A suburban Chicago hotel and conference center’s summer comeback from a coronavirus-driven shutdown didn’t stave off a new payment default on the project’s restructured bonds.
The
When the COVID-19 pandemic struck, Illinois Gov. J.B. Pritzker ordered a statewide shutdown under a stay-at-home order that shuttered the Lombard hotel, restaurant, and conference center operations.
The Lombard Public Facilities Corp. defaulted on its
How soon the facility might generate sufficient revenues to honor bond payments remains unclear as it depends on the course of the pandemic, vaccinations, consumer sentiment, and state guidelines on gatherings.
The Westin Lombard Yorktown Center closed to the public in March. Harry Caray’s restaurant and banquet space reopened on July 29 and the hotel reopened to the public on September 3. Limitations on the size of gatherings, hours of operations and indoor dining remain in place to varying degrees.
After some loosening, stricter limits were put in place last fall as cases rose. Restrictions have recently eased but larger gatherings won’t be allowed until vaccinations are widespread.
“A portion of principal and interest due and owing went unpaid for the January 1, 2021, debt service payment,” the corporation said in a
The facility’s balance sheet through the
That drove a net operating loss, before debt service, of more than $1 million for the quarter; a year earlier it reported a positive net operating income of $1.4 million for the quarter.
Year-to-date revenues through September were $6 million, down from $21 million for the same period of 2019. Net operating income was a negative $2.3 million compared to a positive $3.5 million through the same period in 2019.
The restaurant received $533,000 in loan funding under the federal government’s Paycheck Protection Program. “These funds are being used to pay eligible restaurant operating expenses including payroll and utilities,” corporation documents read.
The balance sheet was bolstered by an amendment to the tax increment financing redevelopment agreement between the village and corporation that accelerates certain payments to the corporation. Under the original agreement, the village was to reimburse the LPFC for a portion of certain eligible redevelopment costs up to $3.7 million.
The village of 44,000 people was planning to issue a promissory note when the LPFC submitted the costs as part of the agreement. Under the amendment, the payments have been accelerated and the village made a lump sum settlement of $2.5 million in September that in turn terminates the original agreement.
The project held at the end of the third quarter about $4.7 million in various fund balance accounts to subsidize operations, debt service, and capital. That’s up from $4 million for the second quarter but the third quarter results include the infusion of $2.5 million from the village.
To exit Chapter 11, the LPFC sold $142 million of tax-exempt bonds in 2018 through the Wisconsin-based Public Finance Authority in exchange for the original $190 million 2005 issue.
The exchanges were aimed at buying the project some time for its revenues to cover rising debt service demands after the 2008 recession cut deeply into revenue projections.
The indenture on the 2018 restructuring bonds permits hotel operating expenses to be covered by revenue held in the senior hotel capital expenditure reserve fund with the consent of various parties. The project made a slight $44,000 draw to cover the $500,000 July 2019 payment on four of the six series of bonds that make up the restructured bonds.
Project revenues appeared to cover the January 2020 payment as no notice of reserve use was posted. A required quarterly update published this year concluded that as of January 30, 2020 “no event of default under the Indenture has occurred and is continuing.”
Lombard established the corporation to issue the original 2005 bonds and manage plans for the Westin with village support through a tax rebate agreement and its appropriation pledge. The village, which once carried the AA rating of S&P Global Ratings, lost its investment grade rating after reneging on the pledge.
After years of failed negotiations, the village and corporation struck a deal with key bondholders and the insurer on a portion of the bonds and sought the bankruptcy’s court’s blessing in the Chapter 11 case filed in July 2017. The village’s appropriation pledge is no longer attached.
As part of the reorganization, the village board approved a restructuring agreement that provided $3 million for facility improvements and the $3.7 million TIF support for site infrastructure improvements.
Though the village also continues to contribute revenue from a special 1% so-called Places for Eating Tax enacted last year through 2021 and a tax rebate of about $1 million remains in place, it’s no longer obligated to repay the bonds. The restructuring contains various legal releases for the village, significantly reducing its legal liability.
The reorganization received overwhelming to unanimous approval in a balloting process. Major bondholders included Nuveen Asset Management, Oppenheimer Rochester High Yield Municipal Fund, and ACA Financial Guaranty, insurer on a portion of the bonds and a holder and controlling party based on the original bond indenture.
The $142 million bond exchange resulted in recovery rates between 77% and 86% on three most senior series while a subordinated $29 million series took a near total loss. The debt was pushed out to a 50-year repayment term.
The board that endorsed the hotel project believed demand existed, that it would spur economic development, and that it was worth the risk to the village. The facility has a 500-room hotel, two restaurants, 39,000 square feet of meeting and convention space, a 25-meter indoor swimming pool and fitness center, and a 675-car, four-story parking deck.
Some bonds have traded at near full price while others, likely uninsured, have traded at a between 21 cents and 26 cents on the dollar in recent months, according to trade data on the Municipal Securities Rulemaking Board’s EMMA website.
The payment shortage triggers multiple forms of defaults under the indenture. “The borrower’s failure to make the interest payments …constitute a failure to make loan payments under the loan agreement” triggering events of default on the loan and mortgage, according to a
