CHICAGO -- The Chicago-Calumet Skyway's proposed $103 million of refunding bonds received its third investment grade rating yesterday -- Baa from Moody's Investors Service.

Last week, the issue was rated BBB-minus by Standard & Poor's Corp. and BBB by Fitch Investors Service.

Moody's required strengthened legal provisions before assigning its lowest investment grade rating to the issue, which will refund $90.2 million of outstanding skyway bonds that are in default.

Changes required by Moody's involved specifying that any surplus funds that are placed in the system reserve account can be used only for the skyway and not for any other city of Chicago purpose as long as any refunding bonds remain outstanding.

In addition, Moody's required the city to institute a capital spending test for the skyway's approximately $183 million capital improvement program funded by toll revenues. Under the test, spending on the capital program can only proceed if annual traffic projections indicate that coverage on the bonds remains at 1.2 times debt service, according to Paul Devine, a vice president and assistant director of the Great Lakes region of Moody's.

Devine said the changes were required to strengthen bondholder protection and in view of the skyway's history of default.

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 toll road 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.

"Bondholders are adequately protected," Devine said. "Not only can existing traffic and toll rates meet peak debt service requirements, but traffic could decline, the capital program could be delayed, and bondholders would still be paid."

At Chicago's request, Standard & Poor's and Fitch last month issued credit opinions that the refunded bonds would achieve investment grade ratings. Moody's refused to issue a credit opinion on the bonds before to rating them. Walter Knorr, Chicago's comptroller, said the city is exploring insurance for the issue.

Meanwhile, the proposed skyway refunding still lacks final approval from the Chicago City Council. A Chicago alderman failed yesterday to get the proposed bond refunding returned to the Finance Committee, where it was approved on April 28.

Alderman John Buchanan succeeded in delaying final city council approval of the issue on May. 4 At yesterday's Finance Committee meeting, he unsuccessfully fought to delay the issue even further to review the rational behind the bond refunding. He was joined by other aldermen, some of whom argued that the city should let the bonds default past their redemption date of Jan. 1, 1995.

But city legal and finance officials said that Chicago would face an interest rate penalty of 5% more than the 3 3/8% and 4 3/8% rates on the outstanding bonds, continued litigation from holders of the defaulted bonds, and the likelihood that a court-appointed receiver would be placed in charge of the skyway.

Buchanan said he will attempt to stop the bond issue tomorrow when the full city council will take up the proposal.

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

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

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