The public agency that manages Chicago’s convention center campus signed off on up to $1.1 billion of borrowing that will provide salve for the agency’s ongoing COVID-19 pandemic-related wounds and generate some longer-term interest savings.
The Metropolitan Pier and Exposition Authority will borrow to cover roughly $143 million of fiscal 2022 debt service and will refund callable debt using a forward delivery structure for present value savings. The scoop-and-toss restructuring and traditional savings from the refunding provide will breathing room for the agency that manages Chicago’s convention center campus as it works to get back on its fiscal feet.
The agency, in addition to renting the convention center to exhibitors, collects taxes on food and beverages, car rentals, hotel guests, and airport departures. Tax collections sunk during the state’s mandated shutdown and phased-in reopening while conventions were shut down in March 2020. They resume in July. The campus also includes an arena and two hotels.
“The objectives of the collective issuance will be to refinance fiscal 2022 debt service to bring it in line with expected fiscal 2022 tax collections, to begin replenishing the $30 million reserve fund and to current refund $730 million of outstanding bonds callable in June 2022 to significantly reduce interest rates,” MPEA Chief Financial Officer Jason Bormann told board members at the agency’s regular monthly meeting Tuesday. The refunding should achieve at least $100 million in present value savings based on current rates.
The agency will head to market riding the headwinds of positive state rating action. Moody’s Investors Service late Tuesday raised the state’s rating by one notch to Baa2. That lifts MetPier’s $3 billion of debt back up to investment grade territory at Baa3 with a stable outlook as its rating is notched one below the state due to the appropriation needed to make debt service payments. Fitch last week moved the state’s outlook to positive.
The agency plans a direct placement of a series of taxable bonds with Goldman Sachs on July 14 to cover most or all the authority’s $143 million of debt service due in fiscal 2022 which begins July 1.
The first piece of the borrowing allows MPEA to recertify its debt service requests with the state so that no draw is expected in fiscal 2022 from state sales taxes that provide a backup pledge. If tax revenue projections hold, the authority expects the debt relief will also allow it to begin replenishing its $30 million reserve used to manage the pandemic’s fiscal 2020 blows.
The direct placement doesn’t mature until 2029 but the authority intends to pay it off at the first call date of March 17, 2022 when the second piece of the borrowing closes. The interest rate through next June is 2.5%. It rises to 5% in June 2022 if the authority doesn’t make the early pay off date.
In the second piece of the borrowing selling as soon as mid-July, the agency will current refund $736 million of bonds issued in 2002 and 2012 using a forward delivery structure and pay off the direct placement borrowing. The deal also capitalizes interest due June 15 and Dec. 15. The authority’s ordinance allows for a final maturity as far out as 2057 but Bormann said the intention is to limit it to 2052 which matches the outstanding bonds.
Citi and Goldman Sachs are co-book running senior managers and PFM Financial Advisors is advising the authority.
The agency’s bonds are currently trading at a 50 basis point spread to the AAA benchmarks compared to the 150 bp spread at the time of the agency’s last bond sale in the fall of 2020. Demand is outstripping supply with most weeks benefitting from inflows, Bormann told board members on the decision to act now on the forward refunding.
The authority in September sold $161 million of
May tax collections and preliminary June figures are better than expected in the agency’s April revised budget lowering the expected 2021 draw on state sales taxes to $10.1 million from $15.2 million to cover debt service, Bormann told the board. The board must repay the draw.
With the fiscal year nearing an end, the numbers underscore the deep hole left by the pandemic.
May tax collections totaled $3.6 million for a total of $42.6 million for fiscal 2021. That’s down 70% or $108 million compared to the same period last year, but up from the estimate in the revised budget approved in April. Reporting lags by one to three months depending on the tax so the full brunt of 2020 shutdowns were not fully felt until the final months of fiscal 2020 last year.
Taxes generated $151 million in 2018, $158 million in 2019, $154 million in 2020 and with one month left to report just $47 million for fiscal 2021. Before the pandemic, the authority anticipated $168.8 million in tax collections this year.
“It really makes clear the impact we are dealing with in terms of the decline in tax receipts and the difficulty in managing in this environment,” said board chairman Jeff Bethke.
Sports events resumed at MPEA’s Wintrust Arena late last month and conventions return next month with the state caps on capacity now lifted. Several big events cancelled before the reopening would have generated $377 million in economic impact, said Controller Stephanie Lovelace-Nieves. The year-to-date net operating loss totals $69.7 million.
Illinois lawmakers in May signed off on the authority’s subsidy requests. Lawmakers approved the MPEA’s expansion debt service appropriation for fiscal year 2022 and passed a $30 million appropriation for the authority’s corporate purposes for FY22. Of that amount, $15 million can be used for the authority’s incentive grant program for fiscal 2022 and the remaining $15 million can be used for the general corporate purposes.
MPEA Chief Executive Officer Larita Clark told lawmakers at an April legislative hearing that 223 events had been canceled since the start of the pandemic in March 2020. The losses amount, according to the authority, to an estimated $3 billion economic impact.
The agency’s bonds carry a BBB rating from S&P Global Ratings with a stable outlook, a rating capped due to the state's BBB-minus rating because of the need for a state appropriation for debt service. S&P in the spring revised the state’s outlook to stable and that also moved MPEA’s outlook to stable from negative. Fitch Ratings like Moody’s rates the bonds one notch below the state so Fitch rates it at the junk level of BB-plus, now with a positive outlook.
Aside from the pandemic-related wounds, the agency has long anticipated the need for more debt restructuring due to a steep debt service repayment ramp.
The agency’s campus that houses McCormick Place Convention Center, a 2.6-million-square-foot facility that is the largest convention center in North America, and the Wintrust Arena has been shuttered since March 2020. One of two hotels on the campus just south of downtown Chicago remained open and the second recently reopened.
