for both United and American.
The central geographic location of the Airport allows United and American to efficiently connect passengers within the United States and to many international destinations. As other airports have been dehubbed either through consolidation or as a result of the industry's implementation of the capacity discipline business model, United and American have leveraged their hubs at ORD to accommodate more connecting passengers, especially as underlying market demand grows.
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
American Airlines Hubs
¦ Revenue BCost A Hub Share of System-wide Contribution to Profit
NOTE: Allocation of airline cost is approximated, and excludes cost items not readily allocable such as general and administrative expenses.
SOURCES: U.S. DOT Form 41, 2015; Ricondo & Associates^ Inc. (analysis),:-.based on' the analysis and assumptions described in the Report', August 2016. PREPARED BY: Ricondo & Associates, Inc., August 2016.
\ Ht'ili.*:. Exhibit,4-16:. CY"2015,Hiib Airport Revenue Contribution. 4JL^a ,.,"4, »
American Airlines
SOURCES' U S DOT Form dl, 2015, Ricondo & Associates, Inc (analysis) based on the analysis and assumptions described in the Report, August 2016 PREPARED BY Ricondo & Associates, Inc, August 2016
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
;'7" ¦ 7: T.'. --. ; '~7rv . ";TT: ; ¦ ; ' ¦¦.¦"'¦;; r ::: ,!r:.: . .'~''.,.¦-.¦,''
Table 4-14: Share of United HuB'o&fcTPassengers^ ^" ^
PERCENT OF TOTAL
RANK AIRPORT HUB PASSENGERS
1 •' Newark.Liberty ; ; : f ~'Z'i' "7'21.2%./ Z i
2 Chicago O'Hare 17.5%
3 San Francisco " .' . '¦ . 16.8%
4 Houston Bush Intercontinental 14.5%
5 Denver ;"v >:;; ¦ 11.4%
6. Los Angeles . 10.5%
: . 7,. Washington Dulles /','i^-J ¦¦¦^¦^Z^:.~^.'.'84%
NOTE- Includes one-way O&D Passengers at the carrier's hubs in Calendar Year 2015.
SOURCE: U.S. Department of Transportation DB1B Survey, August 2016; Ricondo 8i Associates, Inc. (analysis)
PREPARED BY: Ricondo & Associates, Inc., August 2016.
PERCENT OF TOTAL HUB RANK AIRPORT PASSENGERS
¦ Dallas/Ft. Worth - V^- rs!A% ,V ¦
Chicago O'Hare 14.1%
3' Miami •'•'• .'-;;V' "¦; :' 12.5% . __ j|109|Philadelphia. 11.7%-
[. 5; _Los Angelesf_ ': ;>./;":'."- ' ;' 10.9% /;V _ _M
9.0%
|109|Phoenix i7.: .Washingto'n!Reagan:*|109|Charlotte
j - 9 . . New York Kennedy ¦
NOTE Includes one way O&D Passengers at the carrier's hubs in Calendar Year 2015
SOURCE U S Department of Transportation DB1B Suivey, August 2016, Ricondo & Associates, Inc (analysis) PREPARED BY Ricondo & Associates, Inc, August 2016
Table 4-16 provides the Airport's rank within each airline's route network, as measured by scheduled seat capacity within the United States and to four major international regions: Canada, Europe/Middle East and Africa (EMEA), Latin/South America and Asia. Exhibits 4-17 and 4-18 depict the seat capacity operated by United and American, respectively from their hubs to these regions. The Airport is currently the largest hub in United's network and is also the largest hub for traffic within the United States and to Canada. The Airport is American's third largest domestic hub. In addition, United and American's alliance partners also serve the
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Airport and provide.capacity to,these,regions,Atj.t^e Airport, United-has.13 Star Alliance partners" operating, compared to Los Angeles International Airport (LAX) (14), San Francisco International Airport (SFO) (l4), Dulles International Airport (IAD) (12), NewarkTLiberty International Airport (EWR) (9), George Bush Intercontinental Airport (IAH) (9), Denver International Airport (DEN) (2) while eight of American's oneworld partners15 operate at the Airport, compared to Kennedy International Airport (JFK) (11)" Miami International Airport (MIA) (9), and Dallas/Ft, Worth International Airport (DFW) (4).
LATIN/SOUTH AMERICA
I United -:
American
NOTE- Scheduled seat capacity in August 2016.
SOURCE Innovata, August 2016.
PREPARED BY: Ricondo & Associates, Inc, August 2016.
-t — r-
Canada EMEA Latin/South Total America
SOURCE Innovata August 2016
PREPARED BY- Ricondo and Associates, Inc August 2016
Includes. Air Canada, Air India, ANA, Asiana Airlines, Austrian, Avianca, Copa Airlines, LOT Polish Airlines, Lufthansa, SAS Scandinavian Airlines, Swiss Air, Turkish Airlines, and United. Eva is expected to begin service later this year which is also a Star Alliance partner. Includes1 Air Berlin, British Airways, Cathay Pacific, Fmnair, Japan Airlines, Iberia, Qatar, Royal Jordanian, and American
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
-&V'v
¦!-.¦* L,:.;.v*f,.-":
Exhibit 4-18: American Seat Capacity by Hub 'and Region
EMEA Latin/South America
PHX
HPHL-
H MIA
LAX
JFK
DFW
DCA
CLT
ORD
SOURCE- Innovata, August 2016.
PREPARED BY: Ricoiidd ahd'Associates, Inc. August 2016.
4.5.2 LOW-COST AIRLINES
The Airport is an increasingly important airport within the route networks of several United States low-cost carriers. The low cost structure of these airlines has enabled their growth at the Airport, as they have taken advantage of an increasingly valuable passenger base. In 2011 the City purchased the L Concourse leasehold from Delta Air Lines. By purchasing the leasehold, the City was able to convert five gates on the L Concourse from exclusive use to common use. In 2014 the City acquired an additional two gates on the L Concourse as a result of the merger between US Airways and American, which were also converted to common use. While other gates at the Airport are preferential-use or exclusive-use (meaning a particular airline has priority or the exclusive use of a gate), the seven common use gates on the L Concourse, and the one common use gate in Terminal 2 can be allocated at the Airport's discretion. These gates have been used to allow Frontier, JetBlue, Spirit, and Virgin America to either begin or grow service at the Airport. Since 2009, the Airport's rank as measured by total system-wide departures among these carriers jumped to 9l , from the 25 busiest.
As shown in Table 4-17, between 2009 and 2015, annual low-cost carrier enplanements grew by over 640 percent, from approximately 375,000 to nearly 2.8 million. The greatest year-over-year growth occurred in 2015, when total low-cost carrier enplanements grew 59.5 percent.
Table 4-17: Low-Cost Carrier Enplanements at O'Hare 2009-2015 j
2009-2015 2014-2015
AIRLINE 2009 2010 2011 2012 2013 2014 2015 CHANGE CHANGE
v'Splrjt' ¦; 190.794 - 230.296 . .565.117;. __; " 875/W3: 956,297, .l,151;5i6_ • ¦ ,1.50.5,460 ¦ " _-^0»_;';.^^.'v.';/'3'a-7^J, '-^ .-:
Frontierv 0 0 612 86,198 87,941 153,838 809,191 426.0% 426.0%
JetBlue -'•"•'-. 183.727 ' '214.374 -225.175' •" 205,707^-" ' 185.653241,582" 2631947 ' '44% 9.3%VJ
Virgin America2' 0_ 0 134,810 230,646 185,529 194,214 198,571 -13 9% 2 2%
Total ": r ; 374,521 .444,672. 925.714' ''' j-397.954-"; rljAlsliicr "'l-,74lil50'";;£777.Y69^''"M2% ' ' 7 59.S%' ¦
NOTES
1/ Frontier commenced domestic service at O'Hare in September 2014 2/ Virgin America commenced service at O'Hare in May 2011
3/ Percent change for Frontier and Virgin America is between the first full year of service, 2012, and 2014 SOURCE. Chicago Department of Aviation, August 2016 PREPARED BY Ricondo & Associates, Inc, August 2016
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3,-2016
As. shown in Table 4-18, since. 2009, decjartures.op.erated cpfjectively-. by-frontier, JetBlue, Spirit, and Virgin
America have increased at the Airport by nearly six-fold (from approximately 10 daily departures in 2009 to
approximately 56 daily departures for the 12-month schedule periods-ended August 2016). During this same
period, average daily low-cost carrier seat capacity at.the Airport has increased from 1,335 daily departing
seats in 2009 to 9,369 daily departing seats in 2016. 'This low-cqstrX'arrier growth has occurred, at the same
time asjecord growth?by Southwest at Midway, indicating:growihgtdemand fdrlow-cost carrier service at the
Airport concurrent with^growth at :Midway.'v.V P -vV >
2016
RANK AIRPORT
169 'l37"
1 3 5
airport;
163
New York Kennedy
Denver
163
Ft. Lauderdale
88 "63" 156
133 "993 80'
• 78.
New York Kennedy Boston
Boston
Ft. Lauderdale
Orlando-
Orlando.:.
^•San Francisco \ Los Angejes,
.40-•29.
Denver •>
Los Angeles
i8^ , Long Beach . ¦'¦: . .9 Las Vegas
' SanJirariciscor.
':'-yZ:^J l „ _28. Las Vegas.,: • ¦."./"¦¦^¦¦.'.r/i-.-v '¦¦ -^.^.72;
San.J.uan.;
.. 23. , Chicago OIHare ¦ . 56,
Washington Reagan
36
'*TZ'~3jT7
32
qIC^. •.,iWashingtofvpulJes^J^2f; -^23 ,
21
New York LaGuardia
Atlanta
12 13
15
:16~
11 San Juan 22
16
New York LaGuardia
16
Dallas/Ft. Worth Detroit
Seattle
fDetroit * .:
16
30
16
Tampa
29'
Newark ' Ft. Myers;'
15
13 "l2
Ft. Myers "Tampa .
17
26
24--
24
23
Buffalo Newark
West Palm Beach ¦San Diego ' .
19
Philadelphia ' West Palm Beach
22 ¦2T 20 19
11
i'o" 10 io-
21
Ml
23 2£ 25
Houston Intercontinental Long Beach'
Cleveland . Baltimore
10
19
San Diego
White Plains Austin . . . Atlantic City Salt Lake. City
Chicago O'Hare
NOTES
1/ Low-cost carriers include Frontier, JetBlue, Spirit and Virgin America 2/ 2016 data includes the 12 months ended August 2016. SOURCE Innovata, August 2016
PREPARED BY Ricondo & Associates, Inc . August 2016
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Low-cost carrier growth is continuing in 2016. Exhibit 4-19 presents a comparison of the average daily scheduled seat capacity of low-cost carriers at the Airport from 2014 through 2016. Spirit is scheduled to increase average daily departing seat capacity approximately 4 percent while Frontier is scheduled to increase departing seat capacity approximately 6 percent from 2015. JetBlue is scheduled to decrease departing seat capacity by approximately 2 .percent, while Virgin America is scheduled to remain relatively unchanged_from the prior year. In total, the low-cost carriers at the Airport are expected to increase scheduled seat capacity by 3.8 percent from 2015.
Frontier JetBlue Spirit Virgin America
¦ 2014 Seats ¦ 2015 Seats ¦ 2016 Seats
SOURCE Innovata, September 2016.
PREPARED BY Ricondo & Associates, Inc., September 2016.
4.6 Forecasts of Aviation Demand
Forecasts of aviation demand (i.e., enplaned passengers, aircraft operations, and landed weight) were developed considering historical activity, including passenger volume and revenue trends at the Airport and across the industry, historical trends and future forecasts of local and national socioeconomic factors, and anticipated trends in use of the Airport by American, United, and other airlines. The following section provides an overview of the methodologies used in forecasting activity at the Airport, and it also presents the results of those forecasts through 2025.
4.6.1 ASSUMPTIONS UNDERLYING THE FORECASTS
Forecasts of enplaned passengers, aircraft operations, and landed weight were based on a number of underlying assumptions, including:
The Airport will continue its role serving O&D passengers and as a major connecting hub for United and American Airlines. The Airport will continue to serve as a connecting hub within the United States
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
domestic route network, and will continue to be an important international-gateway for. European, Asian and Canadian passenger traffic.
There will be no terrorist incidents during the Projection Period that would have significant, negative, and prolonged effects on aviation demand at the Airport or nationwide.
Economic disturbances will occur during, the Projection Period, causing year-to-year variations in airline traffic; however, long-term economic growth is assumed.
No major "acts of God" that may disrupt the national or global airspace system will occur, during the Projection Period-that would negatively.'affect aviation demand. : :- . : J
Major health issues, such as H1N1, SARS, or Zika are not expected to have a prolonged impact on demand during the Projection Period.
Many of the factors influencingV.aviation demand cannot be quantified, and any forecast is subject to uncertainties. As a result, the fprecast should not be viewed as precise. Actual airline traffic at the Airport may differ from the forecasts presented herein because events and circumstances dp not occur as expected, and these.differences may be\m'aterialr:/^"
4.6.2 NEAR-TERM (2016.ANP 2017).ENPLANED PASSENGERS ANDiOPERATIONS FORECAST
METHODOLOGY AND' RESULTS M4|ffc l
Published^airline schedules^fbrJ^Die/- and 2017;:.werei analyzed, ;and 'flight segment-level estimates of
performahcfewere developed based .ph'trends of Jqad-faetofs'a identified through analysis
of actual performance data furnished by the Airport through June 2016, as well as through analysis of USDOT enplanement and O&D data available through April 2016. Estimates of load factors and completion rates were applied to scheduled capacity in order to derive enplanement and operations forecasts for the balance of 2016. For 2017, air service profiles were estimated using a partial year of published airline schedules for the Airport (number of operations, fleet, and seat capacity). 2015 and estimated 2016 load factor trends and completion rates were used as a reference for the development of 2017 passenger activity.
Table 4-19 presents historical and forecast enplaned passengers at the Airport. The'total number of enplaned passengers is forecast to increase 0.4 percent between 2015 and 2016, from approximately 38.4 million to approximately 38.5 million. The number of international enplaned passengers is forecast to increase 2.7 percent in 2016, from approximately 5.5 million to approximately 5.7 million, while the number of domestic enplaned passengers is forecast to remain level. Growth in international enplaned passengers will be supported in part by new service by China Eastern to Shanghai Pudong International Airport, China (PVG) and Icelandair to Keflavik International Airport, Iceland (KEF), as well as increased capacity to existing international destinations such as Heathrow Airport, England (LHR), Warsaw Chopin Airport, Poland (WAW), and Dublin Airport, Ireland (DUB). Domestic enplanement growth will be supported by an overall increase in average seat capacity led by the growth of low-cost carriers Spirit Airlines and Frontier Airlines, who combined, will increase scheduled capacity by 4.7 percent in 2016 from 2015. In addition, average seat capacity per departure at the Airport is expected to increase from 105 in 2015 to 109 in 2016, as low-cost carriers increase the use of large narrowbody aircraft at the Airport, and as United and American increase capacity by upgauging smaller regional aircraft to larger regional jet aircraft and mainline aircraft. In 2017, enplaned passengers are forecast
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to grow 1.3 percent, which is supported by a 1:0 percent increase in domestic enplaned passengers and a 2.8 percent increase in international enplaned passengers.
, ;.y • ^ ;!*'.r,\'"t*Jab'le 4-19:' Historical and Forecast Domestic aTicl'lnternational ^ ~!~
INTERNATIONAL
ENPLANED PASSENGERS
ANNUAL GROWTH
ENPLANED ANNUAL PASSENGERS / GROWTH
ENPLANED PASSENGERS
ANNUAL i GROWTH I
. Historical
,2006-
2007
2008
2009
2010
2011 2012.
2013
2014:
2015 Forecast
32,116,629
32,109,607
_28,378,531 26,851,150- •
28,087,634
28,293,579 ' 28,275,113 28,182,287 29,546,9077
32,863,551
(0.9%),
(0.0%)'
(11.6%) ¦ (5.4%)-
4.6%;
0.7% (0.1%)"
(0.3%)
4.8%
11.2%
5,647.815'
5,653,455
5,632,655 5,184,005
5,131,768
4,901,129
4,956,088_
5,102,501
5,392,787
5,517,938
1.9%
0.1%
(8.0%).
(1.0%),
(4.5%) 1.1%" 3.0%"
5.7%
2.3%
37,764,444
37,763,062
34,011,186
32,035,155. 33.219,402
33,194,708
ij23£2pi;
33,284,788 34,i39,694:
38,381,489
(0.5%) ' j (0.0%) (9.9%);:} (5.8%)
*.; 3:7%
(0.1%)
cu%. j
0.2% 5.0% -l
9.9%
2016
2017 ¦.,
2018 2019
32,859,708
J3,18i3.06 33,431,286
. 33,677,681
(0.0%)
1.0%_
0.7%
0.7%"
5,664,579
5,823,187_
5,909,285
5,995,070
2.7%
. 2.8% 1.5%
•:i'.5%::
38,524,287
39;011,492
39,340,570 39^672.751
04%
1.3% 0.8% 0.8%
2020
2021
2022 ^023
2024
[ .'' ¦' 2025 •.• ' '¦
COMPOUND ANNUAL GROWTH RATE
j- ¦ 2006-2015 ~ . 2015 - 2025
33,922,148
34,169:007 34,408,071 '34,618,027
34,791,029 34,942,079
0.3%
0 6%
0.7%
0.7% 0.7% 0.6%
0.5% 6:4%,
6,078,955
6,162.894
6,243,744 6,320.015
6,394,463 6.465.471'
(0.3%)
16%
1.4%
1.4%' 1.3% 1.2%':
1.2% .1:1% v
40,001,103
40,331,901 40,651,815 40,938,042
41,185,491 41,407,549'
0.2% 0.8%
0.8%
0:8%'
0.8% 0.7%
0.6% 0.5%
NOTE-
1/ Excludes general aviation, military, helicopter, and miscellaneous passengers included in the City of Chicago's Airport Activity Statistics
SOURCE- City of Chicago. Department of Aviation Management Records, August 2016 (historical) Ricondo & Associates, Inc , August 2016 (forecast) PREPARED BY- Ricondo 8i Associates, Inc, August 2016
Table 4-20 presents historical and forecast aircraft operations at the Airport. Total passenger airline aircraft operations are forecast to increase slightly from 2015 to 2016 as passenger increases are accommodated with larger aircraft. Passenger operations are forecast to remain largely unchanged in 2016 as growth is accommodated by both larger aircraft and additional operations In 2017, growth in passenger aircraft
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operations resumes as average aircraft seat capacity growth normalizes. Other factors and methodologies regarding forecast enplaned passengers and operations in the longer term1 (2018 through 2025) are discussed in the following subsection.
P^Yabl€4g20&; HistoricalVntf Forera^
TOTAL I.'::.':.-.,"'/ •
i PASSENGER , AVERAGE SEATS;' ¦ AIRUNES r PER DEPARTURE
AVERAGE
LOAD,' GENERAL:-, FACTOR - - AVIATION v
.ALL-CARGO CARRIERS" •
}'i "V AIRPORT MILITARY'—-TOTAL
¦j^":- Historical
905,566 ,
."iBO^'^tiLiKt 1^5^;^^•20,702 :»-V';'-' '• 0;.
17,562
17.900'
19,802:
:'>r?' 13,988-
882,617
,;b;; - " 878,798' ^
2012
2013;.;;: 2014
2015
840,128 ;
844,187.
849,156 835.608 -.'
83.0%
. 83.4%
83.6% 86.7%''
21,103
22,774
17,344 21,828
16,877
16,326
15,433 -'->-' 17,700
878,108
: 883.287 881,933 875,136
Forecast
'2016 2017
835,733
837,389
109-110
84.5%
84 6%
837,181 .-
836,510 836.404
84.6%
84.6% 84.6%'
878,029
877,774 878,105 .~2021
2022 2023 2024
2025
837,624
838.888 840,586 841,504
841,742
114
115
116 117
117
84.6%
. 84.6% 84 6% 84.6% .
84 6%
22,091
22.135
22,180 22,224
22,269
19,998
20,319; 20,653 20.984
21.302
879,713|1010|881,343
883,419
884,712 ' j
885,312
COMPOUND ANNUAL GROWTH RATE
2006 - 2015 2015- 2025
(0 9%) 0.1%
0.4% 1.2%
(4.1%) 0.2%' '
(1 7%)
•i:9%;
(1 0%) 0.1%
NOTE
1/ Includes general aviation, helicopter, and other miscellaneous operations.
SOURCES. City of Chicago, Department of Aviation Management Records (historical), July 2016, Ricondo & Associates, Inc (forecast), based on the analysis and assumptions described in the 2015 Report August 2016 PREPARED BY: Ricondo & Associates, Inc, August 2016
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4.6.3 LONGER-TERM (2018 THROUGH 2025) ENPLANED PASSENGERS FORECAST METHODOLOGY
To understand the long-term growth potential of enplaned passengers at the Airport, forecasts of nationwide and local economic activity were examined, as discussed in Chapter 3 of this Report. It was concluded that the economic bases of the Air Trade Area and the nation are diversified, stable, "arid capable of generating longer-term increases in demand for air transportation at the Airport during the Projection Period.
Longer-term passenger demand growth rates at the Airport were derived using socioeconomic regression analysis. Socioeconomic regression analysis is used to identify predictive relationships between a dependent variable (e.g., passenger volume, passenger revenue, or other metric representing passenger demand) and one or more independent variables (e.g., socioeconomic factors, such as population, employment, per capita personal income, etc.). These relationships, or regression models, can be employed to forecast future growth in aviation activity using forecasts of independent variables. A standard measure of how well each • socioeconomic variable explains passenger demand is the regression model's coefficient of determination, or R-squared. A result of 100 percent is the maximum value possible for a coefficient of determination; it represents a perfect fit between the variables analyzed. For purposes of this analysis, an R-squared value of 70 percent or better was considered adequate.
Socioeconomic regression analysis was conducted to identify predictive relationships between passenger demand at the Airport and socioeconomic variables at the national level and for the Air Trade Area16. The Airport serves originating passengers who reside in the Air Trade Area as well as those who visit or connect through the Air Trade Area or Airport for business or leisure. With the Airport's diverse customer Base, demand for air service is driven by factors directly related to demographic and economic characteristics of both the Air Trade Area and the nation. As such, the following five socioeconomic variables were analyzed separately as independent variables in the regression analyses, both for the nation and the Air Trade Area: population, income, per capita personal income, employment, and GRP/GDP. Historical and forecast data for these independent variables were obtained from Woods & Poole Economics, Inc.
4.6.3.1 Passenger Segmentation
The relationship between socioeconomic variables and passenger activity was explored for four segments of demand:
• Origin and Destination (52.3 percent of Airport passengers in 2015):
Domestic O&D: Passengers using the Airport as an origin or destination point for journeys within the United States.
International O&D: Passengers using the Airport as an origin or destination point for journeys to or from points outside of the United States. This category includes passengers whose ultimate destination is an international point, but who use a flight segment to or from another domestic
Because the Airport's O&D activity is affected by surrounding airports, historical relationships for O&D activity were analyzed further to consider historical activity at Midway and General Mitchell However, incorporation of Midway and General Mitchell metrics did not improve regression output, and produced more aggressive growth results. Therefore, for purposes of this analysis, only O'Hare metrics were used in regression modeling.
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Airport that serves as the international gateway (for example, a passenger flying from the Airport to Belfast International Airport, Northern Ireland [BFS] via [EWR]). While this type of passenger is on an international itinerary, the Airport reports this type of passenger as a domestic enplanement.
• Connection (47.7 percent of Airport passengers in 2015):
Domestic Connection: Passengers using the Airport as a waypojnt for journeys between two other airports within the United States.
- International Connection: Passengers using the Airport as a waypoint : for journeys between two other airports, at least one of which is an international point. This category includes international to international journeys. This'.category also-includes passengers:who depart from the Airport on a domestic flight after arriving .at the Airport on a flight .from an' international origin/iWhile.ithis type of passenger is-on an international itinerary, the Airport reports this type of passenger.as a ¦domestic enplanement.
Passengers were categorized as described above for analytical.:purposes., While;this .categorization, differs slightly from how the Airport reports passenger activity, passengers were re-categorized to Airport standards for presentation, injable 4-19.
4.6.3.2. . Regression Analysis Specificsi . i-.
The methodology described in this section outlining the approach to determining future airport demand for this forecast was initially provided in the Report of the Airport Consultant for the issuance of the Series 2015 Bonds at the Airport included as Appendix E to the Official Statement for the-Series 2015 Bonds, dated October 8, 2015 (2015 Report). This approach and the rationale described for eliminating other possible methodologies remain unchanged. However, as will be described further below, the timing of the forecast increase in passenger volumes has changed due, in part, to lower fuel costs enabling the carriage of higher passenger volumes in the near term. This section describes certain analyses prepared for the 2015 Report.
Four different regression approaches were utilized to derive the ultimate forecast of enplaned passengers for the Airport. Forecasting models were explored utilizing regression analysis between:
A) Socioeconomic Variables and Passenger Volumes (Single-Variable Regression): Passenger enplanement forecasts commonly employ this approach, leveraging historical relationships between passenger volumes and socioeconomic variables to estimate future passenger volumes. However, as shown in Exhibit 4-13 the capacity discipline business model adopted by United States airlines across their domestic route networks has altered the historical relationship between socioeconomic elements and domestic passenger volumes nationally. This is also the case specifically for the Airport as illustrated on Exhibit 4-20. As a result, predictive relationships between the Airport domestic passenger volumes and socioeconomic elements were not adequate for use in forecasting future domestic air traffic.
Also as illustrated in Exhibit 4-12 and Exhibit 4-13, the historical relationship between international passenger volumes and socioeconomic factors has remained intact, as airlines have continued to accommodate more-profitable international passengers. As a result, adequate regression models were
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identified only when analyzing relationships between socioeconomic variables and international enplaned passengers using the Airport. These models generated a range of future CAGRs for international passenger volumes between 2.7percent and 4.0 percent for the period through 2024.
lj; Exhibit'4T20: GrowthVTrends of^ Chicago Passengers and Unite
60.0% ° 40.0%
ii a
g -40.0%
w
CL
-60.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ORD Domestic Passengers ORD International Passengers U.S. Gross Domestic Product
SOURCE: Woods & Poole Economics, Inc, U S. DOT T-100, 2014 PREPARED BY: Ricondo & Associates, Inc, August 2015
B) Socioeconomic Variables and Passenger Revenues (Single-Variable Regression): Exhibit 4-13 illustrates the continued positive relationship between domestic passenger revenues and socioeconomic variables (in contrast to the relationship between socioeconomic variables and domestic passenger volumes). For the Airport specifically, the same positive relationship between passenger revenues and socioeconomic variables exists for both domestic and international passenger revenues as illustrated on Exhibit 4-21. As illustrated on Exhibit 4-22, since the implementation of the capacity discipline business model by air carriers, revenue growth at the Airport and many other large United States airports has come primarily through increased average passenger fares, and less so through passenger volumes. This is in contrast to several other large airports that have experienced revenue growth through a higher component of passenger volume growth. As a result, the Airport has among the highest passenger yield (cents paid per passenger mile flown) ofthe top 30 United States airports as presented on Exhibit 4-23.
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70%
CD
o
°.60%
¦ Passenger Volume Related ¦ Average Fare Related
SOURCE U S. Department of Transportation DB1B Survey, August 2015 PREPARED BY Ricondo & Associates, Inc . August 2015
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Regression analysis was conducted between socioeconomic variables and the passenger revenues generated by each passenger segment described above. For each segment, adequate regression models were identified that provided a range of future growth for passenger revenue for the period through 2024. This range is illustrated in Table 4-21.
Table 4-21: Range of Forecast Revenue Growth (2015 Report) .
