Met Pier Author­ity Joins Junk Bond Is­suer Ranks

The Bond Buyer - - Front Page - BY YVETTE SHIELDS

CHICAGO – With one spec­u­la­tive-grade rat­ing, the Illi­nois Metropoli­tan Pier and Ex­po­si­tion Author­ity heads into the mar­ket next week with a $475 mil­lion deal to take out its short-term ho­tel fi­nanc­ing and re­fund debt in an ef­fort to ease the need for fu­ture state tax draws.

The is­sue is the MPEA’s first pub­lic of­fer­ing since one of its rat­ings sank to junk due to the state’s gen­eral obli­ga­tion credit de­te­ri­o­ra­tion.

S&P Global Rat­ings af­firmed its BB-plus rat­ing and sta­ble out­look ahead of the sale slated for Nov. 14.

S&P had stripped the author­ity of its AAA rat­ing and Fitch Rat­ings of its AA-mi­nus rat­ing in 2015, and MPEA saw its spreads wid-

en by about 50 ba­sis points on a 2015 sale be­cause of the down­grades. Fitch af­firmed its BBB-mi­nus rat­ing and neg­a­tive out­look ahead of the deal.

Un­der the author­ity’s com­plex flow of tax rev­enues, pledged tax funds are set aside but a bud­get ap­pro­pri­a­tion is re­quired to free up those funds to be sent to the trustee. The state bud­get im­passe high­lighted the ap­pro­pri­a­tion risks and in 2015 both agen­cies be­gan notch­ing the rat­ing off the state’s GOs.

“The rat­ing re­flects our view of an­nual ap­pro­pri­a­tion risk, which was il­lus­trated in early fis­cal 2016 when the ab­sence of an adopted state bud­get or a timely sep­a­rate ex­tra­or­di­nary ap­pro­pri­a­tion led to a tem­po­rary tech­ni­cal de­fault,” wrote S&P an­a­lyst Gabriel Petek.

While MPEA must rely on the state for an ap­pro­pri­a­tion to make the trans­fers, it high­lights in an in­vestor pre­sen­ta­tion the healthy cov­er­age ra­tios and the in­abil­ity to use tax rev­enues that au­to­mat­i­cally go into a project fund for any other pur­pose be­sides debt ser­vice.

The author­ity is is­su­ing the bonds “to fi­nal­ize its per­ma­nent fi­nanc­ing for con­struc­tion of the Mar­riott Mar­quis Chicago and to re­fund a por­tion of out­stand­ing ex­pan­sion project bonds,” MPEA ex­ec­u­tive director Lori Healey said in the recorded pre­sen­ta­tion.

The author­ity owns and man­ages McCormick Place Con­ven­tion Cen­ter, two ho­tels, the Win­trust Arena which opened last month, and Navy Pier.

The deal taps nearly $300 mil­lion in ad­di­tional bond­ing author­ity ap­proved in the state’s fis­cal 2018 bud­get pack­age. The author­ity has $2.6 bil­lion of out­stand­ing con­ven­tion cen­ter ex­pan­sion bonds.

The heav­ily back-loaded struc­ture that mostly re­paid in the fi­nal five years in­cludes a com­bi­na­tion of cur­rent in­ter­est, de­ferred in­ter­est, and cap­i­tal ap­pre­ci­a­tion bonds with a fi­nal ma­tu­rity of 2057 on the 2017 bonds and 2058 on a small por­tion be­ing for­ward de­liv­ered in 2018.

Citi and Mor­gan Stan­ley are joint book-run­ners. PFM Fi­nan­cial Ad­vi­sors LLC is ad­vis­ing the author­ity. The bonds are se­cured by author­ity’s tourism re­lated taxes and backed up by pledged state sales tax with the lat­ter pro­vid­ing healthy debt ser­vice cov­er­age lev­els of more than 20 times.

Pro­ceeds will re­pay a $250 mil­lion con­struc­tion loan that helped fi­nance the author­ity’s sec­ond ho­tel, the 1,205-room Mar­riott with 90,000 of meet­ing space. It will also re­fund out­stand­ing debt un­der the author­ity’s debt re­struc­tur­ing plan launched in 2010 to bet­ter align rapidly grow­ing debt ser­vice with its own tax rev­enues.

The re­struc­tur­ing is de­signed “to re­duce the like­li­hood of fu­ture draws on state sales tax de­posits,” Wil­liam Da­ley, Mor­gan Stan­ley’s lead banker on the deal, said in the pre­sen­ta­tion.

With the re­fund­ing, MPEA ex­pects to re­pay all re­main­ing out­stand­ing state tax draws which to­taled $57 mil­lion and were taken when its own rev­enues fell short dur­ing the Great Re­ces­sion. The MPEA col­lects taxes on ho­tels, down­town restau­rants, auto rentals, and air­port taxi rides. Since fis­cal 2010, author­ity taxes have re­bounded from a low of $98 mil­lion to $150 mil­lion in 2017. ◽

Pro­ceeds of the Met Pier deal will re­pay a con­struc­tion loan that helped fi­nance a 1,205-room Mar­riott ho­tel.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.