News Column

Fitch Affirms Chicago, IL Motor Fuel Tax Bonds at 'BBB+'; Outlook Negative

May 28, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'BBB+' rating on the following Chicago, IL, motor fuel tax bonds:

--$110 million motor fuel tax revenue refunding bonds, series 2013.

The bonds were originally rated in April 2013 but were not issued due to market conditions. The bonds are now expected to price the week of June 9. Proceeds will refund the motor fuel tax revenue bonds, series 2003A for annual interest savings.

Fitch also affirms the following outstanding motor fuel tax revenue bonds at 'BBB+':

--$101.1 million motor fuel tax revenue TIFIA bond (Wacker Drive Reconstruction Project - Including the Chicago Riverwalk Expansion: TIFIA 2013-1004A);

--$114.4 million motor fuel tax revenue bonds, series 2003A;

--$62.9 million motor fuel tax revenue bonds, series 2008A;

--$3.7 million motor fuel tax revenue bonds, series 2008B.

The Rating Outlook is Negative.

SECURITY

The bonds are secured by a first lien on all motor fuel taxes distributed to the city by the state, subject to annual appropriation by the state legislature. Additionally, various project-related revenues are pledged.

KEY RATING DRIVERS

RATING CAPPED BY STATE RATING: The 'BBB+' rating on the fuel tax bonds is tied to the state's credit quality (Illinois GO bonds currently rated 'A-', Negative Outlook). Motor fuel tax revenues are distributed according to a formula controlled by state statute and are subject to annual appropriation by the state. Therefore, the rating on these bonds is capped at one notch below the state's GO rating.

SOLE RELIANCE ON FUEL TAX REVENUES: The rating assumes no support from the additionally pledged revenues, given the difficulty in assessing this relatively new revenue stream. The rating therefore relies solely on the motor fuel tax revenue stream.

ADEQUATE COVERAGE: Fitch base case projections indicate maximum annual debt service (MADS; 2038) coverage at or above 1.3x, assuming modest annual declines in motor fuel tax revenues.

NEGATIVE OUTLOOK TIED TO STATE'S RATING: The Negative Outlook results from Fitch's Negative Outlook on the state's GO bond rating.

RATING SENSITIVITIES

STATE CREDIT QUALITY: The rating is sensitive to a downgrade in the state's GO rating, which would result in a downgrade of these bonds.

CREDIT PROFILE

RATING TIED TO STATE RATING

The rating on the bonds is capped at one notch below the state's GO rating because motor fuel tax revenues are collected by the state and local distributions are subject to annual appropriation by the legislature. The state legislature also has the ability to alter the distribution formula or identify more priority allocations, as distribution of the motor fuel tax revenues only occurs after these priority allocations.

ADEQUATE DEBT SERVICE COVERAGE

Debt service coverage on the city's motor fuel tax bonds has historically been very strong and well in excess of the 2x additional bonds test (ABT). Pledged motor fuel tax revenues covered debt service by 3.1x in fiscal 2013.

The 2x ABT allows for inclusion of additional Riverwalk revenues (including dock fees, outdoor kiosk advertising, event sponsorship, naming rights, and concession and space rentals) to meet the test. Fitch believes the Riverwalk revenues do not add rating value and analyzes coverage of bond and loan debt service by motor fuel tax revenues alone.

Fitch's analysis assumes modest annual declines in available motor fuel tax revenues and shows a coverage trough of 1.3x at MADS in 2038. Fitch stress scenarios show the motor fuel tax revenue stream could withstand annual declines of 3.4% while still fully covering debt service.

For more information on the state see 'Fitch Rates $750MM Illinois GO Bonds 'A-'; Outlook Remains Negative' (April 17, 2014), available at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Bond Counsel, and Consulting Firm.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=832028

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Arlene Bohner, +1 212-908-0554

Senior Director

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Eric Friedman, +1 212-908-9181

Director

or

Committee Chairperson

Steve Murray, +1 512-215-3729

Senior Director

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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