LOW AVERAGE HIGH
i Domestic Revenue-".' ¦ ;.' .;'. ' 3.7%-. ' ; •'. .'.: 4.5% ' • .•,/'¦ : :; •• jM%;-J-''''{j
International Revenue 4.3% 6.0% 7 6%
Total Revenue' -'X^'" .y • " " "4.0% '¦'¦V.'':' 53%'7y.y 7.y'''.-p":'' "'6.6%'.'•': ' 'J
SOURCE Ricondo & Associates, Inc based on the analysis and assumptions described in the 2015 Report, August 2015 PREPARED BY: Ricondo & Associates, Inc, August 2015.
In order to derive passenger volume growth associated with the range of forecasted passenger revenue growth, a second step was necessary to estimate how airlines might capture that revenue at the Airport, through a combination of passenger volume growth and/or passenger fare growth. A range of revenue to passenger "conversions" was developed for application to overall revenue growth forecasts.
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i»• Jfte.^'^^./^f'V^^'gft-^'eW:qnd.low. historical passenger component\pfrevenu&grpwtt} indicates an environment where airlines, are more able to .support profitable passenger volume growth (in contrast to the recent environment where revenue growth has come almost entirely through fare growth). These conversions were derived through analysis of recent trends of revenue growth in the United States industry, and span a range from conservative (low passenger volume growth - 13 percent of passenger revenue growth is driven through passenger volume growth, modeled using fare growth trends at the Airport over the last decade) to aggressive (high passenger volume growth - 66 percent of passenger ¦ revenue growth is driven through passenger volume growth, modeled considering the FAA's forecast of . .industry-yield growth as published in the FAA Aerospace Forecast 2014-2034). For reference purposes, between-2009 gndi20l4r passenger growth has accounted for approximately 20 percent of revenue growth hafcthi Airport, -arid, 27 percent for:the top 30 United.Stdtes^airports. Between 2012 and 2014] passenger 'f. vojuriiesfpccpuntey. for approximately'50;percent of revenui.growih both at the Airport and in'the top 30 '¦ United States airports. Between 2013 and 2014, approximately 70: percent of revenue, growth at the AAirpdrt wps/due to'passenge'r volume growth, compared to 60 percent in the'iop'30'United States-airports.
• This approach generated a range of passenger volume CAGRs for the period through 2024:
Domestic Passenger Growth Range: 0.5 percent to 3.5 percent
International Passenger Growth Range: 0.5 percent to 5.0 percent Total Passenger Growth Range: 0.5 percent to 4.3 percent.
Table 4-22 summarizes the range of total forecast revenue growth rates along with passenger conversions from conservative to aggressive.
ITabJ^4*22: Results^f/Reve^
^LjiiirKtf.1 >^;4- ' ¦¦ ¦—'¦ •¦ • •- . '¦¦. •'•¦*'' ¦;x.,-,-i:'';.': ¦¦i,.-V.vT ¦ - -n- •• ^it'v;.?^ttf.*r.'.-.'-')i'ft ''fe;^-^^'- Vj- ¦•. "
r
FORECAST REVENUE GROWTH RANGE AND RESULTING PASSENGER GROWTH
LOW AVERAGE : HIGH
Total Revenue Growth 4.0% 5.3% 6.6%
^Resulting Passenger Growth: /'"¦"¦;¦¦""'•¦ \ \"" '¦¦',"¦¦¦' ',¦ '''• • '.'
Conservative-Conversion 0.5% 0.7%. 0.8%
L AveragTCc>nversion ,. " ::, 1:8% " ''' . 2.4% - '¦ ' 3.0%~
Aggressive Conversion , 2.7% 3.5% 4.3%
SOURCE. Ricondo arid Associates, Inc (analysis) based oh the analysis and assumptions described in the' Repo'rt, August'2015.' PREPARED BY. Ricondo & Associates, Inc, August 2015
C) Both Socioeconomic Variables and Average Fares, and Passenger Volumes (Multi-Variable Regression): Regression analysis was performed, to enable forecasting of passenger volumes given forecasts of socioeconomic variables and a range of possible average fares. Under this regression methodology, several adequate relationships were identified for the domestic and international O&D passenger segments. However, the results of this approach were significantly more aggressive than those generated under the approach described in "B". Therefore, the results of this approach were dismissed.
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D) Socioeconomic Variables and Regional Passenger Volumes (Single-Variable Regression):
To take into account the other airports in or around the Air Trade Area, Midway and General Mitchell, regression onglysis was conducted for O&D passenger volumes ot the combined airports and socioeconomic variables in both regions. Forecasts of the Airport's share of O&D passengers among the three airports were applied to those relationships with adequate R-squared values in order to determine the O&D passenger forecast. The approach yielded a more aggressive result than those produced under the approach described in "B". Therefore, the results of this approach were dismissed.
4.6.3.3 Enplaned Passenger Forecast Results
In the forecast included in the 2015 Report, a scenario was selected from the range of passenger volume growth produced by the Socioeconomic Variables and Passenger Revenue approach to forecast enplaned passengers through 2024. This scenario (which produced a 2014-2024 compound annual growth for total enplaned passengers of 1.6 percent) was selected in part for its lower outlook on revenue growth. In addition, the scenario assumed a conservative-to-average passenger conversion. The outlook for revenue growth, as forecast in the 2015 Report remains unchanged in the forecast in this Report. However, the recent reduction in the cost of fuel has resulted in lower-than-expected passenger fares in 2015 and 2016. As previously described, this decrease in fares has helped sustain higher volumes of enplaned passengers in 2015 and 2016. Fares were modeled to gradually return to levels forecast previously, under the assumption that fuel prices will increase in the future. The long-term enplaned passenger volumes are still expected, but incorporate the recent growth, in the near-term. This analysis assumes that fuel prices eventually return to a higher.Jevel. If fuel prices remain low for a longer period of time, fares may also grow at a rate lower than forecast. This could result in a higher volume of enplaned passengers than forecast.
Enplaned passenger forecasts are presented in Table 4-19, re-categorized by domestic and international as indicated in Airport reports. The number of international enplaned passengers is forecast to increase from approximately 5.5 million in 2015 to approximately 6.5 million in 2025, at a CAGR of 1.6 percent for the period. Domestic enplaned passengers are forecast to grow from 32.9 million in 2015 to 34.9 million in 2025, a CAGR of 0.6 percent. In aggregate, total Airport enplaned passengers are forecast to grow from 38.4 million in 2015 to 41.4 million in 2025, at a CAGR of 0.8 percent.
4.6.4 AIRCRAFT OPERATIONS AND LANDED WEIGHT FORECASTS
Forecasts of annual aircraft operations at the Airport are presented in Table 4-20 for 2015 through 2025. Forecasts of passenger airline aircraft operations are based on assumptions of load factor management by the airlines serving the Airport and analysis of future fleet plans. Passenger airline aircraft operations are forecast to increase at a CAGR of 0.1 percent during the Projection Period, with the majority of passenger growth being accommodated through use of larger-capacity aircraft. Specific information regarding forecasts of passenger airline aircraft operations is provided below:
• Average seat capacity for passenger airline aircraft operations at the Airport is expected to increase from 105 seats in 2015 to 117 seats in 2025. This capacity increase is driven primarily by a shift by United and American away from aircraft with 50 or fewer seats to both larger regional jet aircraft and narrow body mainline aircraft. Airlines are able to maintain seat capacity in markets while reducing
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the number of. flights through, the use of larger regional jet and mainline-aircraft. In 2015, approximately 32 percent of scheduled departures were operated in aircraft with 50: or fewer seats.
• Load factors for 2016 are expected to remain similar to those in 2015. However, as average aircraft seat capacity increases through 2025, the average load factor is expected to decrease slightly from 86.7 percent in 2015 to 84.6 percent in 2025.
General aviation operations at the Airport (including helicopter and miscellaneous operations as reported by the City of Chicago Department of Aviation) are expected to increase marginally, from 21,828 in 2015 to, 22,269 operations in 2025, reflecting the long-term assumption that growth in this sector will occur primarily at outlying airports within the Chicago region as the result of cost and delay considerations. The increase ' between '2015 and '2025- represents a CAGR of 6:2"percent during this period, 'comparable''to 0.4 percent growth'forecast nationwide by the FAA.
All-cargo operations at the Airport increased from 13,988 in 2009 to 17,700 operations in 2014. All-cargo aircraft operations at' the Airport" are forecast to" increase at "fates generally more'conservative than industry cargo volumes in the period and more in line with all cargo aircraft growth in the period as forecast by the FAA. All-cargo aircraft activity at the Airport is forecast to increase from 17,700 operations in 2015 to 21,302 operations in 2025 a CAGR of 1.9 percent."
Future military activity at the Airport will be influenced'by United States Department ot Defense policy, which largely dictates the level of military activity at an airport. As shown in Table 4-20, no military activity is forecast to occur at the Airport during the Projection Period.
In large part as a result of the increased size of passenger aircraft expected to operate at the Airport through 2025, total aircraft operations at the Airport are forecast to increase marginally from 875,136 operations in 2015 to 885,312 operations in 2025, at a CAGR of 0.1 percent.
Table 4-23 presents historical and forecast landed weight at the Airport through 2025. Total landed weight is forecast to increase at a CAGR of 1.3 percent between 2015 and 2025, from approximately 51.1 million 1,000-pound units to 58.2 million 1,000-pound units.
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Table 4-23: Historical and Forecast Landed Weight
PASSENGER AIRLINES
"xT TlAnBEd :~'r-
WEIGHT
ALL-CARGO CARRIERS
" " IjVNDED .WEIGHT
TOTAL
LANDED, WEIGHT .
ANNUAL GROWTH,
Historical
iPrj.6/ 2007 !2008
2009
51,761,2?A-50,968,630 47,784,241 :
44,544,600
4;804;675
5,179,942
4,45?.511_
3,512,231
56,565,889 ^ :¦:;,,. ¦¦ ;; 56,148,572 (0.7%) ~jS^isg> "T V .#0%) 48,056,831 (8.0%)
2010
2011
Joi2~
2013
2014,
2015 Forecast -.
2016
2017 - ; 2018
2919
2020
2021 2022 2023 2024 20*25
44,614,250
43,876,584 ':42',7K~86|"
42,545,672 "44r095j48i
45,867,833
47,862,466
48,839,008 "49^29^310^
49,761,386 ;^0,mi54'
50,679,730 " 5i'.i'25.iBp2 51,527,793 ;5i,888;869":
4,426,768
4,404,858 "4,426,307 ' 4,378,157 4,490,079
5,272,433
5,389.311 •
"5,518,322 .
5,626,595 *
5,854,397
5,956,960
6,052,663
6,152,177
6,250,567 £34Si,334"i~
49.041,018-
48,281,442 "4^139;i70;
46,923,829 "48,585,427"
51,140,266
53,251777 li.898,170" 7
54,465,603 ^035^77 55,615,782 5^,176,114"," 56,732,393
57,277.979 . 57,778,360 ^234i202;
2.0%
Jl.5%) _ (2.4%) '
(0.5%)
5.3%
4.1% Tj2% 1.1%
1.0%-
1,1%
To'%
1.0%
T5%;-;; 0.9%
0.8%~
COMPOUND ANNUAL GROWTH RATE
.,(M%)i 12%
.1,0% 1.9%
SOURCE City of Chicago, Department of Aviation Management Records, August 2016 (historical) Ricondo & Associates, Inc., August 2016 (forecast) PREPARED BY Ricondo & Associates, Inc, August 2016.
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4.6.5-. COMPARISON OF.ACTIVITY FORECASTS. , • . ..
Exhibit 4-24 provides a comparison of the forecast of enplanements in the Report to the forecast in the 2015 Report and the* 2015 FAA Terminal Area-Forecast (TAF). Between 2015 and 2025, the forecast in this Report forecasts-enplanemehtsi'to; increase frorrV'38.4 million to 41.4 million (a CAGR of 0.8 percent) while the FAA TAF forecasts enplanements at the Airport to increase frorru351' million to 41.5 million in the corresponding Federal Fiscal Year (a CAGR of 1.7 percent reflecting, in part, the lower enplanements forecast in the TAF for 2015). The 2015 Report forecasts enplanements to increase at a 1.1 percent CAGR from 2015 to 2024 resulting in enplanements growing from 36.9 million to 41.1 million in 2024.
20li 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
¦B Historical 2015 R&A Forecast 2016 R&A Forecast 2015 FAA TAF
NOTE: The FAA TAF is presented on a federal fiscal year (October through September) basis and excludes nonrevenue passengers.
SOURCES' City of Chicago, Department of Aviation Management Records, August 2016 (historical). Ricondo & Associates, Inc, August 2016 (forecast) Federal Aviation Administration 2015 Terminal Area Forecast, August 2016 PREPARED BY. Ricondo & Associates, Inc, August 2016
Exhibit 4-25 provides a comparison of aircraft operations forecasts between the same three forecasts. This Report forecasts total aircraft operations to increase at a CAGR of 0.1 percent from 875,136 in 2015 to 885,312 in 2025, while the FAA TAF forecasts total aircraft operations to increase 0.7 percent during the same period from 880,804 in 2015 to 943,298 in 2025. The 2015 Report forecasts total aircraft operations to increase at a CAGR of 0.2 percent from 870,744 in 2015 to 894,452 in 2024.
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'«~i':**]-y&': - Exhibit 4-25: Aircraft Operations Forecast Comparison
1,000 900 800 700 600 500 400 300 200 100 0
¦
|99| H 1 1 1 1 ! 1 1 1 1 1 1
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
m^m Historical 2015 R&A Forecast —2016 R&A Forecast 2015 FAA TAF
NOTE. The FAA TAF is presented on a federal fiscal year (October through September) basis and excludes nonrevenue passengers.
SOURCES' City of Chicago, Department of Aviation Management Records, August 2016 (historical); Ricondo & Associates, Inc., August 2016 (forecast); Federal Aviation Administration, 2015 Terminal Area Forecast, August 2016 PREPARED BY. Ricondo & Associates, Inc., August 2016
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5. Financial Analysis
This chapter presents the financial framework of the Airport, and the cost and other financial implications following the issuance of the 2016 Bonds and the future bonds necessary to complete the funding of the remaining OMP Airfield Projects and 2016-2020 CIP capital projects described in Chapter 2. Chapter 5 presents the following projections: Operating and Maintenance (O&M) Expenses; Non-Signatory Airline and Non-Airline Revenues; Other Available Revenues, including PFC Revenue and Grant Receipts, and other federal funds; Net Debt Service; the Net Signatory Airline Requirement; and calculation of the Airline Parties' Airport rates and charges. The reasonableness of Airport user fees, including cost per enplaned passenger; and General Airport Revenue Bond (GARB) Debt Service coverage are also discussed.
The GARB debt service included in the financial analysis reflects debt service on outstanding GARBs after the issuance of the 2016 Refunding Bonds and the refunding of certain Airport Obligations, the 2016 New Money Bonds, and future GARBs necessary for funding the OMP Airfield Projects and 2016-2020 CIP capital projects described in Chapter 2. It is expected that annual debt service savings of between $2.1 million and $7.5 million will result from the issuance of the 2016 Refunding Bonds and the refunding of certain Airport Obligations. The expected savings from the 2016 Refunding Bonds have been assumed.
In combination, the 2016 New Money Bonds and future GARBs assumed in the financial analysis reflect the following capital project funding assumptions:
approximately $1.3 billion for remaining OMP Airfield Projects, including $963.5 million for Runway 9C-27C funded with proceeds from the 2016 New Money Bonds and $361.4 million for the extension of Runway 9R-27L funded with future GARB proceeds,
approximately $304.3 million for additional airfield improvements, including $118.0 million for the centralized deicing pad and $186.3 million for cross-field taxiway system and relocation of Taxiways A and B, both funded with proceeds from the 2016 New Money Bonds, and
approximately $773.3 million for the 2016-2020 CIP projects funded with future GARB proceeds.
Financing assumptions of the 2016 New Money Bonds and future GARBs are described in Section 5.5 of this Chapter. Future PFC Revenue Bonds, anticipated to be issued in 2017 to fund approximately $188.6 million of the Terminal 5 Expansion project and to potentially refund certain outstanding PFC Revenue Bonds, are described in Section 5.4.1. of this Chapter.
The other recently announced capital projects, including the Concourse L Extension, Hotel Development, and the Terminal Area Plan, as described in Section 2.2.3 of this Report, are not included in the financial analysis.
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While costs for these projects are likely to be incurred during the Projection Period and future bonds could be issued to fund certain portions of the projects with debt service payable during the Projection Period, the projects are in preliminary planning phases and project timing and costs have not been fully developed and are currently unknown.
Anticipated funding sources for these projects are as follows:
Concourse L Extension. To be funded directly by American Airlines.
Hotel Development at the Airport. To be funded through a special facility loan, or loans, backed by hotel revenues.
The Terminal Area Plan is still in the preliminary conceptual planning and discussion phases: Funding sources have not yet, been determined.
5.1 Financial Framework
The Airport is owned by the City, operated by CDA, and is accounted for as a self-supporting enterprise fund of the City on a'Fiscal Year basis. The City's Fiscal Year ends December 31. The City maintains' the books, Records;'and accounts of; the Airport in accordance with ge'nerally'accepted accounting principles ;and as required by the provisions of the Airport Use Agreement and the Senior Lien Indenture. Neither City nor State of Illinois tax revenues are pledged to the payment of- Net Debt Service or to fund the cost of operations at the Airport.
5.1.1 AIRPORT USE AGREEMENT
The Airport Use Agreement sets forth the City's main financial and operational arrangement with the airline tenants of the Airport that are signatory to the agreement (the Airline Parties). The Airport Use Agreement provides, among other things, contractual support of the Airline Parties for GARBs and certain other obligations issued to fund Airport capital improvements. The Airport Use Agreement formalizes the rights and responsibilities ofthe Airline Parties and CDA, and expires on May 11, 2018.
The City has executed the Airport Use Agreement with the following 12 Airline Parties at the Airport: Air Canada, Alaska Airlines, American Airlines, Envoy, Delta Air Lines, Expressjet, FedEx, SkyWest, Spirit, United Airlines, UPS, and Virgin America. In the aggregate, the Airline Parties, including their regional affiliates, accounted for approximately 76.0% percent of the total landed weight at the Airport in 2015. Non-Signatory Airlines, the airlines that are not signatory to the Airport Use Agreement or a regional affiliate to one of the Airline Parties, including foreign flag carriers, accounted for the remaining 24.0% percent of landed weight at the Airport in 2015. Foreign Flag carriers that have signed the International Terminal Use Agreement are referred to as the International Terminal Airline Parties. The Airline Parties and the International Terminal Airline Parties are collectively referred to as the Signatory Airlines in this Report.
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Upon the expiration of the Airport Use Agreement in 2018, the City and the Airline Parties could agree to
execute a new agreement as the result of negotiations between the City and airlines serving the Airport or the
City could elect to impose airline rates and charges without an airport use agreement and in accordance with
the FAA's Policy Regarding the Establishment of Airport Rates and Charges. . -
The City has initiated efforts to evaluate options for a new Airport use agreement that will maximize the use of existing terminal facilities and provide a mechanism for the City to fund future capital projects. While there are multiple rate-setting methodologies that may achieve these goals, in any case, the City is obligated, pursuant to the Senior Lien Indenture, to set airline rates and charges at a level sufficient to pay the net cost of operating, maintaining, and developing the Airport, including the satisfaction of debt service coverage, fund deposit, and payment requirements of the Senior Lien Indenture. Projections of O&M Expenses, Non-Airline Revenues, and Net Debt Service assumed in the financial analysis in this Report are developed independently and material changes to these projections resulting from changes in the airline rate-setting methodology at the Airport are not anticipated.
Although the City is contemplating options for a business deal, the rate-setting methodology after May 2018 is uncertain and remains subject to negotiations between the City and the airlines serving the Airport. Therefore, in developing the financial projections presented herein, a continuation of the rate-setting methodology set forth in the existing Airport Use Agreement was assumed for the entirety of the Projection Period. It is also assumed in this Report that the current Airline Parties and International Terminal Airline Parties will continue to be signatory to future agreements and will remain signatory to those agreements through the Projection Period.
5.1.2 AIRPORT FEES AND CHARGES
Under the current Airport Use Agreement, terminal rental rates and airline landing fees are established using a residual airport rate-setting methodology1, whereby airline rates and charges are calculated to recover any net remaining costs for each Cost-Revenue Center (CRC). To equitably allocate the net cost of operating, maintaining, improving, and expanding the Airport among the Airline Parties, various physical and functional areas of the Airport are separated into CRCs for the purposes of accounting for O&M Expenses, revenues, required fund deposits, and Debt Service on Airport Obligations. An allocable share of the net deficit generated in the Terminal Area, Airfield Area, and Fueling System CRCs is paid by the Airline Parties as part of their Airport Fees and Charges for the use of the Airport. The Airport Use Agreement provides that the aggregate of Airport Fees and Charges paid by the Airline Parties must be sufficient to pay the net cost of operating, maintaining, and developing the Airport (excluding the Land Support Area), including the satisfaction of debt service coverage, deposit, and payment requirements of the Senior Lien Indenture. Airlines or other users of the Airport that are not signatories to the Airport Use Agreement or the International Terminal Use Agreement are assessed Airport fees and charges enacted by City ordinances. For financial
A somewhat modified rate-setting methodology is in effect for portions of the Airfield Area in order to avoid "private business use" under federal tax regulations. See Section 5.7.1 herein
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projection purposes, it was assumed that the City ordinances controlling non-signatory airline fees and charges will remain in place through the Projection Period.
Five CRCs in the Airport's financial structure are included in the residual rate-setting calculation and the adjustment of Airport Fees and Charges, as follows:
• ^ Airfield Area, the Airfield Area includes the aircraft parking areas, runways, taxiways, approach and
runway protection zones, infield areas, navigationalaids, and other facilities related to aircraft taxiing,. . landing, and takeoff.
• Terminal.Area. TheTerrrtinal Area includes the domestic terminal buildings and a designated portion of the-.heating and refrigeration plant.
• Terminal Support Area! The Terminal Support Area includes the public parking facilities, roadways, ' walkways,'automobile rental areas, ground transportation system, and the existing Airport hotel.
International Terminal Area. The International Terminal Area includes the International Terminal and a.designated portion of the heating and refrigeration plant .
Fueling System. The Fueling System includes the tank farm and all facilities that are part of the Airport's hydrant fueling system.
5.1.3 : LAND SUPPORT AREA ¦.'.¦.,.¦¦;.
The revenues and expenses of the Land Support Area are not included in the calculation of Airline Parties' Airport Fees and Charges, or pledged to pay debt senyice on bonds, including the 2016'Bonds. Therefore, the revenues and expenses within the designated Land Support Area are excluded in the financial projections in this Chapter. The Land Support Area includes certain vacant land and air rights and facilities, such as air cargo, hangar;.flight kitchen, and freight forwarding facilities. Principally, these areas and facilities are located on.the perimeter of Airport property.
5.2. Operating and Maintenance Expenses
O&M Expenses include expenses associated with operating and maintaining the Airport, including the airfield, terminal, and landside facilities.
5.2.1 HISTORICAL O&M EXPENSES
O&M Expenses for 2011 through 2015, as presented each year in the City's Airport Comprehensive Annual Financial Report (CAFR) for the years ended December 31, which excludes expenses in the Land Support Cost Center and excludes any expenses associated with certain discretionary funds2 (the Airport Development Fund, Emergency Reserve Fund, and PFC Fund), are presented in Table 5-1. O&M Expenses increased at a
City of Chicago, Chicago O'Hare International Airport, An Enterprise Fund of the City of Chicago; Comprehensive Annual Financial Reports, years 2011-2015. 2015, Page 85, 2014, Page 65; 2013, Page 64, 2012, Page 52, 2011, Page 53
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
compound annual growth rate of 3.4 percent, from $407.3 million in 2011 to $466.4 million in 2015. This increase in O&M Expenses can partially be attributed to increasing professional and engineering costs as well as increases in salaries and wages. Between 2011 and 2015, professional and engineering costs increased at a CAGR of 6.2 percent and salaries and wages increased at a CAGR of 4.7 percent. The Airport's contribution of its allocable share of City pension expenses, described in the following section, has contributed to increasing salaries and wages expenses. The expenses shown in Table 5-1 reflect only expenses due and payable in each year (the cash contribution, reflected in the Airport's rates and charges), and do not reflect certain expenses that are not payable in that year, but recorded pursuant to GASB 68 as reflected in the City's Airport CAFR.
(Dollars in Thousands for Fiscal Years Ended December 31)
COMPOUND ANNUAL GROWTH RATE
Total O&M Expenses '
; (thousands). . . $407,331
-i :.
O&M Expenses annual growth rate
t Enplaned Passengers - ' 7ri7 !¦ (thousands) •';
Enplaned Passengers Growth Rate
r Total O&M: Expenses f
$12.27
per Enplaned \ Passenger V
$426,461.
4.7% 33,245
0.1%
$12.83
... $406,318 (4.7%)
- .33,298. .
0.2%
$12.20
$463;224': 14.0%
34,953
5.0%
. $13.25 '
$466,426
0.7% 38,395.
9.9%
$12:15
SOURCE. City of Chicago Comptroller's Office and Chicago Department of Aviation, July 2016 PREPARED BY- Ricondo & Associates, Inc., August 2016.
O&M Expenses remained relatively level between 2014 and 2015, increasing 0.7 percent, primarily attributable to reductions of snow removal expenses in repairs and maintenance, professional and engineering costs, and other operating expenses, offset by increases in salaries and wages attributable to pension contributions and certain retroactive salary adjustments. Due to the type of expense decreases achieved in 2015 (i.e., snow removal), it is not assumed that decreases similar to those seen in 2015 will occur on an annual basis. Professional and engineering costs decreased 5.5 percent between 2014 and 2015, mainly attributable to decreases in contracted costs. Salaries and wages, including pensions, increased 19.8 percent between 2014 and 2015, and repairs and maintenance costs decreased 10.8 percent between 2014 and 2015 largely because, of the reduction of snow removal expenses. Other operating expenses, which consist of materials and supplies, utilities, insurance, miscellaneous expenses (administrative expenses, telephone, and bad debt expenses), machinery, and vehicles and equipment, decreased by 18.5 percent between 2014 and 2015.
The Airport's O&M Expenses per enplaned passenger from 2011 to 2015 have now decreased at a CAGR of 0.2 percent, from $12.27 in 2011 to $12.15 in 2015, decreasing from $13.25 in 2014 to $12.15 in 2015, attributable to level O&M Expenses and an increase in enplaned passengers in 2015.
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5.2.2 CITY PENSION OBLIGATIONS
Pension fund obligations of the Airport are limited to the share of City employee salaries allocated to the Airport; these City employees include both those working directly at the Airport and those from other City departments that support Airport operations such as Purchasing, Finance, and Corporation Counsel. Federal regulations prevent Airport Revenues from being used to fund pension costs for any employees not working directly at or allocated to the. Airport.
The following four pension funds affect Airport expenses:
Policemen's Annuity and Benefit Fund of Chicago (PABF)
Firemen's Annuity and Benefit Fund of Chicago (FABF)
Municipal Employees'Annuity and Benefit Fund of Chicago (MEABF)
Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago (LABF)
The City's pension expenses have increased over time, resulting in an actual cash contribution from the
Airport to City pensions of approximately $25.8 million in 2015. The 2016 Airport rates and charges budget
includes a pension expense of approximately $35.3 million, which is the budgeted amount of the.2016 cash
contribution. The amount budgeted for 2016 reflects the impact of certain pension reforms. Pension .expense
increases projected in this analysis are based on Public Act 099-0506, which was enacted into law.-on- May 30,
2016 This report excludes the impact of Public Act 98-641, which was declared unconstitutional by,the,Illinois
Supreme Court on March 24, 2016. This decision has resulted in expected actual pension expenses in 2016
being below the cash contribution included in the Airport rates and charges budget, however, for purposes of
this Report, the budgeted amount is included in the financial analysis. ..
