Chicago - The Chicago-Calumet Skyway's proposed $103 million of refunding bonds earned investment-grade ratings of BBB-minus from Standard & Poor's Corp. and BBB from Fitch Investors Service.

The ratings were released late Wednesday and yesterday after the two rating agencies last month issued credit opinions that the refunded bonds would achieve investment grade ratings. An official at Moody's Investors Service said the agency will release a rating today. Moody's refused to issue a credit opinion on the bonds before rating them.

The fact that $90.2 million of outstanding skyway bonds are in default played into the rating rationale. Proceeds from the refunding will redeem the outstanding bonds.

Standard & Poor's gave a stable outlook to the BBB-minus rating on the bonds. The agency cited an average annual growth in toll revenues of 5% over the past five years and projected coverage of 2.25 times debt service over the first 17 years of the issue.

The low investment-grade rating is due to a "sizable" 15-year, $183 million capital improvement program city officials have proposed for the skyway, the agency wrote in a credit report. Standard & Poor's report also pointed to the skyway's history of cyclical toll activity and "a somewhat constrained rate-setting flexibility."

"I think the history was poor on the project," said Todd Whitestone, a managing director at Standard & Poor's. "[The skyway] has had a lot of traffic cyclicals, going up and down."

In its rating release, Fitch said the BBB rating reflects "stronger growth" in traffic and revenues on the skyway over the last five years and that annual maximum debt service coverage on the bonds based on 1993 net revenues is 1.21 times.

Andrea Bozzo, a senior vice president at Fitch, said other rating factors were the skyway's default history as well as the fact that the new refunding issue is structured to delay principal payments for a number of years to free up money for capital improvements.

The bond refunding plan is structured so that no principal payments would be made on the bonds until 2012. Skyway revenues from now until then would be used to fund the $183 million capital improvement program and to make interest payments on the bonds.

The Fitch release also said that "a further unknown is the city of Chicago's commitment to raise toll rates, if necessary, in view of the last 20 years of court-ordered toll increases on the skyway."

Walter Knorr, Chicago's comptroller, could not be reached for comment on the ratings.

Even though the city sought ratings for the bonds, Knorr has said insurance is a possibility for the issue. Pricing is scheduled for the week of May 23. Co-senior managers on the deal are Paine Webber Inc. and Dean Witter Reynolds Inc.

Meanwhile, the bond refunding still lacks final approval by the Chicago city council.

The city council's Finance Committee approved the refunding plan on April 28, but a May 4 final vote on the plan by the entire city council was postponed by a group of aldermen who raised questions about the plan.

John Buchanan, one of the aldermen and a long-time opponent of the city's involvement in the skyway, said he will try to send the issue back to the Finance Committee at the next city council meeting on Wednesday.

Buchanan characterized the bond issue as a "bailout" and he called on the city comptroller to find and disclose the list of bondholders who will benefit from the bond issue.

Buchanan also said that part of the proceeds will pay only the principal on a $2 million loan the city gave the skyway in the 1960s. Buchanan contended the city should receive interest on that loan, which could provide the city an estimated $8 million repayment.

City officials have expressed optimism that the plan will be approved at next week's council meeting.

The city will use proceeds from the refunding to redeem outstanding skyway bonds at a price of 101% by July 1. On May 4, bondholders' lawyers agreed to drop long-standing litigation against the city, pending approval of the refunding plan by the city council and subsequent payment of holders of the defaulted bonds.

The outstanding bonds are scheduled to mature on Jan. 1, 1995. If the city were to let the bonds mature without paying bondholders, the city would face an interest rate penalty of 5% more than the 3 3/8% and 4 3/8% rates on the outstanding bonds.

In 1963, insufficient traffic caused a default on $101 million of revenue bonds sold in 1955 and 1957 to build the skyway, a 7.8-mile tollroad that connects the southeast side of Chicago with the northwest corner of Indiana. In 1991, the city redeemed $10.8 million of the bonds through a tender offer.

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