OREANDA-NEWS. Fitch Ratings has affirmed the following Chicago, IL (the city) motor fuel tax bond ratings at 'BBB+':

--\\$102.8 million motor fuel tax revenue refunding bonds series 2013 (issue of 2014);
--\\$101.1 million motor fuel tax revenue TIFIA bond (Wacker Drive Reconstruction Project - Including the Chicago Riverwalk Expansion: TIFIA 2013-1004A);
--\\$62.7 million motor fuel tax revenue bonds series 2008A;
--\\$1.2 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

STATE RATING CAP: The rating on the fuel tax bonds incorporates the strength of the pledged revenues and legal structure, limited by Illinois' (the state) credit quality. The rating is capped at one notch below the state's general obligation (GO) rating (currently 'A-'/Negative Outlook).

SPECIAL REVENUE STATUS LIKELY: Fitch considers the motor fuel tax revenue stream to be a 'special revenue' under the U.S. bankruptcy code definition and therefore, does not consider the city's general credit quality to be a limiting factor for the rating.

STATE BUDGET IMPASSE: The state's budget impasse has prevented the flow of pledged motor fuel taxes. The city is relying on residual revenues to make required monthly deposits and has indicated a willingness to provide liquidity support, until the state's budget impasse is resolved, to continue those deposits should residual funds be depleted, which could occur as early as November.

ADEQUATE COVERAGE: Fitch base case projections indicate maximum annual debt service (MADS; 2038) coverage of 2.5x from fiscal 2014 motor fuel taxes. The debt service coverage assessment relies solely on the motor fuel tax revenue stream and no support from the additionally pledged revenues given the difficulty in assessing these relatively new revenue streams.

RATING SENSITIVITIES

STATE CREDIT QUALITY: The rating is sensitive to changes in the state of Illinois' GO rating or Outlook.

COVERAGE DECLINE: Declines in coverage, stemming from further leverage or from revenue declines in excess of those currently envisioned, could place negative pressure on the rating.

CREDIT PROFILE

STATE RATING CAP
The rating on the bonds is capped at the state appropriation rating, 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.

STATE BUDGET IMPASSE INTERRUPTING REVENUE FLOW

The state of Illinois budget impasse has interrupted the flow of motor fuel taxes to the city, beginning July 1. A bill being considered by the state legislature to allow appropriation of the motor fuel tax funds has not yet been passed. The city has sufficient excess receipts on hand to cover the required monthly deposits through October. Should the revenues not be flowing by November, the city has indicated a willingness to use other funds for monthly deposits. The next debt service payment includes a principal payment due January 1.

SPECIAL REVENUE STATUS IS LIKELY

Fitch views the pledged motor fuel tax revenue as special revenues under section 902(2)(B) of the bankruptcy code, which defines "special excise taxes imposed on particular activities or transactions" as special revenues. Therefore, the rating is not capped by the city's ULTGO rating. Fitch believes special revenue status is unaffected by the state's, rather than the city's, responsibility for the levy, collection, and appropriation of the revenues to the city, or the state's discretion as to the distribution of the revenues among local government units.

In further support of the likelihood that the bonds would not be subject to an automatic stay in a bankruptcy proceeding, the bonds were issued for a specific rather than a general purpose of the city, the city's share of the state-distributed revenues are deposited into a separate fund apart from the city's general fund, an amount equal to a set portion of debt service must be transferred monthly to the trustee, and the revenues are dedicated to debt service and not available to other creditors of the city.

There is no bankruptcy opinion that addresses the special revenue status of the pledged funds, and Fitch is not aware of a bankruptcy in which state-levied excise taxes were involved.

ADEQUATE DEBT SERVICE COVERAGE

Debt service coverage on the city's motor fuel tax bonds has been very strong historically, well in excess of the 2x additional bonds test (ABT). Pledged motor fuel tax revenues covered MADS by 2.5x in fiscal 2014.

Motor fuel tax collections are subject to consumption and price trends and are distributed according to a population-based formula. At the time of the last bond sale, in 2014, the city projected revenues would decline based upon recent trends. Fitch's analysis assumes modest annual declines ranging from 2.3% to 2.6% 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.

The city has no plans to further leverage the motor fuel tax revenue stream. As a practical matter, any such further borrowing would likely be limited by its reliance upon the residual funds for operating revenues. Both Illinois and federal Departments of Transportation approval are also required for additional borrowing. The 2x ABT is strong, but may not provide sufficient protection from projected declines in the revenue stream, so a change in borrowing plans could materially affect MADS coverage and the rating.

Protection afforded by the 2x ABT is also weakened by the ability to include 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.