Due to financial reporting requirements pursuant to the Governmental Accounting Standards Board (GASB), Statement 68, the Airport's 2015 CAFR reflects the total pension liability of $339.5 million. GASB Statement 68, Accounting and Financial Reporting for Pensions—an Amendment of GASB Statement 27, requires the Airport's pension liability to be reported as the portion of the present value of the total pension liability, defined as the projected benefit payments to be provided through the pension plan to current active and inactive employees that is attributed to those employees' past periods of service, less the amount of the pension plan's fiduciary net position.3 Under the current provisions of .the Pension Code, MEABF and LABF are projected by their respective actuaries to have insufficient funds available to make payments to beneficiaries beginning in Fiscal Years 2025 and 2027, respectively. Although it is uncertain how such payments would be made in this circumstance, one possibility is that the City could be required to make these payments due to beneficiaries on a pay-as-you-go basis, which would cause a significant increase in the City's contributions and, as a result, to the Airport's allocated portion of such contributions to such funds. Assuming the current allocation percentage of this requirement to the Airport, pension expenses are estimated to increase at a CAGR of 10.9 percent from approximately $35.3 million budgeted in 2016 to approximately" $89.4 million in 2025, should the City be required to make such beneficiary payments in addition to its required contributions.
3 Accounting and Financial Reporting for Pensions—An Amendment of GASB Statement No. 27, § Statement No.68 (2012).
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CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
Exhibit 5-1 illustrates the impact of the estimated pension contributions over baseline growth assumptions on projected total Personnel Expenses through the Projection Period. The projected Personnel Expenses presented in this Report include the increased pension contributions shown on Exhibit 5-1.
(Dollars in Thousands for fiscal years ending December 31)
Budget 2016
(O'Hare Personnel Expenses - Baseline Growth Assumptions
•O'Hare Personnel Expenses - Including Increased Pension Obligations
NOTE:
1/ Assumes that the City would be required to contribute amount necessary to fund beneficiary payments on a pay-as-you-go basis upon insolvency of MEABF and LABF The actuaries of MEABF and LABF project large increases in contributions in the years of initial insolvency with modest growth in contributions thereafter, if the City is required to contribute on this basis
SOURCE: Chicago Department of Aviation, September 2016. PREPARED BY: Ricondo & Associates, Inc, September 2016
BUDGETED AND PROJECTED OPERATING AND MAINTENANCE EXPENSES
Actual O&M Expenses vs Budget
CDA sets a budget for airline rates and charges annually using the rate-setting methodology set forth in the Airport Use Agreement, as described in Section 5.1 above, based on the budgeted O&M Expenses, Non-Airline Revenues, required fund deposits, and debt service on Airport Obligations. As shown in Table A-1 of Appendix A to this Report, between 2011 and 2015, actual O&M Expenses for the Airport have been less than the budgeted amount in each of the last 5 years, averaging 5.7 percent below budget. The Airport's 2016 final airline rates and charges budget serves as the base from which O&M Expenses are projected.
Exhibit 5-2 presents the 2016 budgeted O&M Expenses by cost category.
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NOTE: Includes Land Support . ig$j - -A-Vr ¦ SOURCE: Chicago Department of Aviation, August:2016. PREPARED BY: Ricondo & Associates, Inc, September 2016.
O&M Expenses are classified into the following, categories:, Personnel
Personnel expenses include compensation for City staff working at the Airport, pension obligations discussed above, and an allocation of personnel costs from other City departments that support Airport operations, such as Purchasing, Finance, and Corporation Counsel. Personnel expenses associated with Airport operations and capital development are projected to increase 6.0 percent in 2017, based on operational and future development needs. Personnel expenses are then projected to increase at an annual rate of 4.0 percent from 2018 through the Projection Period, attributable primarily to salary increases, escalating insurance premiums, and other benefits increases. When the assumed additional personnel expenses related to additional pension obligations and future capital projects are incorporated, personnel expenses are projected to increase at a CAGR of 5.6 percent through 2025.
Repairs and Maintenance
Repairs and maintenance expenses at the Airport include the cost of outside contractors that provide ramp repair, taxiway painting, outside janitorial services for terminals, heating and air conditioning, trash removal, escalator/elevator maintenance, and miscellaneous repairs. Repairs and maintenance expenses are projected to increase at a CAGR of 4.75 percent through 2025, primarily reflecting inflation and additional costs associated with maintaining existing aging facilities. When the assumed additional repairs and maintenance expenses related to future capital projects are incorporated, repairs and maintenance expenses are projected to increase at a CAGR of 5.0 percent through 2025.
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Energy
Energy costs include gas, water, electricity, and fuel oil required to operate the Airport. Energy costs are projected to increase at a CAGR of 4.5 percent. However, when the assumed additional energy expenses related to future capital projects are incorporated, energy expenses are projected to increase at a CAGR of 4.6 percent through 2025
Materials and Supplies
Materials and supplies expenses include costs associated with the purchase of deicing fluid, office supplies, cleaning supplies, keys and locks, and other general maintenance supplies for the Airport. Materials and supplies expenses are projected to increase annually at the 3.0 percent rate of inflation. When the assumed additional material and supply expenses related to future capital projects are incorporated, expenses for materials and supplies are projected to increase at a CAGR of 3.6 percent through 2025.
Engineering and Professional Services
Engineering and professional services expenses include fees for specialized engineering, legal, and other technical services. These expenses aTe'^pT^jec'ted to increase annually at a CAGR of 4.5 percent through 2025, primarily because of increases in billing rates. Engineering and professional services expense projections include an additional $2 million annually in 2017 and 2018 to reflect additional services in those years for future capital planning and negotiating a new Airport Use Agreement. The use of outside professional services was otherwise assumed to remain constant through 2025. The assumed additional engineering and professional services expenses are projected to increase at a CAGR of 4.9 percent through 2025.
Other Operating Expenses
Other operating expenses include equipment and property rentals, insurance, miscellaneous expenses (administrative expenses, telephone and bad debt expenses), machinery, and vehicles and equipment. Equipment and property rental expenses include expenses related to the rental of heavy equipment and contracting of equipment operators, rental of unarmed security systems, operation of the automated transit system, shuttle bus services, rental of office equipment, and lease of a warehouse. Other operating expenses are projected to increase at a CAGR of 5.9 percent through 2025, primarily reflecting inflation, the need to replace various equipment, and additional expenses related to future projects.
O&M Expenses Related to Remaining OMP Airfield Projects
Incremental effects on O&M Expenses from Runway 9C-27C construction and the extension of Runway 9R-27L OMP Airfield Projects are expected to result from the increased operation and maintenance required to maintain the additional airfield pavement and are estimated to begin in 2021. Projections of these O&M Expenses were developed based on the incremental increase in runway pavement surface area in the Airfield Area with Airfield Area O&M Expenses projected to increase $4.9 million in 2021 and $9.6 million in 2022, the first full year of operation. This projected increase in Airfield Area O&M Expenses is proportionate to the increase in runway square footage, which represents a conservative approach, particularly given that new infrastructure projects do not typically have major maintenance needs immediately after completion.
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O&M Expense Projections
O&M Expense projections are based on the type of expense, expectations of future inflation (assumed to be 3.0 percent annually through the Projection Period), and incremental O&M expenses related to the construction of Runway 9C-27C and the extension of Runway 9R-27L. O&M Expenses for the Multimodal Facility, described in Chapter 2 of this Report, are assumed to be covered 100 percent by rental car operators through CFC collections and Facility Rent. No incremental O&M Expenses associated with the 2016-2020 CIP Projects or any other recently announced capital projects have been assumed. Projected O&M Expenses are presented on Exhibit 5-3.
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 ¦^H Total O&M Expenses ¦™«0&M Expenses per Enplanement
SOURCE- Chicago Department of Aviation, Ricondo & Associates, Inc, based on the analysis and assumptions in the Report. September 2016. PREPARED BY- Ricondo & Associates; Inc., September 2016
As shown on Exhibit 5-3, total O&M Expenses, excluding Land Support Area expenses, are projected to increase from $535.0 million in 2016 to $857.1 million in 2025, reflecting a CAGR of 5.4 percent.
See Table B-1 in Appendix B at the end of this Report for additional information regarding projected O&M Expenses.
5.3 Non-Signatory Airline and Non-Airline Revenues
Non-Signatory Airline Revenues are revenues collected from airlines that are not parties to the Airport Use Agreement or International Terminal Use Agreement. Non-Airline Revenues consist of those Revenues generated at the Airport from sources other than airlines (e.g., automobile parking, rental cars, restaurants, news and gifts).
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A majority of the Airport's Non-Airline Revenues are generated from concessions, which includes automobile parking revenues. Table 5-2 presents concession revenues at the Airport from 2011 through 2015. As shown, concession revenues were approximately $211.9 million in 2011, and increased to approximately $244.0 million in 2015, reflecting a. CAGR of 3.6 percent during that period. The increase from 2011 through 2015 resulted from the ongoing recovery from the economic recession,.as well as continually enhanced concession offerings at the Airport, with local and national favorites well represented. Parking revenues, which represent the Airport's largest Non-Airline Revenue source, were $96.0 million in 2011, and have increased to $99.2 million in 2015, reflecting a CAGR of 0.8 percent.
EableHg2^Hist6rical'GoncessioS
(Dollars in Thousands for Fiscal Years Ended December 31)
COMPOUND ANNUAL GROWTH RATE
i Concession. Revenues
Automobile Parking Automobile Rentals
•ii-
Restaurants 11 "News; and Gifts
Other
[jpta KConcessiort^evertues >.
Total Concession Revenues Annual Growth Rate
Enplaned Passengers (thousands) ;
Enplaned Passengers Growth Rate
[Concession.Revenues per !• Enplaned.Passenger
$95,997 r 23J45"
38,547
37,989
$211,886
33,207
$6.38 '
$93,557 :"25,445,;
41,330
41,197
$218,108)
2.9% 33,245
0.1%. $6.56
$95,614 '26,274-
42,662 "18,367'.
40,337
$223,254'=
2.4%
33,298
0.2% ; $6.70
$97,834 : '727,863'"
45,432 14086-
45,082
$240,297
7.6%
;34,953
5.0% $6.'87
$99,210 7 29,176
49,366 24,355
41,908
$244,015
1.6%'
38,395
9.9% $6.36
0.8% :^2%
6.4%
2.9% 3.6%"
2.4% -.'
-0:1%
NOTE
1/ Includes International Terminal concession Revenues
SOURCE Chicago Department of Aviation, July 2016 PREPARED BY Ricondo & Associates, Inc., August 2016
The Airport's concession revenues per enplanement decreased from $6.38 in 2011 to $6.36 in 2015, which represents a CAGR of -0.1 percent, decreasing from $6.87 in 2014 to $6.36 in 2015, attributable to enplaned passenger growth outpacing concessions revenue growth in 2015.
5.3.1 BUDGETED AND PROJECTED NON-SIGNATORY AIRLINE REVENUES
Non-Signatory Airline Revenues include landing fees and terminal rentals paid by airlines that are not parties to either an Airport Use Agreement or the International Terminal Use Agreement.
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Non-Signatory Airline Revenue Projections
Non-Signatory'Airline Revenues are derived as a function of the signatory rentals, fees/and charges, based on
O&M Expenses, Debt Service, and fund deposits. In the financial analysis in this Report/landing fee revenues
received from non-signatory affiliates of the Airline Parties are considered Non-Signatory Airline Revenues.
Non-Signatory Airline Revenues are budgeted to be approximately $90.7 million in 2016 and are projected to
increase to $1401 million'ih 2025, a CAGR of 5.0''percent, which can primarily be attributed to expected
increases in the rates and charges,'specifically landing fees, charged to No'n-Sighatoiy Airlines'in order to
recover increasing O&M Expenses throughout the Projection Period and debt service associated with the 2016
New Money Bonds and future GARB issuances. Projected Non-Signatory Airline Revenues are shown in
Exhibit 5-4. --.i-L • . . ,i„-»v. -'if.;. .:•:
(Dollars in'Thousands for'.Fis'cal Years Ending December 31) ¦
$200,000 — r
: ti .01
El
I. mm . —
1111111 IIIIII111
2023
2024
2025.
2016 2017 2018 2019 2020 2021 2022 ¦ Projected Non-Signatory Airline Revenues
SOURCES- Chicago Department of Aviation; Ricondo & Associates, Inc, based on the analysis and assumptions in the Report November 2016. PREPARED BY: Ricondo & Associates, Inc., November 2016.
5.3.2 BUDGETED AND PROJECTED NON-AIRLINE REVENUES
Non-Airline Revenues include revenues from the Chicago International Carriers Association Terminal Equipment Corporation (CICA TEC); and from concessions, including automobile parking, automobile rentals, and concessions in the domestic and international terminals. These revenues are discussed below.
CICA TEC
CICA TEC operates and maintains certain common-use equipment, including baggage systems and loading bridges, for the airlines serving the International Terminal. CICA TEC was formed by the foreign-flag carriers that operate at the International Terminal together with United Airlines and American Airlines, which also operate international arriving flights at the International Terminal. Lease payments by CICA TEC to the City
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are considered Non-Airline Revenues. CICA TEC lease payments are budgeted at $14.4 million in 2016 and are projected to increase at a CAGR of half the rate of expected inflation (1.5 percent) through 2025.
Concessions
Concession revenues include those derived from the concessionaires in the terminal, such as restaurants and news and gift shops, and the Airport's landside operations such as automobile parking, automobile rentals, and bus service. CDA is continually looking for additional space that could be allocated to concessions and at opportunities to enhance concession revenue.
Actual Concession Revenues vs. Budget
As shown in Table A-2 of Appendix A to this Report, between 2011 and 2015, actual concession revenues generated at the Airport have been higher than the budgeted amount in 3 of the 5 years presented, averaging 2.2 percent higher"than budgeted. "Actual concession revenues have been within 1 percent of budget in each of the past 3 years. The Airport's 2016 final rates and charges budget serves as the base from which concession revenues are projected.
Exhibit 5-5 presents the breakdown of budgeted 2016 concession revenues.
SOURCE Chicago Department of Aviation, June 2016 PREPARED BY Ricondo & Associates, Inc., August 2016
The revenues generated by automobile parking, automobile rentals, and the concessions in the domestic and international terminals (i.e., restaurants, news and gifts outlets, and duty free), which together account for approximately 83.8 percent of concession revenues in the Airport's 2016 budget, are discussed below.
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5.3.2.4 Automobile Parking Revenues. ''
The City ria's a management agreement'with Standard Parking Corporation, a provider of parking facility management services. Under the agreement, Standard Parking Corporation provides personnel to operate and maintain the parking facilities at the Airport, provides cashier services, and provides ground transportation. The current 5-year contract between the City and'Standard Parking commenced-January 1, 2013. Standard Parking: receives-a fixed management fee adjusted annually by: a pre-agreed::upon contract • rate and submits daily, monthly/and annual accountings to'the CDA. Budgeted parking revenues net of City taxes for 2016 are $101.5 million, or 39.1 percent of concession revenues.
Parking revenues at the Airport are a function of on-Airport parking'demand and the availability of parking1 spaces demanded. Several.factors affect onrAirpprt parking.demand, sucb.,as:
The Airport currently offers hourly, and daily .parking in the ?,300rspace, .Terminal Parking. Garage,,., with a
maximum daily weekday rate of $60.00 per day in the hourly (level 1) parking and $35.00 per day for the daily
spaces on levels'2 and 6 and;outdoor surface spaces in Lots B and C. -The hourly spaces are.designed for short
term parking of less than three1 hours, and-while the Airpoft-cloes'not recommend pafkers use these spaces for
overnight stays there are no restrictions on how long a parker may stay in the space. The Airport also
provides valet service with a maximum daily weekday rate';6f $54 per day. During peak hours, holiday travel,
and in inclement weather, the Terminal, Parking. Garage.,.appr6a'ches maximum capacity but with limited
closures, only 3 hours total in 2015.V^T^H-^1'4'¦;¦' ''' ' . ;
Lot E and Lot G at/the Air.portijare 'desl^^ andse'conomy-parkers, respectively, providing
approximately 10,700 .surface spaces. Surface-Lot-ATS, with a maximum daily
weekday rate of $17 per :dayV: Parkers in' Lot E;a.'re;able:tov^ to the ATS, which
takes them to the.-Termihal^.ATea/ .Su'rfaceVLpt^-'-is:dir^tlyrwest of Lot E\a'cross Bessie Coleman Drive with a
maximum daily weekday rate of $10 per^day. ':Free-shuttle buses operate. 24.hours a day within these lots,
dropping off passengers; at- the ;ATS^station adjacent-to" Lot'Ei iot'E' and. Lot'-G' also,, occasionally experience
limited capacity during fall'and wintef.;months leading to'several/lot .closures in;,6ctober through December of
2015. Off-Airport parking. cbmp'etit'ofs7 serving .the Airp^ and WallyPark, provide
parking facilities and a s'hutflS)serVice'Hovandvfrbm the Air'port-with rates typically competitive with the on-
Airport economy lot. ': ''.v.;'.-. . ¦¦¦''.'7 ¦'¦¦'¦ /
Alternative transportation options include the CTA Blue Line Train providing direct access to a station located in the Terminal and connectivity between downtown Chicago and other CTA train lines. According to the CTA, ridership on the Blue Line has been increasing steadily over the past 15 years and has reached record levels, with the highest transit ridership of any U.S. Airport. Despite this growth, Airport parking revenues have also grown over this period. The City continues to evaluate the feasibility of a third-party operated express airport train service, which could provide direct non-stop service between the Airport and downtown Chicago. This express service, if constructed, may impact parking demand at the Airport, but that impact is unknown.
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Taxis provide service to and from the Airport, with each departure trip requiring a tax stamp from which the Metropolitan Pier and Exposition Authority (MPEA) receives a fixed fee. Taxi service, as a well-established alternative, factors into the current level of on-Airport parking demand, and with limited ability to develop new.products.or facilities,-is notexpected to result in any material incremental long-term effect on on-Airport .parking, revenues. However, TNCs .offer, a relatively. new. and increasingly popular transportation alternative that may impact on-Airport parking revenues. On November 24, 2015, TNCs secured permission from the City to offer TNC service at the Airport, and while TNCs may have been servicing the Airport before that time without permission, given the recent emergence of TNCs, there is not sufficient data available to meaningfully assess the degree to which they are capturing demand share at the expense of on-Airport parking or other forms of ground transportation such as taxis and mass transit options. The impact of TNCs to on-Airport parking revenues will be clearer as the industry matures and tracking of TNC activity at airports improves.
As Airport passengers are forecast to increase over the Projection Period, as discussed in Chapter 4 of this Report, it is assumed that on-Airport parking demand will also increase at a rate consistent with the increase in enplaned passengers. Increased on-Airport parking demand over the Projection Period could create parking capacity issues at the Airport. To accommodate future demand, the City is currently constructing the Multimodal Facility which will include approximately 2,000 parking spaces with direct access to the ATS, and has planned a new parking garage as part of the Airport's capital program. The Multimodal Facility, expected to be completed at the end of 2018, will accommodate demand for mid-market parking. The planned parking garage construction will provide customers typically parking in the Terminal Garage another option to optimize their level of convenience. Additional information regarding these capital projects is included in Chapter 2 of this Report.
An increase in parking rates at the Airport requires approval by the City Council, and while currently there are no proposed rate increases under City Council review, CDA may elect to seek approval from City Council for parking rate increases on existing facilities and to set parking rates on new facilities opened during the Projection Period. Parking rate increases would likely result in increases in parking revenues to the Airport. The last parking rate increase was implemented on January 1, 2012.
For purposes of this Report, parking revenues are projected to increase at a CAGR of 2.5 percent through 2025, which is a combination of increases in the number of OtkD passengers and assumed periodic parking rate increases, based on historical parking rate increases at the Airport, to account for inflation (3.0 percent every other year). Over the past 10 years, parking rates at the Airport for the Terminal Garage and economy lots have increased at a CAGR of 1.8 percent and 2.7 percent, respectively, excluding parking rate increases
related only to tax increases.
)
5.3.2.5 Other Concessions Revenues Automobile Rentals
Eight rental car brands currently operate on Airport. They include Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, and Thrifty. In terms of off-Airport rental car operators, Advantage Rent A Car, E-Z Rent-A-Car, Payless Car Rental, and Silvercar currently serve the Airport. All off-Airport rental car facilities are currently located at sites remote from the terminals and are served by shuttle buses. Avis Budget Group, Inc. operates the Avis, Budget, and Payless brands; Enterprise Holdings, Inc. operates the Alamo, Enterprise, and
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National brands; and The Hertz Corporation operates the Hertz, Dollar, and Thrifty brands. Advantage operates as an independent brand.
A Consolidated Rental Car Facility Lease and License Concession Agreement, executed in 2013 by the rental car companies that will serve the Airport from the Multimodal Facility, establishes a Minimum Annual Guarantee Fee and Concession Fee, which will be the greater of the Minimum. Annual Guarantee Fee or lO percent of annual gross revenues, as'defined in the agreement:! At the end of each agreement year, an annual reconciliation will be computed for underpayment/overpayment. Budgeted automobile rental revenues-for.2016 are $26.9 million, or 10.4 percent of concession revenues. Automobile rentals are projected to increase at a CAGR of 2.3 percent through 2025, which is a combination of increases in the number of O&D passengers and half the rate of inflation.
Restaurants
Concessionaires operate more than 100 restaurants/food and beverage outlets in the domestic terminals at the Airport. These outlets include a mixture of. national and local Chicago brands. The terms of the agreements for these concessionaires generally range from 5 years to 10 years. The City receives from the concessionaires a percentage of gross sales, .against minimum annual guarantees that are adjusted annually based on the previous year's sales. . The budgeted domestic terminal restaurant revenues for 2016 are $50.1 million, or 19,8 percent of concession revenues. Domestic terminal restaurant revenues are projected to increase at a CAGR of 2.3 percent through 2025, which is a combination of increases in the number of domestic enplanements and increases based on anticipated new offerings during the Projection Period.
In 2015 the Airport opened 21 new and refurbished stores. The new concepts included: Coach, MAC, and Chicago Sports Pop Up. The refurbished stores included one Starbucks, two McDonalds and others. In 2016 the Airport has completed seven new concepts including: Sarah's Candies, Green Market, Publican, and Summer House.
News and Gifts
Hudson Group operates 24 news and gifts outlets in the domestic terminals. The City receives, from Hudson Group, a percentage of gross sales against minimum annual guarantees that are adjusted annually based on the previous year's sales. The budgeted domestic terminal news and gifts revenues for 2016 are $24.3 million, ¦ or 9.6 percent of concession revenues. News and gift revenues in the domestic terminal are projected to increase at a CAGR of 2.2 percent through 2025, which is a combination of increases in the number of domestic enplanements and half the rate of inflation.
International Terminal Concessions
Effective September 1, 2011, the CDA executed a 20-year concession agreement with Westfield Group to enhance the concessions in the International Terminal. Under the International Terminal concession agreement, Westfield completed a $26 million renovation that included the addition of 24 new dining and retail outlets, including 11 local Chicago brands; a redesigned TSA checkpoint; a new dining lounge and new bathrooms; and new seating, lighting, signage, and fixtures throughout the Internationa! Terminal. The
Report of the Airport Consultant
Cl f Y OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
renovation also included the addition of a 10,000-square-foot flagship duty-free store, through which all departing travelers must now pass after clearing the TSA security screening checkpoint.
Under the previous concession agreement for the International Terminal, concession sales were approximately $25.0 million annually. Under the new agreement, concession sales increased 84.8 percent to $46.2 million in 2015. These sales generated approximately $7.2 million in revenue for the Airport, more than double the revenue in 2010, the last year prior to the start of the redevelopment. This increase in concession sales has resulted in additional revenue to the Airport, and is a result of a re-engineered layout as well as an improved selection of offerings. Prior to redevelopment, the terminal's first since its 1993 construction, 95 percent of concessions were located pre-security, preventing passengers from making purchases while waiting for flights. Of the 15 new retail and 9 new dining destinations in the newly redesigned terminal, 22 are located post-security to serve travelers near their gates. CDA has indicated that it is reviewing elements of the International Terminal concession agreement that might be used to improve domestic terminal concession operations.
The budgeted International Terminal concession revenues for 2016 are $10.8 million, or 4.3 percent of concession revenues. International Terminal restaurant revenue is projected to increase at a CAGR of 4.5 percent through 2025, which is a combination of increases in the number of international'enplanements and the rate of inflation. News and gift revenue in the International Terminal is projected to increase at a CAGR of 3.0 percent through 2025, which is a combination of increases in the number of international enplanements and half the rate of inflation. Duty Free revenue in the International Terminal is projected to increase at a CAGR of 3.0 percent through 2025, which is a combination of increases in the number of international enplanements and half the rate of inflation.
Display advertising
Display advertising revenue is budgeted to be $19.1 million in 2016 and is projected to remain level through 2025.
Hotel
Hotel revenue is budgeted to be $7.8 million in 2016 and is projected to increase at a CAGR of 2.3 percent through 2025. As described in Chapter 2, the total investment for the three hotel development projects at the Airport is estimated to be approximately $350 million and is planned to be funded by a special facility loan backed by hotel revenues. Requests for Proposals for an Operator Agreement for the terminal hotels and for a Development Agreement for the mixed-use commercial development are expected to be issued in the fall of 2016; however, the financial analysis does not assume any impacts associated with the hotel redevelopment projects on future hotel revenues or the use of hotel revenues on payments of a special facility loan.
Of/?er Concessions
Other concessions include revenues from bus service, miscellaneous, retail gift shops, currency exchange/ATMs, wireless, and telecommunications. Other concessions revenues are budgeted to be $15.1 million in 2016 and are projected to increase at a CAGR of 1;8 percent through 2025.
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CITY OF CHICAGO
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5.3.2.6 Concessions Planning ¦'¦
The City is making efforts to maximize concession revenue's through strategic planning. These efforts include both near-term and long-term planning at the Airport, as well as space and vendor management.
Plans involving the renegotiation and remarketing of the current concession agreements expiring in the near term should yield an increase in overall concession revenue through the issuance of new contracts. The City is also maximizing the use of terminal' space to" increase' concession' revenue. A combination of CDA terminal space and space that was released by airlines is planned to be converted into concession space that will also allow for increased revenues. Ah improvement1 in overall concessions planning was reflected in the issuance of a hew long-term concession' 'agreement in the International Terminal, which provided opportunities for vendors to'maximize their investments' and 'yielded increased concession'revenues. The financial analysis presented in this chapter 'doesriot ihclucle the'potehtiaf effeds of planned concession initiatives in the Domestic Terminal.
5.3.2.7 " Reimbursements and Other Non-Airline Revenue
Reimbursements primarily.relate.fo utilities. Many of the buildings on Airport property are separately metered for utilities; however,,.CDA.pays, the.utility., companies directly. .CDA then bills each tenant for individual metered usage at regular scheduled rates that are no higher than the rates paid by CDA itself. Other revenue items, included in this line item are CICA TEC energy reimbursement (CICA TEC's energy payments .to the City) and . interest income. These revenue items, are, not affected by, increases or decreases in aviation activity; increases are based on inflation. Other Non-Airline Revenues include interest income. Reimbursements and other Non-Airline Revenues combined are projected to increase at a CAGR of 1.3 percent through 2025.
Non-Airline Revenues, shown on Exhibit .5-6, are projected on the basis of a review of historical trends, projected air carrier activity levels,'and inflation. Non-Airline Revenues are projected to increase at a CAGR of 2.1 percent between 2016 and 2025.
Land rentals for hangar and cargo facilities are allocated to the Land Support Area. As described in section 5.1.3, these revenues are used to offset expenses incurred in the Land Support Area and are not Revenues or pledged as security for GARBs, including the 2016 Bonds. Therefore, these revenues are not included in the projections.
