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In Latest Illinois Fallout, Fitch Drops Soldier Field Bonds

CHICAGO — Fitch Ratings this week dropped by two notches to A-minus its rating on the Illinois Sports Facilities Authority's $398 million issue from 2001 for the renovation of Chicago's Soldier Field stadium, the latest downgrade resulting from the state's credit problems.

Although the bonds are repaid with hotel taxes, the state's appropriation pledge secures the debt. Fitch downgraded Illinois by two notches to A in July.

"It's the downgrade of the state that drove this action," said analyst Karen Krop. "The actual security is a state appropriation pledge, so the downgrade of the state prompted a review of related issues."

Illinois has suffered a series of downgrades over the last year due to dwindling revenue, a liquidity crisis, and a growing structural budget deficit as lawmakers relied heavily on one-time revenues like debt restructuring and a pension note issue to help trim a $12 billion deficit.

Last week Standard & Poor's downgraded the state to A-plus and assigned a negative outlook, while Moody's Investors Service dropped the credit to A2.

The sports authority's Soldier Field bonds are the latest state-related issue to suffer because of Illinois' struggles.

Moody's has placed its public universities on negative watch, and the state's woes were a contributing factor in both Fitch and Moody's downgrades of the Illinois Regional Transportation Authority and Moody's downgrade of the Chicago Transit Authority. Some of the Metropolitan Pier and Exposition Authority's debt also has been affected.

The state's pledge to annually appropriate a portion of its 5% statewide hotel tax along with $10 million in state and city subsidies secures the Soldier Field bonds. "The one-notch distinction between the authority's debt and the state GO rating reflects the requirement for the state to appropriate payment," Fitch analysts wrote.

Illinois advances the authority the funds needed to cover debt service and then reimburses itself with funds from the agency's 2% tax on hotels in Chicago. The revenue provide just narrow coverage levels and rely on an ambitious growth schedule of 4.2% annually to cover debt service through the life of the bonds.

If the revenue was ever to fall short, the state could dip into Chicago's share of state income tax funds that are pledged for reimbursement under the complex agreement struck between the authority, city, park district and state. The agreement paved the way for the controversial $600 million renovation of the then 73-year-old stadium that is home to the National Football League's Chicago Bears.

Over the last 20 years, the authority's hotel tax — first imposed to finance construction of a new White Sox stadium — increased an average of 5.8% annually, but it took a dramatic hit following the 2001 terrorist attacks and over the last 10 years has grown at a lower 2.8% annual rate.

The tax again took a sharp dive in fiscal 2009 declining by 12.6%. The hotel revenues and public subsidies provide 1.5 times coverage. Revenues must grow at a clip of 4.2% to meet debt service in the final year of the payment schedule, Fitch wrote.

The sports authority's chairman criticized Fitch's action in a statement, saying the agency stringing disagreed with the downgrade based on the authority's relationship with the state. "We disagree with Fitch's fundamental notion that as a unit of local government, our debt should not be rated higher than the state itself," said Jim Thompson, ISFA Chairman and former Republican governor.

"We tried to gild the lily when we designed this credit. To take away the risk that our hotel taxes don't come in as quickly as needed, the state advances funds to protect bondholders…I would think that a 21 year history of flawless debt service payments, strong financial management, a reimbursement obligation to assure the state makes the advance and a non-impairment provision should be sufficient to maintain ratings, even if that means we're rated higher than the State," he said.

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