New Midway Airport privatization deal could come within year

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The multibillion-dollar deal to privatize Chicago’s Midway International Airport that was grounded earlier this year could try another take-off within a year, sources told mergermarket.

“The city wants to be proactive in getting a new deal,” said John Schmidt, partner with law firm Mayer, Brown LLP and Chicago’s lead counsel on the deal. “The city could even end up with a better deal,” said Schmidt, who said at an industry conference this week that Chicago could issue tax-exempt debt to aid a new deal.

The USD 2.52bn licensing deal announced last September with Midway Investment and Development (MIDCo) never took off. MIDCo, which comprised New York-based Citi Infrastructure Investors as the dominant partner, along with Boston-based John Hancock Life Insurance and Vancouver, British Columbia, Canada-based YVR Airport Services, broke talks with Chicago in April because it failed to come up with the capital.

One expert foresees a potential deal value differently. Joseph Schwieterman, transportation professor in the Department of Public Service Management and director of the Chaddick Institute for Metropolitan Development at DePaul University in Chicago, said he expects the city to fetch less money.

Schwieterman, who has studied transportation in the Windy City for 26 years including the Midway lease, believes the city will fetch between USD 1.6bn and USD 2bn if a new deal is signed. He attributed an expected deal valuation decline mostly to the shaky economy. “We’ll likely see action in a year,” Schwieterman added.

To sweeten a potential deal, Chicago is studying new ways to structure the privatization, including issuing tax-free debt, said Schmidt. The original deal structure, which included a 99-year-lease term, could still be signed, Schmidt added. If Chicago were to go the route of issuing debt to fund part of the large upfront payment that it was to receive, it would be paid back annually over time through lease fees from the airport’s operator until the debt is canceled, Schmidt said.

Under such a deal structure, Chicago would be obligated under Illinois law to spend all proceeds on infrastructure improvements and pension obligations, explained Schmidt. Under the initial deal structure which finally stalled last month, the city was permitted to spend 90% of the proceeds on infrastructure and pensions and 10% as it would have wished, because that agreement would have involved taxable debt.

Several entities have expressed interest in Midway, Schmidt said, but he did not name them. Solicitations might also come from new investment entities that have started since last year, he said.

In a March report by this news service, sources said that Spain’s Abertis, Germany’s Hochtief and Australia’s Macquarie Airports were each likely interested in pursuing a privatization deal if the MIDCo deal collapsed. Each was an initial participant in Midway privatization discussions.

New York-based Credit Suisse USA is the city’s financial advisor on Midway, Schmidt said.

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