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CITY OK CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
^*>* ••. ¦ f Exhibit 5-6: Projected Non-Airline Revenues
(Dollars in Thousands for Fiscal Years Ending December 31)
$400,000
3j $350,000
£ $300,000
J $250,000
c $200,000|109|$150,000|1010|£ $100,000 >
cc $50,000
$0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 I CICA TEC rrr,7l Reimbursements & Other ^^¦Concessions ^""""Concession Revenue per Enplanement
SOURCES: Chicago Department of Aviation; Ricondo & Associates, Inc, based on the analysis and assumptions described in the Report. November 2016.
PREPARED BY: Ricondo & Associates, Inc., November 2016.
Non-Airline Revenues Related to Future Projects
OMP Airfield Projects are not expected to directly affect Non-Airline Revenues, although these projects are expected to increase Airport capacity, thus allowing for additional enplanement growth, which would indirectly increase concession revenues at the Airport. There are also no assumed effects on Non-Airline Revenues associated with the future capital projects described in Chapter 2 of this Report, including the 2016 Projects.
5.4 Other Available Revenue
5.4.1 PASSENGER FACILITY CHARGE REVENUE
The City has FAA approval to impose a PFC at the Airport and to use PFC Revenue for approved Airport projects, including OMP Airfield Projects.
PFC Program Highlights
The City collects a $4.50 PFC per eligible enplaned passenger less an $0.11 airline processing charge. No increase in the PFC collection level was assumed in the projections. No decrease in the PFC collection level is required based on current PFC approvals.
• The City has approved authority from the FAA to impose a PFC and use PFC Revenues for all project costs anticipated to be funded with PFC Revenues for OMP Phase 1, OMP Phase 2A, and the remaining OMP Airfield Projects.
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j Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
As of September 2016,. the,Cityhas/:recei,yed,authority,Jo:impo.se a PFC and use $6.55,.billion of PFC Revenues at the Airport and an estimated charge expiration date of February 1, 2039. As of June 2016, PFC Revenues received by the City for use at the Airport, including investment earnings, totaled approximately $2.75 billion.
In 2015, PFC Revenues totaled approximately $143.3 million, reflecting PFCs paid by, approximately
84.5 percent bKenplanements'af v .
The estimated.;b.alance.;in the City's PFC Revenue funds^as of january!li 2016:,was $179.0 million.
Table B-.3 in Appendix/B^of thjs'/Report:,presents! projected debt.seryice on RFC Revenue Bonds. Debt
servicevon outstahding^PFC Revenu'elBorids is'-anticipafed fo^b.e apprdximately"$66.4 million "in 2016
and 2017, then decrease to'approxim $50:4 million in',2018, $48.3'"million: from-' -12*019 'through
2023,-tji^n increase to^51.5 rrjjijion ir^2P24 ari$2025?& \ ?' -1- :^
The Series 2011A Bonds through maturity and, through 2018, the Series 2008A Bonds and the Series 2010F Bonds, and any bonds refunding all of those bonds, are secured not only by a pledge of Revenues, but are also payable from and secured by a pledge of available PFC Revenues. The City is evaluating the use of PFC Revenues after calendar year 2018 and in its sole discretion plans to continue to use PFC Revenues to pay debt service on the Series 2008A Bonds and Series 2010F Bonds, or on any bonds refunding those bonds, for which the City is under no obligation to use PFC Revenues. Therefore, the financial analysis in this Report assumes that PFC Revenues will be applied to pay debt service on the Series 2008A and Series 2010F Bonds; br on'any bonds refunding those' bonds, from 2019 through the end of the Projection Period.
PFC Revenues will be pledged as Other Available Moneys to the 2016F New Money Bonds through the Projection Period.
The City is in the process of submitting a PFC application to the FAA to apply for PFC authority for the Terminal 5 Expansion project described in Chapter 2 of this Report. PFC Revenue Bonds are expected to be issued in 2017 to fund approximately $188.6 million of the Terminal 5 Expansion project costs and to potentially refund certain outstanding PFC Revenue Bonds. Debt service on these future PFC Revenue Bonds is assumed to be approximately $12.3 million annually through the Projection Period. Due to the uncertainty of outstanding PFC Revenue Bonds to be refunded with the 2017 PFC Revenue Bonds, no savings are assumed in this Report. Additional Terminal 5 Expansion project costs could be determined to be PFC-eligible based on project refinements, if so; the City may elect to use PFC Revenues to fund those costs.
Projected PFC Revenues, as shown on Exhibit 5-7, are expected to be sufficient to cover all PFC Revenue Bond debt service and the PFC Revenues pledged to pay PFC-backed GARB debt service at the current PFC collection level of $4.50 per PFC-eligible enplanement. If PFC Revenues generated in a given year are insufficient to fully pay PFC-backed GARB debt service in that year, then the City may elect to use existing PFC Revenues in the PFC Revenue Fund, if available, instead of Airport Revenues to pay the shortfall.
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
'* v Exhibit 5-7: Projected PFC Revenue
¦¦ di - ¦ 'i ',';-''¦.¦¦¦ .''¦^¦,' '¦ ¦¦¦'¦¦ \',;,:, ,'.'¦„: ¦''' ;i_
(Dollars in Thousands for Fiscal Years Ending December 31)
2025
2016 2017 2018 2019 2020 2021 2022 2023 2024
mm PFC Stand Alone Debt Service
mm PFC-backed GARB Debt Service (pledged) «^^»PFC Revenues (including interest earnings)
NOTE. Includes only debt service with pledged PFC Revenues, however, PFC Revenues are projected to also be sufficient to pay debt service on the Series 2008A Bonds and Series 2010F Bonds, or on any bonds refunding those bonds, for which the City is under no obligation to use PFC Revenues after 2018.
SOURCES Chicago Department of Aviation; Ricondo 8t Associates, Inc., based on the analysis and assumptions described in the Report November 2016.
PREPARED BY- Ricondo & Associates, Inc, November 2016
5.4.2 FAA AIRPORT IMPROVEMENT PROGRAM GRANTS AND OTHER FEDERAL FUNDING
As of August 2016, the City has received $505 million of the $925 million multiyear LOI grants awarded ($300 million under grant AGL-06-01 and $625 million under grant AGL-10-01, as amended) by the FAA for OMP Phase 1, OMP Phase 2A, and the remaining OMP Airfield Projects.
On November 21, 2005, the FAA issued an LOI (AGL-06-01) to the City for $300 million in discretionary grants for OMP Phase 1 over a 15-year period from Federal Fiscal Years 2006 through 2020.
A total of $160 million of the OMP Phase 1 LOI discretionary grant is pledged to the payment of debt service on the Series 2011B Bonds, with the other $140 million used on a pay-as-you-go basis.
As of August 2016, the City has received $220 million of the $300 million Phase 1 LOI discretionary grant, of which, $80 million has been applied to date to the payment of debt service on the Series 2011B Bonds.
• The remaining $80 million of the OMP Phase 1 LOI grant, anticipated to be received by the City in four annual $20 million installments through 2020, is pledged to the payment of debt service on the Series 2011B Bonds. The 2016 Refunding Bonds are anticipated to be used to refund certain
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maturities, of.the Series 2011B ,Bpnds.-f ;Fpt,.p,ui:pos.es>of ,thjs. Report, the remaining $80 million of the Phase 1 LOI is assumed to be pledged to pay debt service on the portions of the Series 2011B Bonds not refunded.
On April 21, 2010, the FAA issued an LOI (AGL-10-01) to the City for $410 million in discretionary grants for OMP Phase 2A and the remaining OMP Airfield Projects. The FAA has approved a series of amendments to increase the amount and revised the timing'of the LOI grant, which ,resulted in an increase the total grant amounftfrom $410 niillipn-to $625»millioQ.., . •
• ./i©f the;>$625 million LOI; discretionary grant, $28j^million£is to bei-used^to fund OMP Phase 2A, ¦ ,iincludin'g:-$45 million pledged to'the payment of debt serviceion th&'2011B Bonds, with the remaining , '.'$345 million toibe used-Jo fund the remaining OMP• As of August 2016, the City has 'received $285 million of the;:$625'"million LOI' discretionary grant, of which $45 miHipn; ha.s been applied to the' payment;iof debt'service on the Series 2011B Bonds, $235
rrmillion;ha's beeftused tbTre.imbufse^the Cityjfor prior expenditures qnT'OMP Phase 2A projects, and $5 million.will be used to fund the remaining OMP Airfield Projects.
• "The City intends' to apply" a 'total" of $325~million of LOI "grant installments associated with the
remaining OMP Airfield Projects, comprised of $205 million of LOI grant installments used on a pay-as-you-go basis and $140 million'pledged to thepayrhent of 'debt service on the'2016E New Money Bonds.
All future LOI grant installments anticipated to be received by the City are assumed to be made available by the FAA and paid to the City in accordance with the schedule shown in Table B-4 in Appendix B of this. Report.
Under the AIP, in addition to discretionary grants, the City also receives annual entitlement grants for use at the Airport based on the number of enplaned passengers and cargo tonnage at the Airport.
Federal funding received by the Airport, and aviation operations in general, could be adversely affected by implementation of the sequestration provisions of the Budget Control Act, which was signed into law by the President on August 2, 2011. Under the budget .sequestration provisions, the Build America Bonds (BAB) subsidy, which is applied to offset debt service paid by the airlines on the Series 2010B Bonds, was reduced by 7.2 percent for Federal FY 2014, 7.3 percent for Federal FY 2015, and 6.8 percent for Federal FY 2016, and will be reduced by 6.9 percent for Federal FY 2017. Absent, Congressional action, the sequester will continue through Federal FY 2025; however, the percentage of future reduction is not known at this time. The amount of the BAB subsidy in 2016 is budgeted to be $12.4 million; for purposes of the financial analysis in this Report, this amount is assumed to be available in each year of the Projection Period.
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CITY OF CHICAGO
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Debt Service
5.5.1
GENERAL AIRPORT REVENUE BOND DEBT SERVICE
Projected annual Net Debt Service, net of capitalized interest, PFC Revenues, Grant Receipts and other federal funds used to pay debt service, on all currently outstanding GARBs and projected future GARBs is discussed in this section. Projected debt service is provided in Table B-5 in Appendix B of this Report.
Outstanding GARB Debt Service after the Issuance ofthe 2016 Refunding Bonds
Total outstanding GARB debt service totals approximately $540.7 million in 2016. The expected savings from the 2016 Refunding Bonds are assumed. After the issuance of the 2016 Refunding Bonds and refunding of certain Airport Obligations, outstanding GARB debt service is projected to increase to approximately $568.9 million in 2018 then decrease steadily throughout the Projection Period to approximately $452.9 million- in 2025.
2016 New Money Bond Debt Service
As described in Chapter 2 of this Report, the 2016 Projects include the construction of Runway 9C-27C and enabling projects, centralized deicing pad, and cross-field taxiway system and relocation of Taxiways A and B. Proceeds from the 2016 New Money Bonds are anticipated to be used, in part, to fund the 2016 Projects. The 2016 Projects total approximately $1.3 billion, of which approximately $1.0 billion will be funded with proceeds from the 2016 New Money Bonds. PFC Revenues and Grant Receipts from a FAA LOI Grant, both used on a pay-as-you-go basis, are anticipated to fund the portions of the 2016 Projects not funded with the 2016 New Money Bonds.
In addition to Revenues, the Series 2016E New Money Bonds are also payable from and secured by a pledge of Net Grant Receipts. The City anticipates receiving annual FAA LOI Grant reimbursements in the amounts shown in Table 5-3, which will be used to pay debt service on the 2016E New Money Bonds in the year following the receipt of the grant.
LOI GRANT RECEIPT
., $30,000,000 •¦'
$30,000,000
. ¦¦¦¦ -2024. •. ¦:>':¦,.
$30,000,000
v $20;6bo,bob
SOURCE Chicago Department of Aviation, September 2016 PREPARED BY. Ricondo & Associates, Inc, September 2016
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CI I V Uh CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
In addition to Revenues, the Series 2016F New Money Bonds are also payable from.and-secured by a pledge of PFC Revenues through maturity.
The 2016 New Money Bonds are each assumed to have a term of 35 years, and for purposes of this Report, interest on the 2016 New Money Bonds is assumed at the current market interest rate as of September 7, 2016 plus 75 basis points.
Total debt service payable on the 2016 New Money Bonds is projected to be approximately $9.1 million in 2017, decrease to $8.8 million in 2018, then increase to approximately $42.9 million in 2019 and 2020, approximately $62.2 million in 2021 and 2622, and then increase to approximately $92.2 million through the end of the Projection Period, based on the expected timing of project components being completed;and the anticipated structure of the 2016E New Money Bonds. ''
Net Debt Service on future GARBs :
The financial analysis presented in this chapter includes Net Debt Service on future GARBs to be issued to fund the Airport's capital program described in Chapter 2 of this Report and includes the following:
Future Remaining OMP Airfield Projects GARBs. Approximately $361.4 million of the remaining OMP Airfield Projects are estimated to be funded by proceeds from future 'GARBs. Funding" approval for the extensidnbf Runway 9R-27L has yet to be negotiated with the Airline Parties and Airline Party approval''Has riot' yet been' requested 'or'deceived for'"these' Bonds.' Based ori'the" City's 'planned schedule for the remaining'OMP Airfield Projects, Net Debt Service! net of capitalized'interest,' for these GARBs is assumed to be approximately $42.8 million in 2022 arid then remain level through the Projection Period.
Future 2016-2020 CIP GARBs. As shown in Chapter 2 of this Report, proceeds from future GARBs in the amount of approximately $773.3 million, along with other funds, are needed to fund the Airport 2016-2020 CIP. Based, on the anticipated timing of capital expenditures and anticipated future Mil airline approvals, a bond issuance in FY 2018 is assumed in this,financial analysis; shown below. Debt service on these bonds is allocated to cost centers based on the type of capital projects funded, detailed in Chapter 2. Net. Debt Service on these future bonds is projected to be approximately $38.9 million in 2019, and then to steadily increase as . projects included .in the 2016-2020 CIP are completed, to approximately $73.5 million in 2025.
The Terminal Area Plan, described in Section 2.2.3 of this Report, is still in preliminary planning and discussion phases, and due to the uncertainty of project costs, funding, and timing, no future GARB issuances associated with this project have been assumed, however debt service payable during the Projection Period is expected.
The future GARB issuances all assume 30-year bonds and an interest rate of 6.5 percent. GARB issuances associated with the remaining OMP Airfield Projects each assume capitalized interest until the completion the extension of Runway 9R-27L, assumed to be October 2021. The GARB issuance associated with the 2016-2020 CIP assumes capitalized interest until individual project completion. The year and amounts assumed are as follows in Table 5-4.
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Table 5-4:^Assumed Future GARB Issuances •
ASSUMED PROJECT FUNDING.($ MILLIONS)
: 2016-2020 CIP
Series 2018
Remaining OMP Airfield Projects*
$361.4 million
NOTE. PFC Revenue Bonds are expected to be issued in 2017 to fund Terminal 5 Expansion These bonds are not expected to be secured by Revenues SOURCE: Chicago Department of Aviation, August 2016; Frasca & Associates, September 2016 PREPARED BY: Ricondo & Associates, Inc., September 2016.
Table B-5 in Appendix B of this Report shows estimated Net Debt Service, net of capitalized interest, on the additional GARBs projected to be required to fund projects associated with the remaining OMP Airfield Projects and future 2016:2020 CIP projects, within.the Projection Period.
Net Debt Service
Net Debt Service in the financial analysis reflects existing and future Net Debt Service, net of capitalized interest, PFC Revenues, Grant Receipts and other federal funds used to pay debt service, and adjusted to reflect debt service coverage requirements, investment income, and program fees. As shown on Exhibit 5-9, Net Debt Service is budgeted to be approximately $423.4 million in 2016 and projected to increase to approximately $531.4 million in 2025 as project components funded with proceeds from the 2016 Bonds and future GARB issuances are completed.
- iJ...—*r—r—
M'Exhibiti5^9:iProiected]J^etDebt;Seivice?^"
(Dollars in Thousands for Fiscal Years Ending December 31)
$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0
SOURCE Chicago Department of Aviation, August 2016; BAMLNovember 2016 PREPARED BY Ricondo & Associates, Inc, November 2016
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
5.6 Net Signatory Airline Requirement
The Airport enterprise'has the'ability'to generate sufficient'Revenues to payJ0&M Expenses, Net GARB Debt Service, and annual required deposits to the O&M Reserve Fund arid the Maintenance Reserve Fund.
The Net Signatory Airline Requirement constitutes.the tptaj •.amount that must be paid by the Airline Parties and the International Terminal Airline Parties under the Airport Use Agreement and the International Terminal Use Agreement, respectively,, through Landing .Fees, Terminal . Area Rentals, Terminal Area Use Charges, International Terminal Enplaned and Deplaned Common Use Charges, and Fueling System Fees during the year.
The Net Signatory Airline Requirement is projected to increase from $587.0 million in 2016 to $910.7 million in 2025, shown in Exhibit 5-10: ¦ ¦•.¦¦.¦
(Dollars in Thousands for Fiscal Years Ending December 31)
$(500,000)
2016 • 2017;. 2018 2019 l '' 2020 2021 2022 -2023 2024 2025
^¦B O&M Expenses ¦¦¦ Fund Deposit Requirement
¦B Non-Signatory Airline Revenue H Net Debt Service •
¦¦¦ Non-Airline Revenue ""^"Net Signatory Airline Requirement
SOURCES: Chicago Department of Aviation, Ricondo & Associates, Inc , based on the analysis and assumptions in the Report. November2016
PREPARED BY Ricondo & Associates, Inc, November 2016.
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CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
5.7 Calculation of Airline Parties' Airport Fees and Charges
Under the Airport Use Agreement and the International Terminal Use Agreement, the Airfield Area, the Terminal Area, .the International Terminal Area, and the Fueling System each generate rentals, fees, or charges payable by the airlines that are signatory to such agreements. The Airport Fees and Charges presented in this section for 2016 through 2018 reflect the rate-setting methodology in the Airport Use Agreement and the International Terminal Use Agreement. In the financial projections presented herein, a continuation of the current Airport residual rate-setting methodology was assumed through 2025; see Section 5.1.1 of this Chapter.
Applicable Non-Airline Revenues (i.e., rentals, concession revenues, and reimbursements), as well as the following costs, are allocated to each CRC to calculate applicable rates used to generate such fees, rentals, and charges:
O&M Expenses. Includes the O&M Expenses (direct and allocated indirect) attributable to the CRC:
• Net Debt Service. Includes the portion of debt service, net of capitalized interest, and debt service coverage attributable to the CRC. The debt service amounts included in the calculation of airline rates and charges also reflect certain adjustments required to be made to actual debt service under the Airport Use Agreement for the purpose of calculating of Airport Fees and Charges.
Fund Deposit Requirements. Includes the allocated portions of the amounts required to be deposited to the funds described earlier.
5.7.1 AIRFIELD AREA
Generally, Landing Fees are calculated by first determining the net cost of the Airfield Area, which consists of portions of the following: sum of O&M Expenses, Net Debt Service, fund deposit requirements, and the net deficit of the International Terminal Area less the sum of projected Non-Airline Revenues and net revenues of the International Terminal Area. The Net Cost of the Airfield Area is allocated among Signatory and Non-Signatory Airlines on the basis of the approved maximum landed weight of all aircraft. Each Signatory Airline and Non-Signatory Airline pays Landing Fees on the basis of the ratio of its total approved maximum landed weight to the total approved maximum landed weight of all Signatory Airlines and Non-Signatory Airlines. The landed weight of aircraft landed by certain classes on Non-Signatory Airlines may be increased by Non-Signatory Airline premium factors to be determined by the City's Commissioner of Aviation from time to time.
In order to avoid "private business use" of the Airfield Area under federal tax law, certain modifications to the rate-setting methodology described in the preceding paragraph have been in effect since November 2005. The purpose and effect of these modifications are to cause the Airline Fees and Charges paid by the Airline Parties relating to their use of the Airfield Area to be computed without regard to deficits or surpluses relating to the use of the Airfield Area by entities other than the Airline Parties.
Exhibit 5-11 presents the Projected Landing Fees at the Airport during the Projection Period
RepOft of thtJ Airport Consultant
CiTY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
$15
2025
I II I I I III |; I I I I I I I I I I
2016 , 2017. 2018 .2019 2020 2021. 2022. 2023. 2024
SOURCES: Chicago Department of Aviation; Ricondo & Associates, Inc; based on the analysis and assumptions in the Report November 2016. ' PREPARED BY: Ricondo & Associates, Inc., November 2016.
TERMINAL AREA
O&M Expenses, Debt Service; and fund deposit requirements allocated to the Terminal Area' are added together and offset by Nbri-Airline Revenues arid Non-Signatory Airline Revenues attributable to the Terminal Area. A portion ofthe Terminal:Suppoft Area net deficit or net revenue is then allocated to'the Terminal Area to yield the Terminal Area net deficit! The Terminal Area net'deficit-is paid by the Airline Parties in the form of Terminal Area Use Charges, which are calculated on a per square foot of exclusive or preferential use leased space basis. In addition to the Terminal Area Use Charges/ the Airport Use Agreement establishes a $5.00 per square foot Terminal Area Rental rate for space exclusively or preferentially leased to the Airline Parties.
INTERNATIONAL TERMINAL AREA
The International Terminal Use Agreement creates sub-cost centers (the Exclusive Use Cost Center, the Enplaned Common Use Cost Center, and the Deplaned Common Use Cost Center) within the International Terminal Area. The International Terminal Airline Parties pay terminal rentals and common use charges based on their use of the International Terminal Area.
Portions of O&M Expenses, Net Debt Service on GARBs, and Non-Airline Revenues are allocated to the sub-cost centers, as appropriate, and a portion ofthe Terminal Support Area net deficit or net revenue is allocated to the International Terminal Area under the Airport Use Agreement. These sub-cost center expenses are generally allocated on the basis of the relative square footage of the respective sub-cost centers, yielding a net requirement for each sub-cost center.
The net requirement of the Exclusive Use Cost Center results in a base terminal rental rate according to leased square footage; the net requirement of the Enplaned Common Use Cost Center results in a base common use charge rate according to the number of International Terminal enplaned passengers; and the net requirement of the Deplaned Common Use Cost Center results in a base common use charge rate according to the number of International Terminal deplaned passengers.
Exhibit 5-12 presents the projected terminal rental rates in the Domestic Terminal and International Terminal at the Airport during the Projection Period.
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$180
2016 2017 2018 2019 2020 ¦ Domestic Terminal - Average Use Charge
2021 2022 2023 2024 2025 I International Terminal - Base Rental Rate
SOURCES Chicago Department of Aviation, Ricondo & Associates, Inc, based on the analysis and assumptions in the Report. November 2016 PREPARED BY Ricondo & Associates, Inc., November 2016.
5.7.4 FUELING SYSTEM
The net cost of the Fueling System consists of the portions of O&M Expenses and Net Debt Service allocated to the Fueling System. Of this net cost, 10 percent is shared equally by all Airline Parties and International Terminal Airline Parties. The remaining 90 percent of the net cost is divided by the total gallons of fuel distributed from the Fueling System and charged to airlines based on the number of gallons used by each airline. -
5.8 Reasonableness of Airport User Fees
Table B-9 in Appendix B at the end of this Report presents the airline revenue resulting from the previously described rentals, fees, and charges. Consistent with the Airport Use Agreement and International Terminal Use Agreement, the total Signatory Airline revenue presented in Table B-9 equals the Net Signatory Airline Requirement presented in Table B-7.
5.8.1 AIRLINE COST
A general test of the reasonableness of airport user fees is to compare projected airline costs in a manner that accounts for airline activity. One approach is to measure airport user fees on a per enplanement (CPE) basis. By comparing this metric on a year-over-year basis and by comparing it to airlines' revenue and estimated costs allocated to the Airport, the reasonableness of Airport user fees can be determined. The airline CPE is calculated by dividing the Total Airline Requirement by the number of enplaned passengers at the Airport.
Report of the An port Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
Exhibit 5-13 shows the projected.airline CB.E,atrthe Airport. As.shown,,the CPE is projected to.increase from $17.49 in 2016 to $25.38 in 2025, which equates to $19.45 in 2016 dollars assuming 3 percent inflation. Notable increases include the following:
• 2017 through 2025 - Incremental increases in CPE associated with City pension contributions.
• 'i 2017 through 2025,- Incremental increases in airline requirement associated with Net Debt Service on W2016 New M6hey;Bbhds as. well as as'sumecl'future GARB.issuances to fund the Airport 2016-2020 CIP
and remaining OMP Phase<2B Airfield;Projects:
'2021 -'Increase in;CPE related to increases i'nJ.O&M Expenses, associated "with the commissioning of
;xv- f Ruriyv^9C-27G;^n'd tfre-exfensibtVofR^ ' ' ,/v: :!
2016 2017 2018 2019 2020 ¦-' " ¦2Q2V' ''2022 2023 '2024 2025 ¦ Cost per Enplanement ¦ Cost per Enplanement - 2016 Dollars
NOTE. Assumes inflation rate of 3 percent
SOURCES: City of Chicago Department of Aviation; Ricondo & Associates, Inc., based on the analysis and assumptions in the Report November 2016. PREPARED BY- Ricondo & Associates, Inc., November 2016.
The projected Airport user fees shown in Exhibit 5-13 are evaluated in this analysis to be reasonable based on the expectation that these fees will not deter forecasted demand for air traffic at the Airport as airlines continue to deploy capacity to airports based on available resources. The projected Airport user fees in this analysis are deemed to be reasonable based on the following combination of factors:
Large population and strong economic base - The Airport is located in the third-most populous metropolitan region in the United States and is ranked fourth in the nation in terms of domestic O&D passengers in calendar year 2015 - following the New York, Los Angeles, and San Francisco markets. The Airport's Air Trade Area has a large, diverse economic base that supports business and leisure
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT
travel. Projected economic variables indicate that the Air Trade Area will remain a destination that
attracts both business and tourist visitors, positively affecting the demand for future inbound airline
travel. Projected Air Trade Area economic variables further support the continued growth of local
outbound passengers. . . .
•Attractive geographical location - The Airport's central location arid proximity to heavily traveled east-west airways make it a natural location for airline hub activities and is complementary to airline route networks.
Important hub for United and American - The Airport is a major connecting hub.for United and American within their United States domestic route networks, and it is an important international gateway for European, Asian and Canadian passenger traffic, providing strong connectivity to flights of international alliance partners. As estimated in Section 4.1 of this Report, the Airport is the second highest contributor to profit for United and the fourth highest contributor to profit for American. The Airport is also an increasingly important airport within the route networks of several United States low-cost carriers. Generally, Airport user fees are not a key contributor to airline's profitability in the United States.
Increases in debt are associated with capital projects that allow for growth - Airport user fees during the Projection Period are calculated to recover debt service and operating costs partially attributable to significant capital projects designed to provide capacity at the Airport which supports the ability for airlines to increase service. Although the funding of these projects is anticipated to result in increased Airport user fees, these projects support projected long-term growth at the Airport.
In summary, Airport user fees, although increasing over the Projection Period, are one of many factors that are considered by airlines when evaluating air service. Airport user fees were approximately 6.7 percent of system-wide total airline operating costs according to the airline industry group Airlines for America'' and are one of many factors airlines consider when allocating capacity resources. Forecasted growth of population and economic base, along with the geographical location and established role of the airport in airlines' route network, support the reasonableness of projected Airport user fees.
5.9 General Airport Revenue Bond Debt Service Coverage
Table B-ll in Appendix B at the end of this Report presents the Debt Service coverage ratios projected for GARBs from 2016 through 2025. As contained in the Senior Lien Indenture:
The City covenants... [that it will] fix and establish, and revise from time to time whenever necessary, the rentals, rates and other charges for the use and operation of O'Hare and for services rendered by the City in the operation of it in order that Revenues in each
2 1 percent of passenger airline operating expenses in the first quarter of 2016 went to landing fees and 4.6 percent went to non-aircraft rents and ownership, according to data collected by Airlines for America.
