The city of Chicago has canceled its 99-year, $2.52B sale of Midway (MDW) after the Midway Investment and Development Co. failed to find the funding necessary to complete the deal.
As a condition of the deal, the city will keep $126M in earnest money from MIDCo, a consortium made up of Citi Infrastructure Investors, John Hancock Life Insurance Co. and Vancouver Airport Services, a private consulting firm with ties to Vancouver International (YVR).
The transaction originally had been scheduled to close June 6. The parties had agreed to extend the negotiation period two weeks to try to negotiate a longer-term extension, but on Monday both sides announced that the deal would instead be terminated.
MIDCo originally won the bid last September.
Both sides blame the struggling global economy and financial markets for MIDCo’s inability to close the deal. The parties referred ARN to statements they released on Monday.
“Today the city of Chicago announced that the city and MIDCo have agreed that the two-week extension granted on April 6, 2009, will not be renewed as the company was unable to finalize the transaction due to the current global market conditions that have materially deteriorated since the bid award,” says George Casey, president and CEO of YVRAS.
Chicago officials indicate that although the Midway deal has fallen through for now, they aren’t ruling out another future attempt.
“We still retain the right to competitively offer the Midway transaction again, down the road, when financial market conditions improve,” says Gene Saffold, the city of Chicago’s CFO.
Chicago Mayor Richard Daley has aggressively sought privatization of highways, parking facilities and other services and activities within the city as a way of generating dollars to pay for other projects.
“We continue to believe that a long-term lease of Midway Airport would provide great benefit to Chicago taxpayers and residents – including providing hundreds of millions to invest in city infrastructure,” Saffold says.
Robert Poole, director of transportation studies with the Reason Foundation, says he’s disappointed the Midway deal fell apart but not surprised.
“We all know that the credit markets are still very risk-averse, and in this kind of long-term concession, the acquiring company takes on full ‘revenue risk,'” he says.
He says the fallout shows that 2008-level valuations for airports won’t be viable in this environment, meaning that estimates for what municipalities could receive by privatizing their airports will likely decrease.
On the upside, he says the withdrawal will open a spot in the Federal Aviation Administration’s privatization pilot program for another large hub airport.
“That may prompt interest from some larger cities that had previously been unable to consider privatization,” Poole says.
The FAA program allows for up to five airports to privatize but currently only one of those can be a large hub.
