The public agency that manages Chicago’s convention center campus assumes it must scoop-and-toss $177 million of debt service owed between 2023 and 2025 to cover a gap between tourism-related tax revenues and a steep bond repayment ramp, according to its
The Metropolitan Pier and Exposition Authority generates operating funds from hosting shows, conventions and other events at its McCormick Place Convention Center campus, arena, and hotels while it repays $4.4 billion of outstanding project expansion debt with taxes on food and beverages, car rental, hotel taxes, and airport departures.
Those taxes took a big hit during the COVID-19 pandemic and that's contributing to the strains on an already steep debt service schedule that was already expected to force the authority to roll over old debt using the so-called "scoop-and-toss" maneuver.
Collections tumbled to $48 million in fiscal 2021 from $154 million in fiscal 2020 and $159 million in 2019. They are on the mend but a full recovery to pre-pandemic levels isn’t expected until fiscal 2024 with operating profitability taking until fiscal 2025 to return.
“MPEA anticipates expansion project debt service will exceed authority tax collections for fiscal 2023,” it said in a statement. “If that expectation plays out, then similar to our historic strategy, the authority will likely undertake a refunding to bring expansion project debt service in line with authority tax collections, which are still recovering from an unprecedented event for the travel and hospitality industry.”
Tax collections are projected to grow to $113 million this year, $144 million in fiscal 2023, $163 million in fiscal 2024, and then $170 million in 2025, according to the MPEA three-year financial plan adopted at its April meeting and forwarded to the state’s General Assembly.
Various other revenues bolster the amount available to cover debt but the agency expects it will need to restructure $45 million of debt service in fiscal 2023, $75 million in 2024, and $57 million in 2025, bringing debt service levels down to $180 million in 2023, $194 million in 2024, and $202 million in 2025. The numbers could fluctuate depending on how revenues fare in the coming years.
The timing of restructurings isn’t set yet but when the agency does come to market next it will benefit from two upgrades — including one that
“This scoop-and-toss plan is meaningfully reduced from the previous year's three-year plan that called for annual refinancings of $110 million-$150 million,” S&P Global Ratings noted in its Friday upgrade of MPEA to A-minus from BBB-plus after it upgraded the state.
The agency
The agency also remains on the road to replenishing much of its $30 million reserve this fiscal year and to repay its $10 million 2021 draw on state sales tax over the next three years. The state provides a $350 million pledge of sales taxes which serves as the ultimate security for the bonds although the backstop is capped at $300 million from fiscal 2023 to 2026.
The MPEA statute requires it replenish reserves before repaying the state for the unreimbursed sale tax draw. Before 2021, the agency’s last draw — $57 million — occurred after the 2008 financial crisis. It wasn’t completely repaid until fiscal 2019.
Convention business ground to a halt in March 2020. It resumed in the summer of 2021 when the city and state eased restrictions on gatherings but hasn't fully recovered.
The fiscal 2023 to 2025 operating budget assumes event activity for the first half of FY23 will perform at 75% compared to FY19 increasing to 90% during the second half of the fiscal year. For FY24, MPEA assumes event activity will return to 100% of its original schedule and for FY25, MPEA anticipates a return to operating profitability, according to the three-year plan.
“Looking ahead, the authority has a very strong outlook with events scheduled through 2035, including 322 events scheduled between July 1, 2022, thru December 31, 2034, with an estimated economic impact of $12.5 billion,” Chief Executive Officer Larita Clark writes in the report.
Long before the pandemic cut into tax collections, the authority used a series of scoop-and-toss debt restructurings as it failed to keep up with a steep debt service schedule based on overly optimistic tax growth projections. Officials have long anticipated the need for future restructurings. Debt restructuring occurred in 2010, 2012, 2015, 2017, 2019, 2020, and 2021.
The authority in September 2020 sold $161 million of
Last year, lawmakers provided additional help with the
In addition to restructuring fiscal 2022 debt service, the authority’s 2021 $811 million deal included a forward-delivery current refunding of about $700 million of debt for present value savings.
The authority closed March 17 on the deal, which generated $135 million of present value savings. Officials estimate the savings associated with the 3.09% rate generated $85 million more in savings than if the agency had waited to refund the bonds, given the rise in rates this year and market turmoil.
The agency’s campus just south of Chicago’s downtown houses McCormick Place Convention Center, a 2.6-million-square-foot facility that is the largest convention center in North America, the Wintrust Arena and two hotels.
Fitch Ratings and S&P Global Ratings last week raised MPEA’s ratings in connection with upgrades to the Illinois state government.
Moody’s Investors Service, Fitch, and S&P impose caps on the MPEA rating to just above or below the state's based on their interpretation of the security.
Fitch last week upgraded MPEA to BBB from the junk level of BB-plus, keeping it one notch below Illinois, where it caps the MPEA expansion project bonds based on the requirement for annual appropriation of sales tax revenues to the bond trustee.
S&P applies its priority-lien tax revenue debt criteria to the rating that takes into account both the strength of the pledged revenues and the general credit quality of the obligor government and so the rating is capped at one notch above the state. S&P lifted Illinois last week to BBB-plus.
“The upgrade reflects our view of the close tie to the state, the recent upgrade on the state's general obligation debt, and the strength of the statewide sales tax collections,” said S&P analyst Geoff Buswick. “MPEA continues to feel the effects of the COVID-19 pandemic in volume of events, capacity at events, and in authority revenues. Even with the operational challenges, we believe the A-minus long-term rating is appropriate, as these other attributes support the rating.”
Moody’s opted to hold the MPEA rating steady at Baa3 following its April upgrade of the state to Baa1 from Baa2. Moody’s pushed the rating up into investment grade territory last June in tandem with its first upgrade of the state in more than a decade.
The two notch differential “reflects the moderate legal framework associated with the bonds and the less essential nature of the financed convention center,” Moody’s said in the April 21 report.
The Baa3 rating remains two notches lower than the state's issuer rating which “reflects the moderate legal framework associated with the bonds and the less essential nature of the financed convention center. The moderate legal framework assessment incorporates the subject-to-appropriation nature of funds necessary to meet debt service requirements,” Moody’s said.
Kroll Bond Rating Agency assigned a first-time rating of AA-minus with a stable outlook to the 2021 deal.
All four assign stable outlooks.