[E-149]
Report of the Airport Consultant
CITY OF CHICAGO
CHICAGO O'HARE INTERNATIONAL AIRPORT NOVEMBER 3, 2016
¦ . Fiscal Year, together with Other Available Moneys deposited with the Trustee with respect to that Fiscal year and any cash balance held in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in-a Fund or Account, will be at least sufficient...to provide for...one and ten-hundredths times (l.lOx)' Aggregate'Senior Lien Debt.Service for the Bond Year commencing, during that Fiscal Year,, reduced by any proceeds of Airport,Obligations hejd by the Trustee for disbursement during that Bond Year to pay principal and interest on Senior Lien Bonds or Senior Lien Obligations
In addition to Airport Revenues, the City also pledged as-Other 'Available MbheysPFC'ReVenu'es'through 2018 equal to the amount of annual debt service on the Series 2008A and Series 2010F Bonds,' or any bonds refunding those bonds', and 'through maturity•bh':the :Se>ies -2011A''Bonds, "or any bonds refunding those bonds/plus any required coverage on those bonds. As described in Section 5.411';' PFC Revenues' are assumed to be applied to pay debt service on the Series'2008A' and Series 2010F Bonds, or any bonds refunding those bonds, from 2019 through-the end of the PrbjectiPri Period. It is assumed that PFC Revenues equal to the amount of annual debt service on the 2016F New Money Bonds will be pledged as Other Available Moneys through the Projection Period. Also, the City has pledged as Other Available Moneys Grant Receipts from FAA Letter of Intent grants,and other. FAA discretionary grants to the.debt, service on the.Series 2011B Bonds, in addition to Airport. Revenues. It is, assumed in this, analysis that Grant Receipts from FAA Letter of Intent grants will be pledged as Other Available Moneys to pay debt service on the 2016E New.Money Bonds through,the Projection. Period. As .shown, the Debt Service,coverage, ratio is projected to,meet the minimum requirement of l.lOx in each year of the. projection period.
5.10 Assumptions Underlying the Financial Projections
The techniques and methodologies used in preparing this financial analysis are consistent with industry practices for similar studies in connection with airport revenue bond sales.' While R&A believes that the approach and assumptions used are reasonable, some assumptions regarding future trends and events presented in this Report, including, but not limited to, the implementation schedule and enplanement projections, may not materialize. Achievement of,the. projections presented in this Report,, therefore, is dependent upon the occurrence of future events, which cannot be assured; and the variations may be material.
Report of the Airport Consultant
Appendix A
Historical Budgeted versus Actual Operating Results
¦ B ¦ O ¦ I B ¦¦¦¦ C ¦¦¦ 10 ¦ n ¦¦¦¦¦¦ ¦ B.B ¦ CJ ¦'¦ ¦ ¦ MM MP MM ¦ ¦ ¦ ¦ B Q B ¦ B n ¦ B B B B ¦ BBB B B ¦(->¦¦¦ B ¦ BBB CBBBB BBB r? BBB HBBBB ¦.¦¦BBB BB^BBBBBBB'aBBBBBB BH BBB III llllliailDBI BBB
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[E-151]
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CITY OF CFIICAGO '
CHICAGO O'HARE INTERNATIONAL AIRPORT
i'''¦&*•'^?-iv-;U^y Table A-1: Operationland Maintenance jExpenses^Actuaj ys Budget (2010-2014), .¦ v:;;-' /;v.. , . ,
(Dollars in Thousands for Fiscal Years Ended December 31)
COMPOUNDED ANNUAL
2011 2012 2013 2014 2015 GROWTH RATE (2011-2015)
BUDGET:
Budgeted O&M Expensesu $428,627 $437,297 $448,886 477,940 510,812 4 5%
ACTUAL:
Actual 08iM Expensesv $407,331 $426,461 $406,318 $463,224 $466,426 3 4%
ACTUAL (below)/above BUDGET -5.6% -2.5% -9.5% -3.1% -8.7%
NOTES
1/ Does not include land Support, Anpoit Development Fund, Emergency Reserve Fund and PFC Fund
SOURCES City of Chicago Comptroller's Office and Department of Aviation. September 2016
PREPARED BY Ricondo fit Associates, Inc, September 2016 _^
Report of the Airport Consultant
CiTV OF CHICAGu
CHICAGO O'HARE INTERNATIONAL AIRPORT
(Dollars in Thousands for Fiscal Years Ended December 31)
COMPOUNDED ANNUAL GROWTH RATE (2010-2014)
BUDGET:
Automobile Parking - Net of Tax Automobile Rentall/ Restaurants News & Gifts Other21
Total Concession Revenue
$89,423 $94,747
21,523 21,443
31,889 39,878
19,719 18,148
$212,342
29.981 ¦. 38,125
$192,535
$94,460 22,629 38,213 20,621 47,222
$223,144
$97,497 $101,902
24,589 26,549
41,292 44,988
26,048 18,407
52;872 54,048
$242,298 $245,895
3.3% 5.4% 9.0% -17% 15.9%
6.3%
ACTUAL:
Automobile Parking - Net of.Tax:
Automobile Rental " v-.
Restaurants >,: .¦ •->.'¦'; ¦
News & Gifts Other"
Total Concession Revenue :
$93,557 $95,614 25,445 ' 26,274 41,33a^;i: (;!42;662' 16,579 :|'-^1'' 18;36J 41,197;'Mr ,.40,337
^$^l;8'86;;f $218,108^'$223:254
$97,834 $99,210 27,863...-:;VJ29.176
v.5^32\1-.V;-^49,366 24.086 'J-y: 74.355 45;082-.-:>-.41,908
$24p;297;':-;v $244,015 t . ^¦¦-,.:' /:
08% ,5 3%
6.4%
11.8%.
;'2.5%
3 6%
ACTUAL (below)/above BUDGET
$260,000 $240,000 $220^0*00 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000
2011 2012
¦ Budgeted Concession Revenues
2013 2014
¦ Actual Concession Revenues
MOTES
1/ Includes pe-centagr of ytoss receipts of e cjht rental car compa-iips oporat eg under agreements at the A rpoit
21 Ircludes rentals and fees from other concessions si.ch as other space rentals, bus service, public pay phones, other specialty shops, display advertising, hotel, and duty f'ee SOURCES Gly ot C'ncagp Ccrnpt-cllcr's Ot? ce am: Pepiftrnert of Av ation. September 201C;
PREPARFD BY Ricpndo & Associates Inc, September ?01n
Report of the Airport Consultant
Appendix B
Financial Projection Tables
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[E-167]
Appendix F
PROPOSED FORMS OF OPINIONS OF CO-BOND COUNSEL
[This Page Intentionally Left Blank]
1FORM OF SERIES 2016A CO-BOND COUNSEL OPINION]
December 5, 2016
City of Chicago City Hall Chicago, Illinois
We have examined a record of proceedings relating to the issuance of $27,335,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (the "Bonds") of the City of Chicago, a municipal corporation and a home rule unit of local government of the State of Illinois (the "City"). The Bonds are limited obligations of the City issued pursuant to the authority of Article VII, Section 6(a) of the Illinois Constitution of 1970 and by virtue of an ordinance adopted by the City Council of the City on September 14, 2016 (the "Bond Ordinance").
The Bonds are authorized by the City for the primary purpose of refunding bonds (the "Prior Bonds") previously issued for the purpose of providing funds to finance the cost of certain capital projects at Chicago O'Hare International Airport (the "Airport").
The Bonds are being issued pursuant to a Master Indenture of Trust Securing Chicago O'Hare International Airport General Airport Revenue Senior Lien Obligations, dated as of September 1, 2012 (the "Indenture"), between the City and U.S. Bank National Association, as Trustee (the "Trustee"), and a Fifty-Second Supplemental Indenture Securing Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A, dated as of December 1, 2016 (the "Fifty-Second Supplemental Indenture"). The Bonds are Senior Lien Obligations authorized under the Indenture and are payable solely from and secured by a pledge of Revenues of the Airport as, and to the extent, provided in the Indenture and the Fifty-Second Supplemental Indenture. Terms used herein that are defined in the Indenture and the Fifty-Second Supplemental Indenture shall have the meanings set forth therein unless otherwise defined herein.
Under the terms of the Indenture, the City has previously issued Senior Lien Obligations that are presently outstanding and the City may hereafter authorize and issue additional Senior Lien Obligations as permitted by the Indenture. Senior Lien Obligations are entitled to the benefit and security of the Indenture, including the pledge of Revenues and other funds maintained for the benefit of the Senior Lien Obligations.
The Bonds are issuable only as fully registered bonds without coupons in the denomination of $5,000 or any integral multiple thereof. The Bonds are dated December 5, 2016 and bear interest from their date payable on January 1, 2017, and semi-annually thereafter on each January 1 and July 1 until paid. The Bonds mature on January 1 in each ofthe following years in the respective principal amounts set opposite such years and the Bonds maturing in each such year bear interest at the respective rates of interest per annum set opposite such principal amounts in the following table:
F-1
Year Principal Amount Interest Rate
$
600,000 950,000 1,000,000 1,045,000 1,100,000 1,155,000 1,210,000 1,275,000 1,340,000 l,4Q5,0p6 1,470,000 1,550,000 1,62.5,000 1,710,000 1,790,000 1,885,000 1,97.5,000 2,075,000 2,175,000
3.00% 5.00 5.00 5.00 5.00 5.00 5.00 5.00 ..... 5.00 5.00 5.00 .5.00 5r00 5.00 5.00 5,00 5.00 5.00 5.00
2017 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
. , 2030 2031 2032 2033 2034 2035. 2036 2037
The Bonds maturing:on or after January 1, :2027 are 'subject to redemption,* at the- option' of the City, on or after January 1, 2026, as a whole or in part at any time, and* if in part, from such maturities as the City shall determine and by lot. for Bonds of the same maturity, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date of redemption.
In connection with the issuance of the Bonds we have examined the following: (a) the Constitution ofthe State of Illinois, and such laws as we deemed pertinent to this opinion; (b)a certified copy of the Bond Ordinance, (c) executed counterparts of the Indenture and the Fifty-Second Supplemental Indenture; and (d) such other documents and related matters of law as we have deemed necessary in order to render this opinion.
, Based, upon our. examination of the foregoing, we are of the opinion that:
1. The City is a municipal corporation duly, existing under, the laws of the State of Illinois and is a home rule unit of local government within the meaning, of Section 6(a) of Article VII of the 1970 Illinois Constitution. The City has all requisite power and authority under the Constitution and the laws of the State of Illinois and the Bond Ordinance (i) to enter into the Indenture and the Fifty-Second Supplemental Indenture with the Trustee and to issue the Bonds thereunder, and (ii) to improve, maintain and operate the Airport and to charge and collect rents, fees and other charges for the use and services of the Airport and to perform all of its obligations under the Indenture and the Fifty-Second Supplemental Indenture in those respects.
The Bond Ordinance is in full force and effect and is valid and binding upon the City in accordance with its terms. The Indenture and the Fifty-Second Supplemental Indenture have been duly authorized, executed and delivered by the City, constitute valid and binding obligations of the City and are legally enforceable in accordance with their terms.
The Bonds have been duly authorized and issued, are the legal, valid and binding limited obligations of the City, are entitled to the benefits and security of the Indenture and the Fifty-Second Supplemental Indenture, and are enforceable in accordance with their terms.
The Bonds are payable solely from the Revenues deposited in the 2016A Dedicated Sub-Fund maintained by the Trustee under the Fifty-Second Supplemental Indenture, the Common Debt Service Reserve Sub-Fund on a parity with other Common Reserve Bonds and certain other amounts as provided in the Indenture and the Fifty-Second Supplemental Indenture. The Bonds and the interest thereon are limited obligations of the City and do not constitute an indebtedness of the City within the meaning of any state constitutional or statutory limitation or give rise to a charge against its general credit or taxing powers. Neither the faith and credit nor the taxing power of the State of Illinois, the City or any political subdivision of the State of Illinois is pledged to the payment of the principal of, premium, if any, or interest on the Bonds.
The Indenture and the Fifty-Second Supplemental Indenture create the valid and binding assignments and pledges which they purport to create of the amounts assigned and pledged to the Trustee under the Indenture and the Fifty-Second Supplemental Indenture.
Under existing law, interest on the Bonds is not includible in the gross income of the owners thereof for Federal income tax purposes. If there is continuing compliance with the requirements ofthe Internal Revenue Code of 1986 (the "Code"), we are of the opinion that interest on the Bonds will continue to be excluded from the gross income of the owners thereof for Federal income tax purposes. We express no opinion as to the exclusion from gross income for Federal income tax purposes of interest on any Bond for any period during which such Bond is held by a person who is a "substantial user" of the facilities financed with the proceeds of the Bonds or a "related person" (as defined in Section 147(a) ofthe Code). Furthermore, you are advised that interest on the Bonds constitutes an item of tax preference for purposes of computing individual and corporate alternative minimum taxable income for purposes of the individual and corporate alternative minimum tax. Interest on the Bonds is not exempt from present Illinois income taxes.
The Code contains certain requirements that must be satisfied from and after the date hereof in order to preserve the exemption from Federal income taxes of interest on the Bonds. These requirements relate to the use and investment of the proceeds of the Bonds, the payment of certain amounts to the United States of America, the security and source of payment ofthe Bonds and the use and tax ownership of the property financed
with the proceeds of the Prior Bonds and the Bonds. The City has covenanted in the Indenture to comply with these requirements.
With respect to the exclusion from gross income for Federal income tax purposes of interest on the Bonds, we have relied on the verification report of Robert Thomas, CPA LLC, certified public accountants, regarding the computation of arbitrage yield on the Bonds and of certain investments made with the proceeds of the Bonds.
In rendering the foregoing opinion, we advise you that the enforceability (but mot the validity or binding effect) of the Bonds, the Indenture and the Fifty-Second Supplemental Indenture (i) may be limited by any applicable bankruptcy, insolvency or other laws affecting the rights or remedies of creditors now or hereafter in effect and (ii) is subject to principles of equity in the event that equitable remedies are sought, either in an action at law or in equity.
Respectfully yours, •
LG/be . ,'„. ...
F-4
[FORM OF SERIES 2016B CO-BOND COUNSEL OPINION]
December 5, 2016
City of Chicago City Hall Chicago, Illinois
We have examined a record of proceedings relating to the issuance of $461,945,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (the "Bonds") of the City of Chicago, a municipal corporation and a home rule unit of local government of the State of Illinois (the "City"). The Bonds are limited obligations of the City issued pursuant to the authority of Article VII, Section 6(a) of the Illinois Constitution of 1970 and by virtue of an ordinance adopted by the City Council ofthe City on September 14, 2016 (the "Bond Ordinance").
The Bonds are authorized by the City for the primary purpose of refunding bonds (the "Prior Bonds") previously issued for the purpose ofproviding funds to finance the cost of certain capital projects at Chicago O'Hare International Airport (the "Airport").
The Bonds are being issued pursuant to a Master Indenture of Trust Securing Chicago O'Hare International Airport General Airport Revenue Senior Lien Obligations, dated as of September 1, 2012 (the "Indenture"), between the City and U.S. Bank National Association, as Trustee (the "Trustee"), and a Fifty-Third Supplemental Indenture Securing Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B, dated as of December 1, 2016 (the "Fifty-Third Supplemental Indenture"). The Bonds are Senior Lien Obligations authorized under the Indenture and are payable solely from and secured by a pledge of Revenues ofthe Airport as, and to the extent, provided in the Indenture and the Fifty-Third Supplemental Indenture. Terms used herein that are defined in the Indenture and the Fifty-Third Supplemental Indenture shall have the meanings set forth therein unless otherwise defined herein.
Under the terms ofthe Indenture, the City has previously issued Senior Lien Obligations that are presently outstanding and the City may hereafter authorize and issue additional Senior Lien Obligations as permitted by the Indenture. Senior Lien Obligations are entitled to the benefit and security of the Indenture, including the pledge of Revenues and other, funds maintained for the benefit of the Senior Lien Obligations.
The Bonds are issuable only as fully registered bonds without coupons in the denomination of $5,000 or any integral multiple thereof. The Bonds are dated December 5, 2016 and bear interest from their date payable on January 1, 2017, and semi-annually thereafter on each January 1 and July 1 until paid. The Bonds mature on January I in each ofthe following years in the respective principal amounts set opposite such years, and the Bonds maturing in each such year bear interest at the respective rates of interest per annum set opposite such principal amounts in the following table:
Year Principal Amount Interest Rate
2017 $10,825,000 5.00%
52,055,000 5.00
56,475,000 5.00
59,290,000 5.00
2,005,000 5.00
2,105,000 5.00
2,215,000 5.00
2,325,000 5:00
2025 ., .2,435,000 5.00
2026. 2,555,000 - 5.00
2027 2,680,000 . . 5.00
. ., 2,825,000 , .' 5.00
. 2,955,000. 5.00
3,105,000 .5.00
1,845,000 4.00
. 1,420,000 ,5.00
. 2032 '. .1,920,0.00 . : . 4.00 :
10,360,000 .. 5.00
- 2,000,000 4.00
2033 . 28,5.00,000, ¦ ;.: : . 5.00.
2034, - 2,080,000:- „: . ,4.00' .
59,910,000 5.00
2,155,000 . .4.00
: 2035 51,625,000 5.00
2036 , 3,775,000 . 5.00
2037 2,515,000 . 5.00, =
2038 2,790,000 5.00
2039 • 1,720;000 5.00
2041. 85,480,000 5.00
The Bonds maturing on or after January 1, 2027 are subject to redemption, at the option - of the -City, on or after January 1, 2026,-as- a whole or in part-at any. time, and if in part, from such maturities as the City shall determine and by lot for Bonds of the same maturity and interest rate, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date of redemption.
The Bonds maturing on January 1, 2041 are subject to mandatory redemption, in part and by lot, by the application of a Sinking Fund Payment as provided in the Fifty-Third Supplemental Indenture, on January 1, 2040, at a redemption price equal to the principal amount thereof to be redeemed.
In connection with the issuance of the Bonds we have examined the following: (a) the Constitution of the State of Illinois, and such laws as we deemed pertinent to this opinion; (b) a certified copy of the Bond Ordinance, (c) executed counterparts of the Indenture and the Fifty-
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Third Supplemental Indenture; and (d) such other documents and related matters of law as we have deemed necessary in order to render this opinion.
Based upon our examination of the foregoing, we are of the opinion that:
The City is a municipal corporation duly existing under the laws of the State of Illinois and is a home rule unit of local government within the meaning of Section 6(a) of Article VII ofthe 1970 Illinois Constitution. The City has all requisite power and authority under the Constitution and the laws of the State of Illinois and the Bond Ordinance (i) to enter into the Indenture and the Fifty-Third Supplemental
- Indenture with the^Trustee and to issue the Bonds thereunder, and (ii) to improve, maintain and operate the Airport and to charge and collect rents, fees and other charges for the use and services of the Airport and to perform all of its obligations under the Indenture and the Fifty-Third Supplemental Indenture in those respects.
The Bond Ordinance is in full force and effect and is valid and binding upon the City in accordance with its terms. The Indenture and the Fifty-Third Supplemental Indenture have been duly authorized, executed and delivered by the City, constitute valid and binding obligations of the City and are legally enforceable in accordance with their terms.
The Bonds have been duly authorized and issued, are the legal, .valid and binding limited obligations of the City, are entitled to the benefits and security of the Indenture and the Fifty-Third Supplemental Indenture, and are enforceable in accordance with their terms.
The Bonds are payable solely from the Revenues deposited in the 2016B Dedicated Sub-Fund maintained by the Trustee under the Fifty-Third Supplemental Indenture, the Common Debt Service Reserve Sub-Fund on a parity with other Common Reserve Bonds and certain other amounts as provided in the Indenture and the Fifty-Third Supplemental Indenture. The Bonds and the interest thereon are limited obligations of the City and do not constitute an indebtedness of the City within the meaning of any state constitutional or statutory limitation or give rise to a charge against its general credit or taxing powers. Neither the faith and credit nor the taxing power of the State of Illinois, the City or any political subdivision of the State of Illinois is pledged to the payment of the principal of, premium, if any, or interest on the Bonds.
The Indenture and the Fifty-Third Supplemental Indenture create the valid and binding assignments and pledges which they purport to create of the amounts assigned and pledged to the Trustee under the Indenture and the Fifty-Third Supplemental Indenture.
Under existing law, interest on the Bonds is not includible in the gross income of the owners thereof for Federal income tax purposes. If there is continuing compliance with the requirements ofthe Internal Revenue Code of 1986 (the "Code"), we arc ofthe opinion that interest on the Bonds will continue to be excluded from the gross income of the owners thereof for Federal income tax purposes. In addition, interest on
F-7
the Bonds does not constitute an item of tax preference for purposes of computing individual or corporate alternative minimum taxable income. You are advised, however, that interest on the Bonds is includible in corporate earnings and profits and therefore must be taken into account when computing - for example,5 corporate .alferhative niinimum taxable income for purposes of the corporate alternative minimum tax. Interest on the Bonds is not exempt from present Illinois income taxes.
The Code contains certain requirements that must be satisfied* frorri and after the
date hereof in order to preserve the exemption1 from Federal income taxes of interest on
the Bonds. These requirements relate to the use and'investment of the proceeds of the
Bonds; the payment of'certain amounts tb the Uriite'd States of America, the security and
source of payment of the Bonds and the use arid tax ownership of the property financed
with the proceeds of the Prior Bonds arid1 the1 Bonds. The City has covenanted in the
Indenture to comply with these requirements: : ' : . l
With respect to the exclusion from gross income for Federal income tax purposes of interest on the Bonds, we have relied on the-verification report of Robert Thorrias, CPA LLC, certified public accountants!, regarding the computation of arbitrage: yield- oh;;the Bonds' and of certain investments made with the proceeds of the Bonds.
In rendering the foregoing opinion, we advise you that the enforceability (but not the validity' or'binding effect) of the Bonds, the Indenture arid the Fifty-Third Supplemental Indenture (i) may-be lirriited by any applicable bankruptcy, insolvency or'other laws1 affecting the rights or remedies of creditors how or hereafter W eTfe^ equity in the event that equitable remedies are sought, either in an action at law of in equity.
Respectfully yours,'
LGVbe
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[FORM OF SERIES 2016C CO-BOND COUNSEL OPINION]
December 5, 2016
City of Chicago City Hall Chicago, Illinois
We have examined a record of proceedings relating to the issuance of $525,055,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (the "Bonds") of the City of Chicago, a municipal corporation and a home rule unit of local government of the State of Illinois (the "City"). The Bonds are limited obligations of the City issued pursuant to the authority of Article VII, Section 6(a) of the Illinois Constitution of 1970 and by virtue of an ordinance adopted by the City Council ofthe City on September 14, 2016 (the "Bond Ordinance").
The Bonds are authorized by the City for the primary purpose of refunding bonds (the "Prior Bonds") previously issued for the purpose of providing funds to finance the cost of certain capital projects at Chicago O'Hare International Airport (the "Airport").
The Bonds are being issued pursuant to a Master Indenture of Trust Securing Chicago O'Hare International Airport General Airport Revenue Senior Lien Obligations, dated as of September 1, 2012 (the "Indenture"), between the City and U.S. Bank National Association, as Trustee (the "Trustee"), and a Fifty-Fourth Supplemental Indenture Securing Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C, dated as of December 1, 2016 (the "Fifty-Fourth Supplemental Indenture"). The Bonds are Senior Lien Obligations authorized under the Indenture and are payable solely from and secured by a pledge of Revenues of the Airport and Pledged Other Available Moneys as, and to the extent, provided in the Indenture and the Fifty-Fourth Supplemental Indenture. The Pledged Other Available Moneys consist of passenger facility charges imposed by the City at the Airport that may be withdrawn from the PFC Capital Fund. Terms used herein that are defined in the Indenture and the Fifty-Fourth Supplemental Indenture shall have the meanings set forth therein unless otherwise defined herein.
Under the terms of the Indenture, the City has previously issued Senior Lien Obligations that are presently outstanding and the City may hereafter authorize and issue additional Senior Lien Obligations as permitted by the Indenture. Senior Lien Obligations are entitled to the benefit and security of the Indenture, including the pledge of Revenues and other funds maintained for the benefit ofthe Senior Lien Obligations.
The Bonds are issuable only as fully registered bonds without coupons in the denomination of $5,000 or any integral multiple thereof. The Bonds are dated December 5, 2016 and bear interest from their date at the rate of five per centum (5.00%) per annum, payable on January 1, 2017, and semi-annually thereafter on each January 1 and July 1 until paid. The Bonds mature on January 1 in each of the following years in the respective principal amounts set opposite such years in the following table:
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Year Principal Amount
2017 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
.
• t2035,
2036 203.7 .2038
$11,065,000 15,545,000 16,320,000 17,140,000 17,995,000 18,895,000 19,840,000 20,830,000 21,875,000 22,965,000 , 24,115,000 25,320,000. .
.26,585,000 .... .
27,915,000 ¦ .'" . ; '
29,310,000 30,775,000. 32,315,000
33,930,000 ...........
35,630,000 37,410,000
39,280,000 . : • ; !
The Bonds maturing.on or after January 1, -2027 are subject to redemption, at the option of the City, on or after January 1', 2026, as a;whole or in part at any time,; and if in part, from such maturities as the City shall determine and by lot for Bonds of the same maturity, at a redemption price: equal to the principal amount thereof to be redeemed, plus accrued interest to the date of.redemption.
, In connection with the issuance ofthe Bonds, we have examined the following: (a), the Constitution ofthe State of Illinois, and such laws as we deemed.pertinent .to this opinion; (b) a. certified copy ofthe Bond Ordinance, (c) executed counterparts ofthe Indenture and the Fifty-Fourth Supplemental Indenture; and (d) such other documents and related matters ©flaw as we have deemed necessary in order to render this opinion.
Based upon our examination of the foregoing, we are of the opinion that:
1. The City is a municipal corporation duly existing under the laws of the State of Illinois and is a home rule unit of local government within the meaning of Section 6(a) of Article VII of the 1970 Illinois Constitution. The City has all requisite power and authority under the Constitution and the laws of the State of Illinois and the Bond Ordinance (i) to enter into the Indenture and the Fifty-Fourth Supplemental Indenture with the Trustee and to issue the Bonds thereunder, and (ii) to improve, maintain and operate the Airport and to charge and collect rents, fees and other charges for the use and services of the Airport and to perform all of its obligations under the Indenture and the Fifty-Fourth Supplemental Indenture in those respects.
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The Bond Ordinance is in full force and effect and is valid and binding upon the City in accordance with its terms. The Indenture and the Fifty-Fourth Supplemental Indenture have been duly authorized, executed and delivered by the City, constitute valid and binding obligations of the City and are legally enforceable in accordance with their terms.
The Bonds have been duly authorized and issued, are the legal, valid and binding limited obligations of the City, are entitled to the benefits and security of the Indenture and the Fifty-Fourth Supplemental Indenture, and are enforceable in accordance with their terms.
The Bonds are payable solely from the Revenues deposited in the 2016C Dedicated Sub-Fund maintained by the Trustee under the Fifty-Fourth Supplemental Indenture, Pledged Other Available Moneys deposited in the 2016C PFC Revenue Deposit Account maintained by the Trustee under the Fifty-Fourth Supplemental Indenture and certain other amounts as provided in the Indenture and the Fifty-Fourth Supplemental Indenture. The Bonds and the interest thereon are limited obligations of the City and do not constitute an indebtedness of the City within the meaning of any state constitutional or statutory limitation or give rise to a charge against its general credit or taxing powers. Neither the faith and credit nor the taxing power of the State of Illinois, the City or any political subdivision of the State of Illinois is pledged to the payment of the principal of, premium, if any, or interest on the Bonds.
The Indenture and the Fifty-Fourth Supplemental Indenture create the valid and binding assignments and pledges which they purport to create of the amounts assigned and pledged to the Trustee under the Indenture and the Fifty-Fourth Supplemental Indenture.
Under existing law, interest on the Bonds is not includible in the gross income of the owners thereof for Federal income tax purposes. If there is continuing compliance with the requirements of the Internal Revenue Code of 1986 (the "Code"), we are of the opinion that interest on the Bonds will continue to be excluded from the gross income of the owners thereof for Federal income tax purposes. In addition, interest on the Bonds does not constitute an item of tax preference for purposes of computing individual or corporate alternative minimum taxable income. You are advised, however, that interest on the Bonds is includible in corporate earnings and profits and therefore must be taken into account when computing, for example, corporate alternative minimum taxable income for purposes of the corporate alternative minimum tax. Interest on the Bonds is not exempt from present Illinois income taxes.
The Code contains certain requirements that must be satisfied from and after the date hereof in order to preserve the exemption from Federal income taxes of interest on the Bonds. These requirements relate to the use and investment of the proceeds of the Bonds, the payment of certain amounts to the United States of America, the security and source of payment of the Bonds and the use and tax ownership of the property financed with the proceeds of the Prior Bonds and the Bonds. The City has covenanted in the Indenture to comply with these requirements.
With respect to the exclusion from gross income for Federal income tax purposes of interest on the Bonds, we have relied on the verification report of Robert Thomas, CPA LLC, certified public accountants, regarding the computation of arbitrage yield on the Bonds and of certain investments made with the proceeds of the Bonds.
In rendering the foregoing opinion, we advise you that the enforceability (but not the validity or binding effect) of the Bonds, the Indenture and-the Fifty-Fourth Supplemental Indenture (i). may be limited by any applicable bankruptcy, insolvency or-other;laws affecting the rights or remedies of creditors now or hereafter in effect! and (ii) is subject to iprinciples of equity in the event that equitable remedies are sought, either in an action at law or in equity.;
Respectfully yours, •
LG/bC . . . ,: . ,¦ '
F-12
Appendix C
DESCRIPTION OF BOOK-ENTRY ONLY SYSTEM
General. The following information has been furnished by DTC for use in this Official Statement and neither the City nor any Underwriter takes any responsibility for its accuracy or completeness. The DTC Omnibus Proxy record date, as such term is used under this subcaption, is not, and has no relation to, the "Record Date" as defined in Appendix A — "Glossary of Terms" and used in this Official Statement.
DTC will act as securities depository for the 2016 Senior Lien Bonds. The 2016 Senior Lien Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered 2016 Senior Lien Bond certificate will be issued for each maturity of each Series of the 2016 Senior Lien Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency"'registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com .
Purchases of 2016 Senior Lien Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2016 Senior Lien Bonds on DTC's records. The ownership interest of each actual purchaser of each 2016 Senior Lien Bond ("Beneficial Owner") is in turn lo be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details ofthe transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2016 Senior Lien Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 2016 Senior Lien Bonds, except in the event that use of the book entry system for the 2016 SeniorLien Bonds is discontinued.
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To facilitate subsequent transfers, all 2016 Senior Lien Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2016 Senior Lien Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in'beneficial ownership. DTC has no knowledge of the actual Beneficial Owner's of the 2016 Senior Lien Bonds; DTC's records reflect drily the identity of the Direct Participants to whose accounts such 2016 Senior Lien -Bonds are credited, which may or-may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants' and Indirect Participants to Beneficial Owners will-be- governed by arrangements' among' theriv subject to any statutory ;or regulatory requirements as may be in effect from time'to-time: Beneficial Owners of the 2016 Senior Lien Bonds may wish to take certain steps to augment the transmission to;'them of notices of significant events with respect to the 2016 Senior Lien Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Senior Lien Bond documents; For example, Beneficial Owners of the 2016 Senior Lien Bonds may wish to- ascertain that the nominee holding the'2016 Senior- Lien'Bonds for their benefit has agreed to obtain and transmit notices to-Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses'to'the Trustee and request that copies of notices be provided directly to them.
Redemption notices' shall be sent to DTC. If fewer than all of the 2016 Senior Lien Bonds ofia maturity are ^beirig redeemed;- DTC's practice is to determine by lot the amount of the interest of each Direct Participant in the 2016 Senior Lien Bonds to be redeemed.
Neither DTC nor Cede & Cb; (nor any other DTC nominee) will consent or vote with respect to the 2016 Senior Lien Bonds unless authorized by a Direct Participant in accordance with DTC's MMI Procedures: Under its usual procedures', DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct'Participants to whose accounts the 2016 Senior Lien Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). -
Redemption proceeds, distributions, and interest payments on the 2016 Senior Lien Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon'DTC's receipt of funds and corresponding detail information from the City or the Trustee;'on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility ofthe City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the 2016 Senior Lien Bonds at any time by giving reasonable notice to the City or the Trustee. Under such
G-2
circumstances, in the event that a successor securities depository is not obtained, certificates for the 2016 Senior Lien Bonds are required to be printed and delivered.
The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates for the 2016 Senior Lien Bonds will be printed and delivered to DTC.
For every transfer and exchange of the 2016 Senior Lien Bonds, the Trustee and DTC and the Participants may charge the beneficial owner a sum sufficient to cover any tax, fee or other charge that may be imposed in relation thereto.
The City and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any Participant with respect to any ownership interest in the 2016 Senior Lien Bonds, (ii) the delivery to any Participant or any other person, other than an owner, of any notice with respect to the 2016 Senior Lien Bonds, including any notice of redemption, or (iii) the payment to any Participant or any other person, other than an owner, of any amount with respect to principal of or interest on the 2016 Senior Lien Bonds.
Effect on 2016 Senior Lien Bonds of Discontinuance of Book-Entry System. The following two paragraphs apply to the 2016 Senior Lien Bonds only when they are not in the book-entry system:
The 2016 Senior Lien Bonds will be issuable as fully registered bonds in denominations that are integral multiples of $5,000. Exchanges and transfers will be made without charge to the Registered Owners, except that in each case the Trustee may require the payment by the Registered Owner requesting exchange or transfer of any tax or governmental charge required to be paid with respect thereto.
Principal of and interest on the 2016 Senior Lien Bonds will be payable upon presentation and surrender when due at the principal corporate trust office of the Trustee. Interest on the 2016 Senior Lien Bonds will be payable by check mailed to the persons in whose names they are registered at the close of business on the Record Date next preceding each Interest Payment Date. The Record Date for the 2016 Senior Lien Bonds will be the June 15 and December 15 prior to each July 1 and January 1, respectively. At the request of any Registered Owner of not less than $1,000,000 principal amount of the 2016 Senior Lien Bonds of a Series, all payments to such Registered Owner with respect to such Series of 2016 Senior Lien Bonds shall be made by wire transfer to any address in the continental United States on the applicable Payment Date, if such Registered Owner provides the Trustee with written notice of such wire transfer address prior to the applicable Record Date (which notice may provide that it will remain in effect with respect to subsequent Interest Payment Dates unless and until changed or revoked by subsequent notice).
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Appendix IT BONDS TO BE REFUNDED
Maturity
Series January 1
2006B 2026T 2031* 2037*
Interest Redemption
Rate Date
5.000% 01/01/2017 4.550 01/01/2017 4.600 01/01/2017
Par Amount CUSIP+
$8,905,000 167592X82
8,430,000 167592X90
12,945,000 167592Y24
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2033f
2034
2038+
2038f
5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 4.750 5.000 4.500
01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018
16,060,000 16,865,000 17,710,000 18,595,000 19,525,000 20,500,000 21,525,000 22,600,000 23,370,000 24,915,000 144,560,000 33,390,000 75,195,000 75,000,000
1675922Y9 1675922Z6 1675923A0 1675923B8 1675923C6 1675923D4 1675923E2 1675923F9 1675923G7 1675923H5 1675923J1 1675923K8 1675923L6 J675923M4
2018 2019 2020
5.000 5.000 5.000
01/01/2017 01/01/2017 01/01/2017
55,670,000 58,455,000 61,375,000
1675923N2 1675923P7 1675923Q5
2019
2020
2021
2022
2023
2028*
2033*
2038f
4.000 4.000 4.000 4.000 4.125 4.250 4.500 4.500
01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2018
1,190,000 1,235,000 1,290,000 1,340,000 1,395,000 7,890,000 9,755,000 12,160,000
1675924A9 1675924B7 1675924C5 1675924D3 1675924E1 1675924F8 1675924G6 1675924H4
01/01/2021 238,985,000 167592GF3
+ Copyright 2016, American Bankers Association. CUSIP data herein are provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of bondholders only at the time of issuance of the 2016 Senior Lien Bonds and the City does not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2016 Senior Lien Bonds as a result of various subsequent actions including, but not limited lo, a refunding in whole or in part of such maturity or as a result ofthe procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities ofthe 2016 Senior Lien Bonds.
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$1,014,335,000 CITY OF CHICAGO CHICAGO O'HARE INTERNATIONAL AIRPORT
$27,335,000 General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT)
$461,945,000 General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT)
$525,055,000 General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT)
CONTRACT OF PURCHASE
November 3, 2016
City of Chicago
Office of Chief Financial Officer 121 North LaSalle Street, 7th Floor Chicago, Illinois 60602 Attn: Chief Financial Officer
The undersigned, Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Representative"), acting on behalf of itself and the other underwriters named in the list attached hereto marked Schedule I, on whose behalf the Representative is duly authorized to act (hereinafter, each individually referred to as "Underwriter" and collectively, with the Representative, referred to as "Underwriters"), hereby offers to enter into this Contract of Purchase (the "Contract of Purchase") with the City of Chicago, a municipal corporation and a home rule unit of local government duly organized and existing under the laws of the State of Illinois (the "City") whereby the Underwriters will purchase and the City will sell the 2016 Senior Lien Bonds (as defined and described below). This offer is made subject to the City's acceptance of this Contract of Purchase on or before 5:00 p.m., Chicago time, on November 3, 2016, or such other time as agreed to by the Representative and the City. If the City accepts this Contract of Purchase, this Contract of Purchase shall be in full force and effect in accordance with its terms and shall bind both the City and the Underwriters. The Underwriters may withdraw this Contract of Purchase upon written notice delivered by the Representative to the Chief Financial Officer of the City at any time before the City accepts this Contract of Purchase. Except as otherwise defined herein, capitalized terms used herein shall have the same meanings as defined in the Official Statement (as defined below).
1. Purchase and Sale. Upon the terms and conditions and in reliance upon the representations, warranties and covenants set forth herein, the Underwriters hereby agree to purchase from the City, and the City hereby agrees to sell and deliver to the Underwriters, all (but not less than all) of the City's $1,014,335,000 aggregate principal amount of (a) Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A, Series 2016B and Series 2016C (together, the "2016 Senior Lien Bonds"). The 2016 Senior Lien Bonds will be issued
C\846815.17
in three series:
527,335,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT) (the "2016A Senior Lien Bonds");
$461,945,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT) (the "2016B Senior Lien Bonds"); and
$525,055,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT) (the "2016C Senior Lien Bonds ").
The 2016 Senior Lien Bonds shall: (a) be dated as of their date of delivery, (b) have the maturities and shall bear interest at the rates per annum set forth in Exhibit A hereto and (c) have the redemption features and the further terms set forth in Exhibit A and in the Official Statement of the City, dated the date hereof, relating to the 2016 Senior Lien Bonds (such Official Statement, including the cover page and all appendices included therein, is hereinafter called the "Official Statement," except that if the Official Statement shall have been amended with the approval of the Representative between the date hereof and the date upon which the 2016 Senior Lien Bonds are delivered for the Underwriters' account with The Depository Trust Company, New York, New York ("DTC"), the term "Official Statement" shall refer to the Official Statement, as so amended).
The Underwriters agree to purchase all (but not less than all) of the 2016 Senior Lien Bonds if the conditions of Closing (as defined in Section 6 hereof) are satisfied. The aggregate purchase price of $1,152,913,642.07 (reflecting a par value of $1,014,335,000 less an Underwriters' discount of $4,597,555.68 plus a original issue premium of $143,176,197.75) consisting of the purchase price for each Series of 2016 Senior Lien Bonds as set forth in Exhibit B hereto (the "Purchase Price"). The Underwriters agree to make a bona fide public offering of all of the 2016 Senior Lien Bonds at prices not in excess of the respective initial offering prices (or yields not less than the yields) set forth in Exhibit A hereto, it being understood and agreed that after the initial offering the Representative reserves the right to change such public offering prices (or yields) as the Underwriters deem necessary in connection with the marketing of the 2016 Senior Lien Bonds.
The Representative will provide the City and Co-Bond Counsel (as defined herein) with a certificate setting forth the offering prices of the 2016 Senior Lien Bonds in substantially the form set forth on Exhibit C, and the Underwriters acknowledge that the City and Co-Bond Counsel will rely on said certificate to establish the yield on the 2016 Senior Lien Bonds, and that such reliance is material to the City in entering into this Contract of Purchase in connection with the delivery of the 2016 Senior Lien Bonds.
The City acknowledges and agrees that: (i) the primary role of the Underwriters, as underwriters, is to purchase securities for resale to investors, in an arm's length commercial transaction between the City and the Underwriters and the Underwriters have financial and other interests that differ from those of the City; (ii) the Underwriters are acting solely as principals and are not acting as municipal advisors, financial advisors or fiduciaries to the City and have not assumed any advisory or fiduciary responsibility to the City with respect to the transaction contemplated hereby and the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriters have provided other services or are currently providing other services to the City on other matters);|1010|
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(iii) the only obligations the Underwriters have to the City with respect to the transaction contemplated hereby expressly are set forth in this Contract of Purchase; and (iv) the City has consulted its own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent it has deemed appropriate.
Official Statement. The City ratifies and consents to the distribution and use by the Underwriters, prior to the date hereof, of the Preliminary Official Statement of the City dated October 18, 2016 relating to the 2016 Senior Lien Bonds (the "Preliminary Official Statement"). For purposes of Rule 15c2-12 ("Rule 15c2-12") of the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Preliminary Official Statement is "deemed final" by the City as of its date. As soon as practicable, but not more than seven (7) business days after the City's acceptance hereof, and in any event not later than two (2) business days before the Closing Date, the City shall deliver, or cause to be delivered, to the Representative six copies of the Official Statement, signed on behalf of the City by the Authorized Officer, and the Official Statement so delivered shall be deemed "final" for purposes of Rule 15c2-12. The Official Statement shall be in substantially the same form as the Preliminary Official Statement and, other than information previously permitted to have been omitted by Rule 15c2-12, the City shall only make such other additions, deletions and revisions in the Official Statement which are approved by the Representative. The City hereby agrees to deliver to the Underwriters an electronic copy of the Official Statement in a form that permits the Underwriters to satisfy their obligations under the rules and regulations of the Municipal Securities Rulemaking Board (the "MSRB") and the Commission. The City shall provide, or cause to be provided, at its expense, to the Underwriters as soon as practicable, but not more than seven (7) business days after the City's acceptance of this Contract of Purchase and in time which, in the Representative's opinion, is sufficient to accompany any confirmation that requests payment from any customer, copies of the Official Statement in such quantity which, in the Representative's opinion, is sufficient to comply with the rules of the Commission and the MSRB with respect to the distribution of the Official Statement. The City authorizes the Underwriters to use and distribute the Official Statement in connection with the public offering and sale of the 2016 Senior Lien Bonds. To the extent required by applicable law, the City hereby authorizes the Representative, and the Representative hereby agrees, to file a copy of the Official Statement with the MSRB.
Authorization. The 2016 Senior Lien Bonds will be issued under the authority granted to the City as a home rule unit of local government under the Illinois Constitution of 1970. The 2016 Senior Lien Bonds will be issued pursuant to an ordinance adopted by the City Council of the City on September 14, 2016 (the "Bond Ordinance"). The 2016 Senior Lien Bonds will also be issued and secured under the Master Indenture of Trust Securing Chicago O'Hare International Airport General Airport Revenue Senior Lien Obligations dated as of September 1, 2012 (the "Senior Lien Master Indenture") from the City to U.S. Bank National Association, Chicago, Illinois, as successor trustee to LaSalle Bank National Association (the "Trustee"), as supplemented by the Fifty-Second Supplemental Indenture (the "Fifty-Second Supplemental Indenture"), the Fifty-Third Supplemental Indenture (the "Fifty-Third Supplemental Indenture") and the Fifty-Fourth Supplemental Indenture (the "Fifty-Fourth Supplemental Indenture" and collectively with the Fifty-Second Supplemental Indenture and the Fifty-Third Supplemental Indenture, the "Supplemental Indentures"), each dated as of December 1, 2016 and each from the City to the Trustee. The Senior Lien Master Indenture as supplemented by the Supplemental Indentures and as it may be amended and supplemented from time to time in accordance with its terms, is collectively herein referred to as the "Senior Lien Indenture." The Series 2016 Senior Lien Bonds are being issued to refund certain Refunded Bonds (the "Refunded Bonds") as described in the Official Statement and the respective Supplemental Indentures.
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4. Representations and Warranties of the City. The City hereby represents and warrants to the Underwriters as follows:
The City is a municipal corporation and home rule unit of local government, organized and existing under the Constitution and the laws of the State of Illinois.
The City has all requisite legal right, power and authority to adopt and comply with the Bond Ordinance; to execute, issue and deliver the 2016 Senior Lien Bonds; to execute, deliver and comply with this Contract of Purchase, the General Tax Certificate and the Tax Compliance Certificate each from the City (together, the "Tax Compliance Certificate") dated as of the Closing Date (as hereinafter defined), the Senior Lien Indenture, the Airport Use Agreements, the Continuing Disclosure Undertaking of the City relating to the 2016 Senior Lien Bonds pursuant to Rule 15c2-12 (the "Undertaking") and to execute and deliver the Official Statement. The execution and delivery of this Contract of Purchase, the Tax Compliance Certificate, the 2016 Senior Lien Bonds, the Airport Use Agreements, the Undertaking and the Senior Lien Indenture, and the adoption of the Bond Ordinance and the issuance of the 2016 Senior Lien Bonds thereunder, the execution and delivery by the City of the Official Statement and the use by the Underwriters of the Preliminary Official Statement and the Official Statement have been duly authorized by all necessary action on the part of the City.
This Contract of Purchase, the Airport Use Agreements, the Official Statement, the Senior Lien Master Indenture and the Supplemental Indentures have been, and the Tax Compliance Certificate, the Undertaking, and the 2016 Senior Lien Bonds (when delivered and paid for at the Closing) shall be, duly authorized, executed, delivered and (in the case of the 2016 Senior Lien Bonds) authenticated by the Trustee and issued by the City. This Contract of Purchase, the Senior Lien Indenture, the Tax Compliance Certificate, and the Undertaking (when each is executed and delivered) and the 2016 Senior Lien Bonds (when issued, executed, authenticated and delivered) shall constitute legal, valid and binding obligations of the City, enforceable in accordance with their terms (except to the extent that enforceability may be limited by bankruptcy, insolvency and other laws affecting creditors' rights or remedies and the availability of equitable remedies generally). The Bond Ordinance has been duly and lawfully adopted and is in full force and effect and is valid and binding upon the City. When delivered and paid for at the Closing, the 2016 Senior Lien Bonds shall be entitled to the benefits and the security of, and shall be subject to the terms and conditions set forth in, the Senior Lien Indenture.
The adoption of the Bond Ordinance; the execution and delivery of this Contract of Purchase, the Senior Lien Indenture, the Tax Compliance Certificate, the Undertaking, and the Official Statement and the compliance of the City with the terms and conditions thereof (except the Official Statement) and of the Bond Ordinance, and the Airport Use Agreements, and the issuance and sale of the 2016 Senior Lien Bonds, do not and will not: (i) in any material respect conflict with or constitute on the part of the City a material breach of or material default under any agreement, indenture, mortgage, lease or other instrument to which the City is a party or by or to which it is bound; or (ii) in any material respect conflict with or result in a violation by the City of the Constitution of the United States of America (the "United States") or of the State of Illinois or any other law, ordinance, regulation, order, decree, judgment or ruling by or to which it is bound. The City is not in breach of or default under the Bond Ordinance, the Airport Use Agreements, or the Senior Lien Indenture or any applicable law or administrative regulation of the State of Illinois or the United States or any|1010|
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department, division, agency or instrumentality of either or any applicable judgment or decree to which the City is subject, or any loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject, which breach or default would in any way materially adversely affect the 2016 Senior Lien Bonds, the operation of O'Hare, the City's authority to impose or collect fees, rentals, or charges defined in the Airport Use Agreements as "Airport Fees and Charges" that constitute Revenues or the collection of Revenues or the authorization or issuance of the 2016 Senior Lien Bonds, and no event has occurred and is continuing which, with the passage of time or the giving of notice or both, would constitute such a breach or default. Neither the adoption of the Bond Ordinance and compliance with the provisions thereof nor the execution and delivery by the City of the Supplemental Indentures, the 2016 Senior Lien Bonds, the Undertaking, or this Contract of Purchase nor the performance by the City of its obligations under the Senior Lien Master Indenture, the Supplemental Indentures, the 2016 Senior Lien Bonds, the Airport Use Agreements, the Undertaking, or this Contract of Purchase violates any applicable law or administrative regulation of the State of Illinois or the United States or any department, division, agency or instrumentality of either or any applicable judgment or decree to which the City is subject, or conflicts in a material manner with, or constitutes a material breach of or a material default under any loan agreement, bond, note, resolution, ordinance, indenture, agreement or other instrument to which the City is a party or is otherwise subject. The City has not received any judicial or administrative notice which in any way questions the federal tax-exempt status of interest on the 2016 Senior Lien Bonds.
Except as disclosed in the Official Statement, no litigation or other proceeding before or by any court or agency or other administrative body is pending against the City or, to the knowledge of the City, threatened against it, in any way restraining or enjoining, or threatening or seeking to restrain or enjoin, the issuance, sale or delivery of the 2016 Senior Lien Bonds or in any way questioning or affecting: (i) the proceedings under which the 2016 Senior Lien Bonds are to be issued; (ii) the validity or enforceability of any provision of the 2016 Senior Lien Bonds, the Senior Lien Master Indenture, the Tax Compliance Certificate, the Bond Ordinance, the Supplemental Indentures, the Airport Use Agreements, the Undertaking, or this Contract of Purchase; (iii) the 2016 Airport Projects (as defined in the Official Statement) or the Plan of Finance (as described in the Official Statement); (iv) the accuracy or completeness of the Official Statement; (v) the legal existence of the City or its right to conduct its operations as conducted; or (vi) the title of its Mayor, City Comptroller, Chief Financial Officer, the Commissioner of the Chicago Department of Aviation, or City Clerk to their respective offices in such manner as to adversely affect the ability of the City to authorize the issuance, sale or delivery of the 2016 Senior Lien Bonds.
Except as disclosed in the Official Statement, there is no litigation or other proceeding pending or, to the City's knowledge, threatened against the City before or by any court, agency or other administrative body, nor any other event or circumstance, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the validity or enforceability of the 2016 Senior Lien Bonds, the Bond Ordinance, the Senior Lien Indenture, the Tax Compliance Certificate, the Undertaking, the Airport Use Agreements, or this Contract of Purchase, or the City's authority to impose or collect fees, rentals or charges, in each case that constitute Revenues.
(g) Other than liens and encumbrances described in the Official Statement, there are no liens or encumbrances on the Revenues or the funds or accounts pledged pursuant to the Senior Lien Indenture.|1010|
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(h) All approvals, consents and other actions by, and all filings or registrations with
or notices to, any governmental or administrative authority or agency having jurisdiction in the
matter required as a condition precedent to the execution and delivery by the City of the 2016
Senior Lien Bonds, the Tax Compliance Certificate, the Supplemental Indentures, the
Undertaking, or this Contract of Purchase, have been obtained and are in full force and effect.
(i) The financial statements of O'Hare contained in the Official Statement fairly
present the financial position and results of operation of O'Hare as of the dates and for the
periods therein set forth, and the City has no reason to believe (i) that such financial statements
have not been prepared in accordance with generally accepted accounting principles as
consistently applied to governmental units, except as otherwise noted therein, or (ii) that there
have been any materially adverse changes in the financial position and results of operation of
O'Hare since December 31, 2015, except as otherwise noted in the Official Statement.
(j) Any certificate signed by any elected or appointed officer or official of the City and delivered to the Underwriters pursuant to this Contract of Purchase shall be deemed a representation and warranty by the City to the Underwriters as to the statements made therein with the same effect as if such representation and warranty were set forth herein.
(k) To the knowledge of the Chief Financial Officer and based on the representation of the Underwriters contained in Section 10 hereof, no person holding office of the City, either by election or appointment, is in any manner interested, either directly or indirectly, in any contract being entered into or the performance of any work to be carried out in connection with the issuance and sale of the 2016 Senior Lien Bonds and upon which said officer may be called upon to act or vote; provided, however, that nothing in this Section 4(k) shall give rise to a cause of action by the Underwriters against the City.
(1) Except for information which is permitted to be omitted pursuant to Rule 15c2-12(b)(1), the Preliminary Official Statement, as of its date and as ofthe date hereof was and is true and correct in all material respects and did not and does not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that the City makes no representation or warranty with regard to the information included in the Preliminary Official Statement under the following captions: "INTRODUCTION - REGARDING USE OF THE OFFICIAL STATEMENT," "TAX MATTERS," "UNDERWRITING," or the information included in the Preliminary Official Statement in APPENDICES E, F and G thereto. The Official Statement as ofthe date hereof is, and as of the Closing Date (as defined herein) will be, true and complete in all material respects, and the Official Statement does not, and as of the Closing Date, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and any amendments or supplements to the Official Statement prepared and furnished by the City pursuant hereto will not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that the City makes no representation or warranty with regard to the information included in the Official Statement under the following captions: "INTRODUCTION - REGARDING USE OF THE OFFICIAL STATEMENT," "TAX MATTERS," "UNDERWRITING," or the information included in the Official Statement in APPENDICES E, F and G thereto.
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(m) Except as described in the Official Statement, during the last five years, the City has not failed to materially comply with any previous continuing disclosure undertaking that it has entered into in accordance with Rule 15c2-12.
All representations, warranties and agreements of the City shall remain operative and in full force and effect, regardless of any investigations made by any Underwriter or on the Underwriters' behalf, and shall survive the delivery of the 2016 Senior Lien Bonds.
5. Covenants of the City. In connection with the purchase and sale ofthe 2016 Senior Lien Bonds, pursuant to this Contract of Purchase, the City hereby covenants that:
The City will make available such information, execute such instruments and take such other action in cooperation with the Underwriters as the Representative may reasonably request to (i) qualify the 2016 Senior Lien Bonds for offer and sale under the securities laws and regulations of such states and other jurisdictions of the United States as the Representative or Counsel for the Underwriters may designate in writing and (ii) determine the eligibility of the 2016 Senior Lien Bonds for investment under the laws of such states and other jurisdictions, and will advise the Underwriters immediately of receipt by the City of any written notification with respect to the suspension of the qualification of the 2016 Senior Lien Bonds for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose; provided, however, that nothing in this clause (a) shall require the City to consent to service of process in any state or jurisdiction other than the State of Illinois.
The City will cooperate to make available such information, execute such instruments and take such other action in cooperation with the Underwriters as the Representative may reasonably request to assist the Underwriters in attempting to qualify the 2016 Senior Lien Bonds with DTC.
The City will not amend or supplement the Official Statement without the consent of the Representative, which consent will not be unreasonably withheld. From the date hereof until the earlier of (i) 90 days from the end of the underwriting period (as defined in Rule 15c2-12) or (ii) the time when the Official Statement is available to any person from the MSRB, but in no case fewer than 25 days following the end of the underwriting period (as defined in Rule 15c2-12), if any event occurs as a result of which it may be necessary to amend or supplement the Official Statement in order to make the statements therein, in light of the circumstances under which they were made, not misleading, the City will notify the Representative and Counsel to the Underwriters in writing of such event and, if such event requires, in the opinion of the City, the Representative or Counsel to the Underwriters, an amendment or supplement to the Official Statement, at the City's expense the City will amend or supplement the Official Statement in a form and in a manner jointly approved by the City and the Representative, which approval will not be unreasonably withheld, so that the statements in the Official Statement, as so amended or supplemented, will not, in light of the circumstances under which they were made, be misleading.
The 2016 Senior Lien Bonds and the Bond Ordinance conform to the descriptions thereof contained in the Official Statement under the captions "THE 2016 SENIOR LIEN BONDS" and "SECURITY FOR THE 2016 SENIOR LIEN BONDS", and the City shall apply the proceeds ofthe 2016 Senior Lien Bonds in accordance with the Bond Ordinance and the Senior Lien Indenture.
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Between the date of this Contract of Purchase and the Closing Date, the City will not, without the prior written consent of the Representative, issue or enter into any contract to issue any bonds, notes or other obligations for borrowed money payable from the Revenues or Other Available Moneys and, subsequent to the respective dates as of which information is given in the Official Statement and up to and including the Closing Date, the City has not incurred and will not incur with respect to O'Hare any material liabilities other than those occurring in the ordinary course of operating O'Hare and the construction of improvements thereto, direct or contingent, nor will there be any action, or any failure to act, on the part of the City which would result in an adverse change of a material nature in the financial position, results of operations or condition, financial or otherwise, of O'Hare, except the Series 2016 New Money Bonds, CP Notes and Credit Agreement Notes or as otherwise described in the Official Statement.
In order to assist the Underwriters in complying with Rule 15c2-l2, the City will undertake, pursuant to the Undertaking, to provide annual financial information and notices of the occurrence of specified events. The Undertaking shall be substantially in the form described in the Preliminary Official Statement and Official Statement, with such changes as may be reasonably approved by the Representative and the City.
Closing. The delivery of and payment for the 2016 Senior Lien Bonds is herein called the "Closing." The Closing shall take place on December 5, 2016 (the "Closing Date") at the offices of Katten Muchin Rosenman LLP, 525 West Monroe Street, Chicago, Illinois or on such other date or at such other place as shall have been mutually agreed upon by the City and the Representative as the date on or place at which the Closing shall occur. Delivery of the 2016 Senior Lien Bonds shall be made to the Underwriters by way of delivery to the Trustee as agent for DTC pursuant to the FAST system on the Closing Date. Simultaneous with such delivery and provided that all conditions to the obligations ofthe Underwriters set forth in Section 7 hereof have been satisfied and all documents and instruments required to be delivered pursuant to Section 7(d) hereof are in form and substance satisfactory to the Representative, the Underwriters shall cause the Purchase Price for the 2016 Senior Lien Bonds as described in Section 1 hereof, to be paid by wire transfer of federal funds payable to or for the account of the City. The 2016 Senior Lien Bonds shall be delivered in the manner described above in the form of one fully registered bond per maturity as set forth in the Senior Lien Indenture. The City shall release or authorize the release of the 2016 Senior Lien Bonds on the Closing Date upon receipt of payment for the 2016 Senior Lien Bonds as aforesaid. In addition, the City and the Underwriters agree that there shall be a preliminary closing held at the same place as the Closing, commencing at least one business day prior to the Closing Date. It is anticipated that CUSIP identification numbers will be printed on the 2016 Senior Lien Bonds, but neither the failure to print such number on any 2016 Senior Lien Bonds nor any error with respect thereto shall constitute cause for a failure or refusal by the Underwriters to accept delivery of and pay for the 2016 Senior Lien Bonds in accordance with the terms of this Contract of Purchase. All expenses in relation to the printing of CUSIP numbers on the 2016 Senior Lien Bonds and the CUSIP Service Bureau charge for the assignment of such numbers shall be paid for by the Underwriters.
Conditions of Closing. The Representative has entered into this Contract of Purchase on behalf of itself and the other Underwriters in reliance upon the representations, warranties and covenants of the City contained herein and to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the City of its obligations hereunder and under the aforesaid documents and instruments at or prior to the date of the Closing. Accordingly, the Underwriters' obligations under this Contract of Purchase to purchase, to accept delivery of and to pay for the 2016 Senior Lien Bonds are subject to the performance by the City of its obligations to be performed
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hereunder and under such aforesaid documents and instruments at or prior to the Closing, and are also subject to the following conditions:
The representations and warranties of the City contained herein and in the Senior Lien Indenture will be true, complete and correct on the date hereof and on and as of the Closing Date with the same effect as if made on the Closing Date.
At the time of the Closing, (i) the Bond Ordinance, the Senior Lien Indenture, the Tax Compliance Certificate, the Airport Use Agreements and the Undertaking will be in full force and effect, and will not have been amended, modified or supplemented since the date hereof, unless agreed to in writing by the Representative as provided herein, and the Official Statement will not have been amended, modified, or supplemented, except as may have been agreed to as provided herein; and (ii) all necessary action on the part of the City relating to the issuance of the 2016 Senior Lien Bonds will have been taken and will be in full force and effect and will not have been amended, modified or supplemented, except with the written consent of the Representative.
The Representative has the right to terminate the Underwriters' obligations under this Contract of Purchase to purchase, to accept delivery of and to pay for the 2016 Senior Lien Bonds by notifying the City of its election to do so if, after the execution hereof and prior to the Closing:
the marketability of the 2016 Senior Lien Bonds or the market price thereof, in the reasonable opinion ofthe Representative, has been materially adversely affected by an amendment to the Constitution of the United States or of the State of Illinois or by federal or state legislation or by a decision of any federal or State court or any ruling or regulation (final or temporary) on behalf of the Treasury Department of the United States, the Internal Revenue Service or other federal or State authority, affecting the tax status of the City or its property, revenues or income, bonds (including the 2016 Senior Lien Bonds) or the interest thereon; or
legislation shall be enacted by the Congress of the United States, or recommended to the Congress for passage by the President of the United States, or favorably reported for passage to either house of Congress by any committee of such house, or passed by either house of Congress, or a decision shall have been rendered by a court of the United States or the United States Tax Court, or a ruling shall have been made or a regulation shall have been proposed or made by the Treasury Department of the United States or the Internal Revenue Service, with respect to the federal taxation of interest received on obligations of the general character of the 2016 Senior Lien Bonds, which, in the reasonable opinion of Co-Bond Counsel (as hereinafter defined) to the City has, or will have, the effect of making such interest subject to inclusion in gross income for purposes of federal income taxation; or
legislation shall have been enacted or a bill shall be favorably reported out of committee of either house of Congress, or a decision by a court of the United States shall be rendered, or a ruling, regulation, proposed regulation or statement by or on behalf of the Commission or any other agency of the federal government having jurisdiction of the subject matter shall be made, to the effect that the 2016 Senior Lien Bonds are not exempt from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act") or the Exchange Act, or the Senior Lien Indenture is not|10 10|
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exempt from the qualification requirements of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"); or
a stop order, ruling, regulation or official statement by the Commission or any other governmental agency having jurisdiction of the subject matter shall have been issued or made or any other event occurs, the effect of which is that the issuance, offering or sale of the 2016 Senior Lien Bonds or the effectiveness of the Senior Lien Indenture, as contemplated hereby or by the Official Statement, is or would be in violation of any provision of the federal securities laws, including the 1933 Act, the Exchange Act or the Trust Indenture Act; or
there shall have occurred any declaration of war involving the United States, or an escalation in any conflict involving the armed forces of any country, or any other national emergency relating to the effective operation of the government or the financial community, or any outbreak or escalation of hostilities or any acts of terrorism or any local, national or international calamity or crisis, the effect of which, in the Representative's reasonable opinion would materially adversely affect the marketability or market price of the 2016 Senior Lien Bonds; or
there shall have occurred a general suspension of trading on the New York Stock Exchange or a material disruption in securities settlement, payment or clearance services shall have occurred; or
a general banking moratorium shall have been declared by United States, State of Illinois or State of New York authorities; or
an event occurs which requires an amendment or supplement to the Official Statement as contemplated in Section 5(c) hereof, which event, in the Representative's reasonable opinion, materially adversely affects the market price of the 2016 Senior Lien Bonds or makes it, in the Representative's reasonable opinion, impracticable or inadvisable to proceed with the delivery of the 2016 Senior Lien Bonds on the terms and in the manner contemplated by the Official Statement specifically including, but not limited to, the issuance by any court or administrative agency of an order or decision enjoining, staying, or otherwise limiting (A) the O'Hare Modernization Program, the 2016 Airport Projects or the refunding of Refunded Bonds, or (B) any governmental action, authorization, or funding in support of the O'Hare Modernization Program; or
the ratings of the 2016 Senior Lien Bonds of "A" (Stable Outlook) by S&P Global Ratings or "A" (Stable Outlook) by Fitch Ratings shall have been downgraded or withdrawn by a national rating service or a national rating service shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the 2016 Senior Lien Bonds, other than as disclosed in the Official Statement, which event or events, in the Representative's reasonable opinion, materially adversely affects the market price of the 2016 Senior Lien Bonds or make it, in the reasonable opinion of the Representative, impracticable or inadvisable to proceed with the delivery of the 2016 Senior Lien Bonds on the terms and in the manner contemplated by the Official Statement; or
10
a committee of the House of Representatives or the Senate of the Congress ofthe United States shall have pending before it legislation, which legislation, if enacted in its form as introduced or amended, would have the purpose of amending or repealing regulations or approvals, which in the Representative's reasonable opinion materially adversely affect the market price ofthe 2016 Senior Lien Bonds or make it, in the reasonable opinion of the Representative, impracticable or inadvisable to proceed with the delivery of the 2016 Senior Lien Bonds on the terms and in the manner contemplated by the Official Statement; or
there shall have occurred since the date of this Contract of Purchase any materially adverse change in the affairs or financial condition of O'Hare, except for changes which the Official Statement discloses are expected to occur; or
any event or circumstance occurs or information becomes known, which, in the professional judgment of the Representative, makes untrue any statement of a material fact set forth in the Official Statement or results in an omission to state a material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading.
(d) At or prior to the Closing, the Representative has received each of the following documents:
Six copies ofthe Official Statement ofthe City, manually executed by an Authorized Officer;
A copy, duly certified by an Authorized Officer, of the Bond Ordinance as adopted by the City Council of the City;
The approving opinions dated the date of the Closing and addressed to the City, together with a reliance letter addressed to the Trustee and the Underwriters, of Katten Muchin Rosenman LLP, Chicago, Illinois and Neal & Leroy, LLC, Chicago, Illinois, Co-Bond Counsel to the City ("Co-Bond Counsel"), in substantially the forms included in the Official Statement;
An opinion or opinions, dated the Closing Date and addressed to the Underwriters and the City, of Co-Bond Counsel, to the effect that:
the Contract of Purchase and the Undertaking have each been duly authorized, executed and delivered by the City, and assuming the due authorization, execution and delivery of the Contract of Purchase by the other party thereto, constitute valid and binding agreements of the City, enforceable against the City in accordance with their terms, except as limited by any applicable bankruptcy, liquidation, reorganization, insolvency or other similar laws and by general principles of equity, if equitable remedies are sought;
the 2016 Senior Lien Bonds are not subject to the registration requirements of the 1933 Act, and the Bond Ordinance and the Senior Lien Indenture are exempt from qualification pursuant to the Trust Indenture Act;
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delivery of the Preliminary Official Statement and the execution and delivery of the Official Statement by the City and use and distribution of the same by the Underwriters in connection with the sale of the 2016 Senior Lien Bonds has been duly authorized by the City; and
statements contained in the Official Statement under the captions "INTRODUCTION - AUTHORIZATION," "-SECURITY FOR THE 2016 SENIOR LIEN BONDS" (except as it relates to the Airport Use Agreements, the amount of outstanding Senior Lien Bonds, the amount of outstanding PFC Obligations, the authority of the City to impose and use passenger facility charges and the information contained in the fifth paragraph of the sub-section concerning diversion of revenues) and "-LIMITED OBLIGATIONS," "THE 2016 SENIOR LIEN BONDS," "SECURITY FOR THE 2016 SENIOR LIEN BONDS (except as it relates to the authority ofthe City to impose and use passenger facility charges and the amount of Senior Lien Bonds additionally secured by Available PFCs and except for the information contained (i) under the sub-heading "-O'HARE REVENUES MUST BE USED FOR AIRPORT PURPOSES," (ii) under the paragraph heading "- Certain Aviation Fuel Taxes Excluded From Revenues," (iii) under the caption "AIRPORT USE AGREEMENTS" and (iv) under the caption "PLAN OF FINANCE—Refunding Plan" and "TAX MATTERS" and in APPENDIX A - "GLOSSARY OF TERMS" (to the extent such terms are defined in the Senior Lien Indenture) and in APPENDIX B - "SUMMARY OF CERTAIN PROVISIONS OF THE SENIOR LIEN INDENTURE," APPENDIX F - "PROPOSED FORMS OF OPINIONS OF CO-BOND COUNSEL" and APPENDIX H - "BONDS TO BE REFUNDED" respectively, are fair and accurate statements or summaries of the matters set forth therein.
(v) An opinion, dated the Closing Date and addressed to the Underwriters, of the Corporation Counsel of the City (the "Corporation Counsel"), given in an official capacity and not personally and to which no personal liability will derive from its delivery, to the effect that:
the City is a home rule unit of local government duly organized and existing under the Constitution and laws of the State of Illinois with full power and authority, among other things, to adopt and perform its duties and obligations under the Bond Ordinance; to deliver the Preliminary Official Statement and to execute, deliver and perform its duties and obligations under this Contract of Purchase, the Official Statement, the Tax Compliance Certificate, the Senior Lien Indenture, and the Undertaking, to authorize, issue and sell the 2016 Senior Lien Bonds, to operate O'Hare and to maintain, collect and enforce the collection of Revenues as provided in the Bond Ordinance, the Airport Use Agreements, and the Senior Lien Indenture;
this Contract of Purchase, the Senior Lien Indenture, the Tax Compliance Certificate, the Airport Use Agreements and the Undertaking, have been duly authorized, executed and delivered by, and the Bond Ordinance has been duly adopted by the City, and is in full force and effect; and, assuming due authorization and execution by the other parties thereto,
12
this Contract of Purchase, the Senior Lien Indenture, and the Undertaking constitute valid and legally binding obligations of the City enforceable in accordance with their respective terms except as limited by any applicable bankruptcy, liquidation, reorganization, insolvency or other similar laws and by general principles of equity;
the Preliminary Official Statement has been duly authorized and delivered, and the Official Statement has been authorized, executed and delivered, by the City;
compliance with the provisions of the Bond Ordinance and the execution, delivery and performance of the Senior Lien Indenture, the Tax Compliance Certificate, the Undertaking, the Airport Use Agreements, or this Contract of Purchase do not in a material manner conflict with, or constitute a material breach of or material default under, any applicable law, administrative regulation, court order or consent decree of the State of Illinois or the United States or any department, division, agency or instrumentality of either or any loan agreement, note, resolution, ordinance, indenture, mortgage, deed of trust, agreement or other instrument to which the City is a party or may otherwise be subject;
all approvals, consents and orders, of any governmental authority, board, agency or commission having jurisdiction which would constitute conditions precedent to the performance by the City of its obligations under this Contract of Purchase, the Bond Ordinance, the 2016 Senior Lien Bonds, the Senior Lien Indenture, the Tax Compliance Certificate, the Airport Use Agreements and the Undertaking which are required to be obtained prior to the execution and delivery of the foregoing instruments have been obtained and are in full force and effect;
except as set forth in the Official Statement, there is no litigation or proceeding pending or, to the knowledge of the Corporation Counsel, threatened in any way affecting the existence of the City, or the titles of the Mayor of the City, the Chief Financial Officer, the City Comptroller, and the City Clerk to their respective offices, the City's operation of O'Hare, or seeking to restrain or to enjoin the issuance, sale or delivery of the 2016 Senior Lien Bonds, or the right, power and authority of the City to impose and collect fees, rentals or charges that constitute Revenues or other moneys pledged or to be pledged to pay the principal of and interest on the 2016 Senior Lien Bonds, or in any way contesting or affecting the validity or enforceability of the 2016 Senior Lien Bonds, the Bond Ordinance, this Contract of Purchase, the Senior Lien Indenture, the Undertaking, the Airport Use Agreements or the Tax Compliance Certificate, or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the Official Statement, or contesting the powers ofthe City or its authority with respect to the 2016 Senior Lien Bonds, the Bond Ordinance, this Contract of Purchase, the Senior Lien Indenture, the Undertaking, the Airport Use Agreements or the Tax Compliance Certificate;
based on the examination which the Corporation Counsel has caused to be made and the participation of representatives of the Corporation
13
Counsel at conferences at which the Official Statement was discussed, the Corporation Counsel has no reason to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect; provided that no opinion or belief need be expressed regarding any financial, forecast, technical and statistical statements and data included in the Official Statement and the information set forth under the following captions: "TAX MATTERS," "UNDERWRITING," "CO-FINANCIAL ADVISORS AND INDEPENDENT REGISTERED MUNICIPAL ADVISOR," "INDEPENDENT AUDITORS," "RATINGS," "AIRPORT CONSULTANT," or the information set forth in APPENDICES D, E, F and G;
(H) based on the examination which the Corporation Counsel has
caused to be made and the participation of representatives of the Corporation
Counsel at conferences at which the Official Statement was discussed, the
statements contained in the Official Statement under the headings
"INTRODUCTION," "SECURITY FOR THE 2016 SENIOR LIEN
BONDS," "PLAN OF FINANCE," "CHICAGO O'HARE
INTERNATIONAL AIRPORT," "OUTSTANDING INDEBTEDNESS AT
O'HARE," "CERTAIN INVESTMENT CONSIDERATIONS"
"LITIGATION," and "SECONDARY MARKET DISCLOSURE," in
APPENDIX A "GLOSSARY OF TERMS" and in APPENDIX C —
"SUMMARY OF CERTAIN PROVISIONS OF THE AIRPORT USE
AGREEMENTS," present a fair and accurate summary of such provisions;
and
(I) for so long as the Airport Use Agreements remain in effect in
their present form, the amounts required to be paid in respect to the principal
of and interest on the 2016 Senior Lien Bonds during the term of the Airport
Use Agreements are required to be included in the calculation of Airport Fees
and Charges under the Airport Use Agreements.
(vi) Opinions, dated the date of the Closing and addressed to the Underwriters and the City, of Miller, Canfield, Paddock & Stone, P.L.C., Chicago, Illinois, and McGaugh Law Group, LLC, Chicago, Illinois, Co-Disclosure Counsel to the City ("Co-Disclosure Counsel"), to the effect that, based upon their participation in the preparation of the Official Statement as Co-Disclosure Counsel and their participation at conferences at which the Official Statement was discussed, but without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, Co-Disclosure Counsel have no reason to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that no belief or opinion need be stated regarding (i) the financial statements or other financial, operating, accounting, forecast or projections, technical and statistical statements and data contained or incorporated in the Official Statement, (ii) the statements and information set forth under the caption "INDEPENDENT AUDITORS," and in APPENDIX D to the Official Statement, and (iii) the information describing the
14
opinions of Co-Bond Counsel under the caption "TAX MATTERS" and in APPENDIX F to the Official Statement.
Opinions, dated the date of the Closing and addressed to the Underwriters, of Ice Miller LLP, Chicago, Illinois, as Counsel for the Underwriters ("Underwriters' Counsel"), to the effect that:
the 2016 Senior Lien Bonds are exempt securities which do not require registration under the 1933 Act, and the Bond Ordinance and the Senior Lien Indenture need not be qualified under the Trust Indenture Act;
the Undertaking complies with the requirements of Section (b)(5) of Rule 15c2-12 in effect as of the date of Closing and the conditions of the Underwriters' purchase or sale of the 2016 Senior Lien Bonds contained in this Contract of Purchase have been satisfied or waived; and
based upon their participation in the preparation of the Official Statement as Underwriters' Counsel and their participation at conferences at which the Official Statement was discussed, but without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, Underwriters' Counsel have no reason to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that no belief or opinion need be stated regarding (i) the financial statements or other financial, operating, accounting, forecast or projections, technical and statistical statements and data contained or incorporated in the Official Statement, including specifically APPENDIX E, (ii) the statements and information set forth under the captions "INDEPENDENT AUDITORS," and in APPENDIX D to the Official Statement, and (iii) the information describing the opinions of Co-Bond Counsel under the caption "TAX MATTERS" and in APPENDIX F to the Official Statement.
A certificate dated the date of Closing, of an Authorized Officer of the City to the effect that:
the representations and warranties of the City contained herein are true and correct on and as of the date of the Closing with the same effect as if made on the date of the Closing; and
to the best knowledge of said officer, no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect.
A certificate, dated the date of the Closing, of an Authorized Officer and the Commissioner of the Chicago Department of Aviation to the effect that, except as disclosed in the Official Statement, nothing has come to their attention which causes them to believe that during the period from January 1, 2016 to the Closing
15
Date, there has been any material adverse change in the financial condition of O'Hare from that set forth in the audited financial statements of O'Hare as of December 31, 2015, included as Appendix D to the Official Statement.
A certificate, dated the date of the Closing, of the Commissioner of the Chicago Department of Aviation to the effect that the information contained in the Official Statement under the captions "INTRODUCTION - PURPOSE," "INTRODUCTION - ADDITIONAL AIRPORT OBLIGATIONS," "INTRODUCTION - CHICAGO O'HARE INTERNATIONAL AIRPORT," "INTRODUCTION - CAPITAL PROGRAMS," "INTRODUCTION - REGIONAL AIRPORT OVERSIGHT," "SECURITY FOR THE 2016 SENIOR LIEN BONDS," "PLAN OF FINANCE," "SOURCES AND USES OF FUNDS,", "CHICAGO O'HARE INTERNATIONAL AIRPORT," "AIR TRAFFIC ACTIVITY AT O'HARE," "O'HARE FINANCIAL INFORMATION," "OUTSTANDING INDEBTEDNESS AT O'HARE," "CAPITAL PROGRAMS," and "CERTAIN INVESTMENT CONSIDERATIONS" does not include any untrue statement of a material fact or omit any statement of a material fact that should be stated therein for the purposes for which it is to be used or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
A certificate, dated the date of the Closing, of Ricondo & Associates, Inc. (the "Airport Consultant") to the effect that, in its capacity as an expert in the aviation industry, the Airport Consultant has signed and delivered to the City an executed copy of its Report attached as APPENDIX E to the Official Statement and that it has reviewed and certifies that the information contained in the Official Statement under the captions "INTRODUCTION - CHICAGO O'HARE INTERNATIONAL AIRPORT," "INTRODUCTION - CAPITAL PROGRAMS," "INTRODUCTION - REPORT OF THE AIRPORT CONSULTANT," "PLAN OF FINANCE," "CHICAGO O'HARE INTERNATIONAL AIRPORT (but not including information under the sub-captions "-OTHER COMMERCIAL SERVICE AIRPORTS SERVING THE CHICAGO REGION", and "-BUDGET PROCEDURES")," "AIR TRAFFIC ACTIVITY AT O'HARE," "O'HARE FINANCIAL INFORMATION," "OUTSTANDING INDEBTEDNESS AT O'HARE," "CAPITAL PROGRAMS," "CERTAIN INVESTMENT CONSIDERATIONS (but not including information under the sub-captions "-EFFECT OF AIRLINE BANKRUPTCY," "-MUNICIPAL BANKRUPTCY" and "-LIMITED OBLIGATIONS,") and APPENDIX E does not include any untrue statement of a material fact or omit any statement of a material fact that should be stated therein for the purpose for which it is used or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
Robert Thomas CPA, LLC (the "Verification Agent"), will deliver a verification report stating that it has verified the mathematical accuracy of certain computations relating to the sufficiency of the amounts of proceeds of the 2016A Senior Lien Bonds, the 2016B Senior Lien Bonds and the 2016C Senior Lien Bonds, in the aggregate, set aside and to be used for the redemption of the Refunded Bonds to provide for the timely payment of the principal or respective redemption prices of and interest on the Refunded Bonds on their respective maturity or redemption dates.
16
Executed counterparts or certified copies of the Bond Ordinance, the Senior Lien Indenture and the Undertaking.
Evidence satisfactory to the Representative that the 2016 Senior Lien Bonds have received at least the following ratings, respectively, from S&P Global Ratings and Fitch Ratings Ltd.: "A" (Stable Outlook) and "A" (Stable Outlook).
One counterpart original of a transcript of all documents and proceedings relating to the authorization and issuance ofthe 2016 Senior Lien Bonds.
The Blanket DTC Letter of Representation dated March 9, 1995 between the City and DTC.
An executed counterpart of the Tax Compliance Certificate.
A negative assurance letter or letters of Co-Bond Counsel, dated the date of Closing and addressed to the Underwriters, in substantially the form attached hereto as Exhibit D.
(xix) A certificate of the Trustee, to the effect that:
the Trustee is qualified to enter into, accept and administer the trust created under the Senior Lien Indenture to which it is a party and to enter into such Senior Lien Indenture; and
the Senior Lien Indenture has been duly authorized, executed and delivered by the Trustee.
(xx) Such additional legal opinions, certificates, instruments and other documents as Co-Bond Counsel may reasonably deem necessary or desirable, or as the Representative may reasonably request, to evidence the truth and accuracy, as of the date hereof and as of the date of Closing, of the representations, warranties and covenants of the City contained herein and of the statements and information contained in the Official Statement and the due performance or satisfaction by the City at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the City.
All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Contract of Purchase will be deemed to be in compliance with the provisions hereof if, but only if, they are in substance satisfactory to the Representative.
8. Termination. If the City is unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the 2016 Senior Lien Bonds contained in this Contract of Purchase, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the 2016 Senior Lien Bonds are terminated for any reason permitted by this Contract of Purchase, this Contract of Purchase will terminate and neither the Underwriters nor the City will be under further obligation or have any further liability hereunder, except the City and the Underwriters shall pay their respective expenses as set forth in paragraph 9 hereof.
17
CN846815.17
9. Expenses. The Underwriters shall be under no obligation to pay, and the City shall pay, but solely from the proceeds of the 2016 Senior Lien Bonds or the legally available Revenues, all expenses incident to the performance of the obligations of the City hereunder, including but not limited to: (i) the cost of the preparation and reproduction and mailing or delivery of the Bond Ordinance, the Senior Lien Indenture, the Tax Compliance Certificate, the Undertaking, the Preliminary Official Statement and the Official Statement; (ii) the cost of the preparation and printing, if any, of the 2016 Senior Lien Bonds; (iii) the fees and disbursements of Co-Bond Counsel; (iv) the fees and disbursements of the accountants and advisors of the City and of any consultants retained by the City; (v) the fees for bond ratings; (vi) the fees for Blue Sky filings, if any; (vii) the fees of DTC; (viii) fees of the Trustee in its capacity as trustee for the 2016 Senior Lien Bonds; (ix) the expenses of travel, meals, and lodging for City representatives to attend conferences with the rating agencies, investor meetings, and pricing meetings relating to the issuance of the 2016 Senior Lien Bonds, whether incurred by such City representatives or by the Underwriters on behalf of such City representatives; and (x) any other expenses incurred in connection with the issuance of the 2016 Senior Lien Bonds and not specifically assumed by the Underwriters hereunder. The City shall be under no obligation to pay, and the Underwriters shall pay: (i) the cost of preparation and reproduction of the Agreement Among Underwriters and this Contract of Purchase; (ii) the costs of preparation and reproduction of the Blue Sky Memorandum; (iii) all advertising expenses in connection with the public offering of the 2016 Senior Lien Bonds; (iv) an amount, if any, required to be paid to the MSRB as its special assessment; (v) the fees and disbursements of Underwriters' Counsel; and (vi) all other expenses incurred by them or any of them in connection with their public offering and distribution ofthe 2016 Senior Lien Bonds.
10. Compliance with Municipal Code. The Representative understands and agrees, and, based upon the representations and warranties received by the Representative from the other Underwriters under the Agreement Among Underwriters, dated October 27, 2016 (the "AAU"), on behalf of the other Underwriters, each Underwriter understands and agrees, that it is required to and will comply with the provisions of Chapters 2-56 and 2-156 ofthe Municipal Code of Chicago. Each ofthe Underwriters acknowledges (a) receipt of a copy of Section 2-156-030(b) of the Municipal Code of Chicago; (b) such Underwriter has read such provision and understands that pursuant to such Section 2-156-030(b) it is illegal for any elected official of the City, or any person acting at the direction of such official, to contact, either orally or in writing, any other City official or employee with respect to any matter involving any person with whom the elected official has a "Business Relationship" (as defined in Section 2-156-080 of the Municipal Code of Chicago), or to participate in any discussion in any City Council committee hearing or in any City Council meeting or to vote on any matter involving the person with whom an elected official has a Business Relationship; and (c) that a violation of Section 2-156-030(b) by an elected official, or any person acting at the direction of such official, with respect to any transaction contemplated hereby shall be grounds for termination of this Contract of Purchase and the transactions contemplated hereby. The Representative on behalf of each Underwriter represents and warrants that, to the best of its knowledge, no violation of Section 2-156-030(b) has occurred with respect to this Contract of Purchase or the transactions contemplated hereby and no person holding office of the City, either by election or appointment, is in any manner interested, either directly or indirectly, in any contract being entered into or the performance of any work to be carried out in connection with the issuance and sale of the 2016 Senior Lien Bonds and upon which such officer may be called upon to act or vote.
11.' Underwriters Representations and Warranties. The Representative understands and agrees, and, based upon the representations and warranties received by the Representative from the other Underwriters under the AAU, on behalf of the other Underwriters, each Underwriter understands and agrees, that:
18
C\846815.17
The Representative, based solely upon the certification of each of the Underwriters to the Representative, without independent investigation, hereby represents and warrants that no Underwriter, nor any Affiliate (as hereinafter defined) thereof, is listed on any of the following lists maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the Bureau of Industry and Security of the U.S. Department of Commerce the U.S. Department of State or their successors, or on any other list of persons or entities with which the City may not do business under any applicable law, rule, regulation, order or judgment: the Specially Designated Nationals List, the Denied Persons List, the Unverified List, the Entity List, List of Statutorily Debarred Parties or the Excluded Parties List. "Affiliate," when used to indicate a relationship with a specified person or entity, means a person or entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified person or entity, and a person or entity shall be deemed to be controlled by another person or entity, if controlled in any manner whatsoever that results in control in fact by that other person or entity (or that other person or entity and any persons or entities with whom that other person or entity is acting jointly or in concert), whether directly or indirectly and whether through share ownership, a trust, a contract or otherwise.
The Representative further represents and warrants that the Underwriters have heretofore authorized the Representative to execute any document on behalf of and exercise any authority of and otherwise to act for, them in all matters under or pertaining to this Contract of Purchase. Each Underwriter has warranted and confirmed to the Representative, and the Representative warrants and confirms to the City that: (i) it is duly registered under the Exchange Act as a broker-dealer or municipal securities dealer and has duly paid the fee prescribed by MSRB Rule A-12 or is exempt from such requirements; (ii) it is (a) a member in good standing of the Financial Industry Regulatory Authority ("FINRA"), if applicable or (b) otherwise eligible under FINRA rules (to the extent applicable) to receive underwriting discounts and concessions available to such members with respect to underwriters of municipal securities; and (iii) it has complied with the dealer registration requirements, if any, of the various jurisdictions in which it offers the 2016 Senior Lien Bonds for sale.
12. No Advisory or Fiduciary Role; Acknowledgements of the City. The City acknowledges and agrees that:
(a) (i) the purchase and sale of the 2016 Senior Lien Bonds pursuant to this Contract of Purchase is an arm's-length commercial transaction between the City and the Underwriters and the Underwriters have financial and other interests that differ from those of the City; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriters are and have been acting solely as principals and are not acting as the agent, municipal advisor, financial advisor or fiduciary of the City; (iii) the Underwriters have not assumed an advisory or fiduciary responsibility in favor of the City with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether any Underwriter has provided other services or is currently providing other services to the City on other matters), and the Underwriters have no obligation to the City with respect to the offering contemplated hereby except the obligations expressly set forth in this Contract of Purchase or as otherwise required by applicable laws, regulations or the rules of the Commission or the MSRB; (iv) this Contract of Purchase expresses the entire relationship between the parties hereto and (v) the City has consulted its own legal, financial, municipal and other advisors to the extent it has deemed appropriate.
19
C\846815.17
(b) the Representative and the City have not previously entered into any formal agreement, engagement letter or other arrangement for the retention of the Underwriters establishing the fees of the Underwriters.
. Survival of Representations, Warranties and Covenants. This Contract of Purchase is made solely for the benefit of the City and the Underwriters (including the successors of any Underwriter), and no other person may acquire or have any right hereunder or by virtue hereof. All of the representations, warranties and covenants of the City contained in this Contract of Purchase shall remain operative and in full force and effect regardless of (i) any investigations made by or on behalf of any of the Underwriters, (ii) delivery of any payment for the 2016 Senior Lien Bonds pursuant to this Contract of Purchase, or (iii) any termination of this Contract of Purchase, other than pursuant to Section 8.
Compliance with MSRB Rule G-ll. In connection with the 2010 Amendment, the City has stated in the Official Statement that "Pursuant to the 2016 Supplemental Indentures authorizing each Series of the 2016 Senior Lien Bonds, the Owners of the 2016 Senior Lien Bonds shall be deemed to have consented to the 2010 Amendment by purchasing such 2016 Senior Lien Bonds." The Underwriters are not providing consent to or approval of such amendments, and the City agrees that it will not deem such amendments to have been consented to or approved by the Underwriters as a result of the Underwriters' purchase of the 2016 Senior Lien Bonds in their capacity as underwriters as defined in Section 2(a) (11) of the Securities Act. Upon request of the City, each Underwriter will inform the City of the amount of 2016 Senior Lien Bonds, if any, that such Underwriter holds in its capacity as an underwriter as defined in Section 2(a)(l 1) ofthe Securities Act.
Notices. Any notice or other communication to be given to the City under this Contract of Purchase must be given by delivering the same in writing at the address of the City set forth above, Attention: City of Chicago, Chief Financial Officer, 121 North LaSalle Street, 7th Floor, Chicago, Illinois 60602, and any notice or other communication to be given to the Underwriters under this Contract of Purchase must be given by delivering the same in writing to the Representative at Merrill Lynch, Pierce, Fenner & Smith Incorporated 540 West Madison Street, 28th Floor, Chicago, IL 60661 Attention: Nancy Clawson.
Time is of the Essence. Time is of the essence in consummation of the transactions contemplated by this Contract of Purchase.
17. Limitation of Liability. All covenants, stipulations, promises, agreements and obligations of the City under this Contract of Purchase are deemed to be covenants, stipulations, promises, agreements and obligations of the City and not of any officer or official of the City in his or her individual capacity, and no recourse is available for any claim based on this Contract of Purchase, any certificate provided hereunder or the purchase or sale of the 2016 Senior Lien Bonds against any officer or employee of the City.
Any obligations or liabilities of the City under or arising out of this Contract of Purchase or the purchase or sale of the 2016 Senior Lien Bonds shall be limited obligations or liabilities payable exclusively from legally available Revenues as discussed in the Official Statement, and in compliance with the Bond Ordinance shall not be general obligations payable from the general fund of the City. The Underwriters shall have no right to compel the exercise of the taxing power of the City or the forfeiture of any property of the City to satisfy any obligations or liabilities of the City under or arising out of this Contract of Purchase or the purchase or sale of the 2016 Senior Lien Bonds.
20
CN846815.17
Governing Law. This Contract of Purchase shall be governed by and construed in accordance with the laws of the State of Illinois, including, without limitation, those laws applicable to contracts made and to be performed in the State of Illinois. This Contract of Purchase shall not be assigned by the City or the Underwriters.
Qualification of Securities. The City will furnish such information, execute such instruments and take such other action in cooperation with the Underwriters as the Representative may reasonably request to qualify the 2016 Senior Lien Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Representative may designate and to provide for the continuance of such qualification; provided, however, that the City will not be required to qualify as a foreign corporation or to file any general or special consents to service of process under the laws of any state.
Counterparts. This Contract of Purchase may be executed in several counterparts, each of which shall be an original and all of which shall constitute one and the same instrument.
Headings. The headings of the paragraphs of this Contract of Purchase are inserted for convenience only and shall not be deemed to be a part hereof for any other purpose.
Execution. This Contract of Purchase shall become effective upon the execution and the acceptance hereof by the appropriate officers and officials of the City and will be valid and enforceable as of the time of such acceptance.
[signature page immediately follows]
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C\846815.17
IN WITNESS WHEREOF, the parties hereto have caused this Contract of Purchase in connection with the City of Chicago's Chicago. O'Hare International Airport Senior Lien Revenue Refunding Bonds, Series 2016A, Chicago O'Hare International Airport Senior Lien Revenue Refunding Bonds, Series 2016B, and Chicago O'Hare International Airport Senior Lien Revenue Refunding Bonds, Series 20I6C, to be executed by their duly authorized representatives as of the date first above written.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, for itself and on behalf of the Underwriters described in Schedule I
SCHEDULE I TO CONTRACT OF PURCHASE
UNDERWRITERS:
BOOKRUNNER:
Merrill Lynch, Pierce, Fenner & Smith, Inc.
CO-SENIOR MANAGERS:
Cabrera Capital Markets Jefferies, LLC
CO-MANAGERS:
Estrada Hinojosa & Company, Inc. IFS Securities, Inc. Mesirow Financial, Inc. North South Capital, LLC Raymond James Financial Stinson Securities, LLC Ziegler, B.C. Ziegler and Company
S-1
EXHIBIT A
$27,335,000
Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT)
Maturity Interest
(January 1) Amount Rate (%)
2017 $ 600,000 3.000%
*** *»* ***
950,000 5.000
1,000,000 5.000
1,045,000 5.000
1,100,000 5.000
1,155,000 5.000
1,210,000 5.000
1,275,000 5.000
1,340,000 5.000
1,405,000 5.000
1,470,000 5.000
1,550,000 5.000
1,625,000 5.000
1,710,000 5.000
1,790,000 5.000
1,885,000 5.000
1,975,000 5.000
2,075,000 5.000
2,175,000 5.000
Price Yield (%) CUS1P+
100.144 0.980% 167593SZ6
*** *** ***
110.088 1.620 167593TA0
112.803 1.730 167593TB8
115.130 1.860 167593TC6
116.698 2.060 167593TD4
117.885 2.250 167593TE2
118.571 2.450 167593TF9
119.015 2.630 167593TG7
117.603* 2.790 167593TH5
116.557* 2.910 167593TJ1
115.522* 3.030 167593TK8
114.582* 3.140 167593TL6
113.989* 3.210 167593TM4
113.400* 3.280 167593TN2
112.897* 3.340 167593TP7
112.481* 3.390 167593TQ5
112.149* 3.430 167593TR3
111.900* 3.460 167593TS1
111.653* 3.490 167593TT9
Priced to the January 1, 2026 optional redemption date. + Copyright 2016, American Bankers Association. CUSIP data herein are provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of bondholders only at the time of issuance of the 2016 Senior Lien Bonds and the City does not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2016 Senior Lien Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2016 Senior Lien Bonds.
A-1
CA846815.17
$461,945,000
Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT)
Maturity Interest
(January 1) Amount Rate (%)
$ 10,825,000 5.000%
52,055,000 5.000
56,475,000 5.000
59,290,000 5.000
2,005,000 5.000
2,105,000 5.000
2,215,000 5.000
2,325,000 5.000
2,435,000 5.000
2,555,000 5.000
2,680,000 5.000
2,825,000 5.000
2,955,000 5.000
3,105,000 5.000
1,845,000 4.000
1,420,000 5.000
1,920,000 4.000
10,360,000 5.000
2,000,000 4.000
28,500,000 5.000
2,080,000 4.000
59,910,000 5.000
2,155,000 4.000
51,625,000 5.000
3,775,000 5.000
2,515,000 5.000
2,790,000 5.000
1,720,000 5.000
Price Yield (%) CUSIP*
100.315 0.620% 167593TU6
104.331 0.930 167593TV4
107.903 1.130 167593TW2
111.170 1.280 167593TX0
114.285 1.380 167593TY8
116.871 1.530 167593TZ5
119.088 1.680 167593UA8
120.643 1.870 167593UB6
121.428 2.100 167593UC4
122.176 2.280 167593UD2
120.719* 2.440 167593UE0
119.908* 2.530 167593UF7
118.395* 2.700 167593UG5
117.691* 2.780 167593UH3
106.254* 3.200 167593UJ9
117.079t 2.850 167593UU4
105.688* 3.270 167593UK6
116.210* 2.950 167593UV2
104.967* 3.360 167593UL4
115.436* 3.040 167593UW0
104.648* 3.400 167593UM2
115.093* 3.080 167593UX8
104.171* 3.460 167593UN0
114.497* 3.150 167593UY6
114.327* 3.170 167593UP5
114.074* 3.200 167593UQ3
113.989* 3.210 167593UR1
113.905* 3.220 167593US9
$85,480,000 5.000% Term Bonds due January 1,2041 Price: 113.820* Yield: 3.230% CUS1P+: 167593UT7
Priced to the January 1, 2026 optional redemption date. T Copyright 2016, American Bankers Association. CUSIP data herein arc provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above arc being provided solely for the convenience of bondholders only at the time of issuance of the 2016 Senior Lien Bonds and the City does not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2016 Senior Lien Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result ofthe procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2016 Senior Lien Bonds.
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CA846815.17
$525,055,000
Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT)
Maturity Interest
(January O Amount Rate (%)
2017 $11,065,000 5.000%
*** *** ++*
15,545,000 5.000
16,320,000 5.000
17,140,000 5.000
17,995,000 5.000
18,895,000 5.000
19,840,000 5.000
20,830,000 5.000
21,875,000 5.000
22,965,000 5.000
24,115,000 5.000
25,320,000 5.000
26,585,000 5.000
27,915,000 5.000
29,310,000 5.000
30,775,000 5.000
32,315,000 5.000
33,930,000 5.000
35,630,000 5.000
37,410,000 5.000
39,280,000 5.000
Price Yield (%) CUSIP'
100.315 0.620% 167593UZ3
**« *** ***
107.903 1.130 167593VA7
111.170 1.280 167593VB5
114.285 1.380 167593VC3
116.871 1.530 167593VD1
119.088 1.680 167593VE9
120.643 1.870 167593VF6
121.428 2.100 167593VG4
122.176 2.280 167593VH2
120.719* 2.440 167593VJ8
119.908* 2.530 167593VK5
118.395* 2.700 167593VL3
117.69T 2.780 167593VM1
117.079* 2.850 167593VN9
116.210* 2.950 167593VP4
115.436* 3.040 167593VQ2
115.093* 3.080 167593VR0
114.497* 3.150 167593VS8
114.327* 3.170 167593VT6
114.074* 3.200 167593VU3
113.989* 3.210 167593VV1
Priced to the January 1, 2026 optional redemption date. + Copyright 2016, American Bankers Association. CUSIP data herein are provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of bondholders only at the time of issuance of the 2016 Senior Lien Bonds and the City does not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2016 Senior Lien Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result ofthe procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities ofthe 2016 Senior Lien Bonds.
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Optional Redemption Provisions.
2016A Senior Lien Bonds. The 2016A Senior Lien Bonds maturing on and after January 1, 2027, are subject to redemption at the option of the City on or after January 1, 2026, in whole or in part at any time, and if in part, in such order of maturity as the City shall determine and within any maturity by lot, at the redemption price equal to the principal amount of each 2016A Senior Lien Bond to be redeemed, plus accrued interest to the date of redemption.
2016B Senior Lien Bonds. The 2016B Senior Lien Bonds maturing on and after January 1, 2027, are subject to redemption at the option of the City on or after January 1, 2026, in whole or in part at any time, and if in part, in such order of maturity as the City shall determine and within any maturity by lot, at the redemption price equal to the principal amount of each 2016B Senior Lien Bond to be redeemed, plus accrued interest to the date of redemption.
2016C Senior Lien Bonds. The 2016C Senior Lien Bonds maturing on and after January 1, 2027, are subject to redemption at the option of the City on or after January 1, 2026, in whole or in part at any time, and if in part, in such order of maturity as the City shall determine and within any maturity by lot at the redemption price equal to the principal amount of each 2016C Senior Lien Bond to be redeemed, plus accrued interest to the date of redemption.
Mandatory Sinking Fund Redemption Provisions.
2016B Senior Lien Bonds. The 2016B Senior Lien Bonds maturing on January 1, 2041 are subject to mandatory redemption in part by lot from Sinking Fund Payments on January 1 of each of the years and in the respective principal amounts set forth below at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date of redemption:
Year 2040 204 It
$
Amount($) $ 95,000 85,385,000
r Final Maturity
If the City redeems 2016 Senior Lien Bonds subject to mandatory redemption pursuant to optional redemption or purchases 2016 Senior Lien Bonds subject to mandatory redemption and cancels the same, then an amount equal to the principal amount of 2016 Senior Lien Bonds of such Series and maturity so redeemed or purchased shall be deducted from the mandatory redemption requirements as provided for such 2016 Senior Lien Bonds of such Series and maturity in such order as an Authorized Officer of the City shall determine.
Notice and Selection of Bonds. Notice of redemption of the 2016 Senior Lien Bonds which are subject to optional redemption (i) identifying the 2016 Senior Lien Bonds or portions thereof to be redeemed, and (ii) specifying the redemption date, the redemption price, the places and dates of payment, that from the redemption date interest will cease to accrue, and whether the redemption is conditioned upon sufficient moneys being available on the redemption date (or any other condition), shall be given by the Trustee by mailing a copy of such redemption notice, not less than 30 days nor more than 60 days prior to the date fixed for redemption, to the Registered Owner of each such 2016 Senior Lien Bond to be redeemed in whole or in part at the address shown on the registration books. Redemption notices will be sent by first class mail, except that
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notices to Registered Owners of at least $1,000,000 of 2016 Senior Lien Bonds of the same Series shall be sent by registered mail. Failure to mail any such notice to the Registered Owner of any such 2016 Senior Lien Bond or any defect therein shall not affect the validity of the proceedings for such redemption of such 2016 Senior Lien Bond. Any such notice mailed as described above shall be conclusively presumed to have been duly given, whether or not the Registered Owner of any 2016 Senior Lien Bond receives the notice.
If a 2016 Senior Lien Bond is of a denomination larger than $5,000, all or a portion of such 2016 Senior Lien Bond (in a denomination of $5,000 or any integral multiple thereof) may be redeemed, but such 2016 Senior Lien Bond shall be redeemed only in a principal amount equal to $5,000 or any integral multiple thereof. Upon surrender of any 2016 Senior Lien Bond for redemption in part only, the City shall execute and the Trustee shall authenticate and deliver to the Registered Owner thereof, at the expense of the City, a new 2016 Senior Lien Bond or 2016 Senior Lien Bonds of the same Series, maturity and interest rate and of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the 2016 Senior Lien Bond surrendered.
If fewer than all of the 2016 Senior Lien Bonds of the same Series, maturity and interest rate are called for redemption, such 2016 Senior Lien Bonds (or portions thereof) to be redeemed shall be selected by lot by the Trustee (except at any time when such 2016 Senior Lien Bonds are held in a book entry system, in which case selection of such 2016 Senior Lien Bonds to be redeemed will be in accordance with procedures established by the book entry depository).
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EXHIBIT B
$27,335,000 City of Chicago Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT)
Par Amount
Plus Net Premium
Less Underwriters' Discount
Purchase Price
Purchase Price -
$27,335,000.00 3,825,843.95 130,632.62 $31.030.211.33
$461,945,000 City of Chicago Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT)
Purchase Price
Par Amount $461,945,000.00
Plus Net Premium 54,913,257.55
Less Underwriters' Discount 1,969,702.01
Purchase Price $3H.88&555J4
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CA846815.17
$525,055,000 City of Chicago Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT)
Par Amount
Plus Net Premium
Less Underwriters' Discount
Purchase Price
CA846815.17
EXHIBIT C
ISSUE PRICE CERTIFICATE OF THE UNDERWRITER
Re: CITY OF CHICAGO (the "Issuer") CHICAGO O'HARE INTERNATIONAL AIRPORT
General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT) General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT) General Airport Senior Lien Revenue Bonds, Series 2016C (Non-AMT) (collectively, the "Bonds")
Defined terms used in this certificate have the respective meanings set forth in the Issuer's Tax Compliance Certificate relating to the Bonds.
A. Issue Price
We hereby certify, based upon information available to us, that:
1. As of November 3, 2016 (the "Sale Date"), the date on which the Bonds were
sold by the Issuer, all of the Bonds were publicly offered and the first 10% or
more of the Bonds of each maturity were actually sold to the General Public for
money in a bona fide public offering at the initial offering prices shown on
Schedule I hereto (the "Issue Prices") which do not exceed the fair market value
of such Bonds as of the Sale Date.
2. We have computed the aggregate Issue Price of the Series 2016A Bonds to be
$ , which is the sum of the Issue Prices of each maturity of the
Series 2016A Bonds. We have computed the Issue Price of the Series 2016B Bonds and the Series 2016C Bonds (the "Governmental Bonds" to be
$ , which is the sum of the Issue Prices of each maturity of the
Series 2016B Bonds and Series 2016C Bonds. The total aggregate Issue Price
of the Bonds is $ .
For purposes of this certificate, "General Public" does not include bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers.
B. Information for Form 8038G and Form 8038
We have been asked to calculate the weighted average maturities set forth in Schedule II hereto in the following manner: divide (a) the sum of the products determined by taking the issue price of each maturity times the number of years from the date hereof to the date of such maturity (treating the mandatory redemption of bonds as a maturity), by (b) the aggregate issue price of such Bonds or Prior Bonds, as appropriate. Such weighted average maturities are based solely on these calculations.
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0846815.17
C. Debt Service Reserve Sub-Fund
The undersigned represents that the Common Debt Service Reserve Sub-Fund Deposit with respect to the Series 2016A Bonds and the Series 2016B Bonds, on the one hand, and the Series 2016C Debt Service Reserve Sub-Fund Deposit with respect to the Series 2016C Bonds is no more than is reasonably required to market such series of Bonds at the interest rates achieved.
The undersigned is certifying only as to facts in existence on the date hereof. Nothing herein represents the undersigned's interpretation of any laws or the application of any laws to those facts; in particular the regulations under the Internal Revenue Code of 1986, or the application of any laws to these facts. The certifications contained herein are not necessarily based on personal knowledge, but may instead be based on either inquiry deemed adequate by the undersigned or institutional knowledge (or both) regarding the matters set forth herein. Although certain information furnished in this Certificate has been derived from other purchasers, bond houses and brokers and cannot be independently verified by us, we have no reason to believe it to be untrue in any material respect.
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It is understood by the undersigned that the certifications contained in this letter will be relied upon by the Issuer and Co-Bond Counsel in determining that the Bonds are tax-exempt under Section 103 of the Internal Revenue Code.
Dated: December , 2016
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORTATED
By:
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SCHEDULE I ISSUE PRICES
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SCHEDULE II
WEIGHTED AVERAGE MATURITIES
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EXHIBIT D
$27,335,000 General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT)
$461,945,000 General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT)
$525,055,000 General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT)
PROPOSED FORM OF NEGATIVE ASSURANCE LETTER OF CO-BOND COUNSEL
December 5, 2016
Merrill Lynch, Pierce, Fenner & Smith Incorporated
on behalf of itself and
as Representative of the hereinafter
described Underwriters New York, New York
Ladies and Gentlemen:
We have acted as Co-Bond Counsel in connection with the issuance and sale by the City of Chicago (the "City") of $1,014,335,000 aggregate principal amount of its Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT), Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT) and Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT) (together, the "2016 Senior Lien Bonds"). The 2016 Senior Lien Bonds will be issued in three series:
$27,335,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016A (AMT);
$461,945,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016B (Non-AMT); and
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(iii) $525,055,000 aggregate principal amount of Chicago O'Hare International Airport General Airport Senior Lien Revenue Refunding Bonds, Series 2016C (Non-AMT).
In that capacity, we have participated in the preparation of the Official Statement dated November 3, 2016 relating to the Bonds (the "Official Statement"), and have participated in meetings with representatives of the City, your representatives, your counsel and others, in which the Official Statement was discussed. This letter is furnished to you pursuant to Section 7(d)(xviii) ofthe Contract of Purchase dated November 3, 2016 (the "Contract of Purchase") between the City and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the Underwriters described therein (the "Underwriters").
The purpose of our professional engagement was not to establish or confirm factual matters set forth in the Official Statement, and we have not undertaken any obligation to verify independently any of the factual matters set forth in the Official Statement. Moreover, many of the determinations required to be made in the preparation of the Official Statement involve matters of a non-legal nature.
Subject to the foregoing, we confirm to you as a matter of fact and not as an opinion that, in the course of performing the services referred to above, nothing came to the attention of the attorneys in our firm rendering legal services as Co-Bond Counsel that caused us to believe that the Official Statement as of its date or as of the date hereof contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that we do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement and we express no view with respect to (i) the financial statements or other financial, forecast, technical, operating and statistical statements and data contained or incorporated by reference in the Official Statement or omitted therefrom; (ii) information pertaining to CUSIP numbers, to DTC and the book-entry only system; (iii) information contained under or omitted from the captions "INTRODUCTION - REGARDING USE OF THE OFFICIAL STATEMENT;" "SECURITY FOR THE 2016 SENIOR LIEN BONDS—AIRPORT USE AGREEMENTS," "SECURITY
FOR THE 2016 SENIOR LIEN BONDS PROPOSED AMENDMENT TO THE SENIOR
LIEN INDENTURE" and the last paragraph of the caption "SECURITY FOR THE 2016 SENIOR LIEN BONDS—DEBT SERVICE RESERVES-COMMON DEBT SERVICE RESERVE SUB-FUND," "O'HARE FINANCIAL INFORMATION" and "CAPITAL PROGRAMS," or (iv) the information contained in or omitted from the Appendices C, D, E, G or H to the Official Statement.
This letter is being issued subject to the following matters, which by your acceptance of this letter you recognize and acknowledge: (1) that this letter is not a legal opinion but is rather a negative observation based on our activities as Co-Bond Counsel in connection with the issuance of the Bonds; (2) that we have not been engaged to act, and have not acted, as your counsel for any purpose in connection with the offering of the Bonds; (3) that no attorney-client
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relationship at any time existed between us; and (4) that the scope of activities on which this letter is based was inherently limited and does not purport to encompass all activities necessary for compliance with applicable securities laws. Consequently, we make no representation that our procedures have been adequate for your purposes. This letter is being furnished only to you, is solely for your benefit as an Underwriter and as representative of the Underwriters, and is not to be used, quoted, circulated, relied upon or otherwise referred to by any other person or entity (including any person or entity purchasing any of the Bonds from you or the other Underwriters) or for any other purpose without our prior written consent. This letter may be disclosed to your counsel and copies of this letter may be included in the compilation of closing documents pertaining to the 2016 Senior Lien Bonds.
This letter is given as of the date hereof and we assume no obligation to revise or supplement this letter to reflect any facts or circumstances that may hereafter come to our attention
Very truly yours,
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