Deal in Focus

MetPier Is Set to Hit the Market With $844M Offering

CHICAGO — The Metropolitan Pier and Exposition Authority of Illinois hits the market Thursday with $844 million of revenue bonds in a deal that will raise new money for projects, generate double-digit refunding savings, and accomplish the second leg of an ongoing restructuring of its debt service schedule.

Morgan Stanley and Jefferies & Co. will serve as co-book-runners with Loop Capital Markets LLC and Ramirez & Co. as co-senior managers and another six firms rounding out the syndicate.

The offering from the MPEA, also known as MetPier, offers a mix of capital appreciation bonds and current interest securities in three series: $98 million of new-money McCormick Place project expansion bonds, $734 million of tax-exempt expansion project refunding bonds, and $12 million of taxable expansion project refunding bonds.

Ahead of the sale, Fitch Ratings affirmed its AA-minus rating on the authority’s $2.5 billion of McCormick Expansion bonds and Standard & Poor’s affirmed its AAA rating.

The bonds are repaid by the authority’s taxes on hotel rooms, restaurant meals, Chicago airport taxicab rides and car rentals, but also benefit from a state sales-tax backup pledge subject to appropriation.

Acacia Financial Group and Public Financial Management Inc. are advising the authority. Katten Muchin Rosenman LLP is bond counsel and Neal & Leroy LLC is underwriters counsel, with Mayer Brown LLP serving as special counsel.

The issuance marks the agency’s first since its $1.2 billion 2010 offering that followed a legislatively approved restructuring of its debt portfolio and operations aimed at providing near-term fiscal relief and long-term financial stability.

“The primary impetus from a timing standpoint is the great market for refunding bonds,” said the authority’s chief financial officer, Richard Oldshue. “Interest rates are moving around a lot but we are expecting double-digit present-value savings.”

The agency will refund bonds sold in 2002 and 1992. Prompted by the favorable market for issuers, MetPier opted to also include a nearly $100 million new-money tranche to finance various projects updating, renovating and expanding existing facilities, including utilities.

The MPEA, which owns the McCormick Place Convention Center and Navy Pier in Chicago, has $250 million remaining from a $450 million state-approved authorization for new-money debt.

It tapped about $200 million in its 2010 sale to finance construction of its second hotel tower, but a “long list of maintenance and improvement projects” remains, Oldshue said.

Officials also decided to move on the “second step” of an ongoing restructuring of MetPier’s debt service schedule that’s designed to keep debt payments “within the projected authority tax collections” and avoid tapping a state sales tax backup, Oldshue said.

The agency will push some maturities coming due between 2015 and 2018 further out with the final maturity on the 2012 bonds extending the debt service schedule to 2052 from 2050.

The finance team is stressing the strength of the credit to draw investors, especially ones looking for solid Illinois paper.

The hope, also, is to minimize the borrowing penalties the market demands on most Illinois-based borrowers. Those penalties stem from headline risks over the state government’s fiscal struggles.

The Illinois General Assembly closed its spring session last week after making headway on some challenges, including Medicaid reforms, but failed on pension reform. Gov. Pat Quinn is meeting with legislative leaders Wednesday morning in an attempt find common ground on a pension restructuring.

“Our discussions with investors revolve around the strength of the credit,” Oldshue said. “The credit story is really based on the strength of the state sales tax backup.”

That backup provides more than 14 times debt-service coverage of the authority’s bonds and state Build Illinois bonds, based on 2011 collections.

The state collects a sales tax rate of 6.25%, of which 1.25% is designated for local governments and 5% for the state. Collections rose 20% from 2003 to 2008, but fell 5.9% in 2009 and 6.5% in 2010 to $6.74 billion, due to the Great Recession.

Sales tax revenues began to grow again in fiscal 2011 in tandem with the economic recovery, increasing 6.6% to $7.19 billion, according to Standard & Poor’s.

Several buyside analysts said that in theory the MPEA sale shouldn’t see a steep penalty because of its strong revenue stream that lacks exposure to state budget woes.

“It’s its own credit and should be priced accordingly,” said Shawn O’Leary, senior research analyst at Nuveen Asset Management.

That insulation from state exposure, however, has not stopped investors from demanding higher yields from even top-rated Illinois borrowers.

“It’s guilt by association,” said another investor analyst.

The deal should be aided by an availability of cash from June 1 redemptions and its top rating. “There’s not a lot of choices out there for investors looking for a stronger credit in Illinois,” the analyst said.

The MPEA anticipates eliminating with bondholder consent a debt-service reserve fund for the expansion project bonds, freeing up $23.8 million to fund various capital projects.

The agency also decided for the first time to include in offering documents information on pensions due to the market’s focus on pension disclosure. The authority’s retirement fund is fully funded.

The agency’s $1.2 billion 2010 deal followed state legislation that paved the way for a sweeping overhaul of MetPier’s work rules at McCormick Place while authorizing debt restructuring and new money for the construction of a new 450-room hotel tower over an existing parking garage to complement its existing 800-room Hyatt Regency McCormick Place Hotel.

Construction of the facility is on time and within budget.

The restructuring authorization allows the agency — through a series of deals — to push off final maturities. It also frees up some existing authority tax revenue to help cover operations, and replenish exhausted reserves.

Oldshue said the funds should cover most of the authority’s operating loss and under a three-year plan it is on track to break even as scheduled by 2015.

The MetPier taxes on hotel rooms, restaurant meals, Chicago airport taxicab rides, and car rentals produced $98.4 million in fiscal 2010 and were tracking ahead of budgeted estimates.

Those revenues flow into a project fund to cover debt service that is subject to an annual legislative appropriation. Analysts note that there is little incentive for Illinois not to grant the appropriation because the revenues otherwise remain in the project fund.

Collections of the authority’s taxes fell sharply after the Sept. 11, 2001, terrorist attacks, and their subsequent growth failed to keep pace with MetPier’s steadily rising debt-service schedule, which prompted a draw on the state sales tax backup for $18.8 million in fiscal 2009 to cover debt service

Under the 2010 Illinois reform legislation, the state pledged $139 million of sales taxes as a backup in fiscal 2010. That figure rises to $350 million in 2031 — up from an existing maximum level of $275 million.

It will remain in place at the $275 million level until 2060. With its ongoing restructuring of existing debt, however, MPEA officials don’t anticipate tapping the backup. The 2010 legislation extended the authority’s taxes by 18 years through 2060.

The 2010 reforms “have strengthened operations, allowing [MetPier] to restructure outstanding debt to a level supported by its own revenue stream, issue additional debt to enhance longer term operations, alter the operating structure of the convention center, and replenish reserves,” Fitch analysts said in a report.

The 2010 package also overhauled MetPier’s governance and operating structure, including privatizing most convention center operations.

The reforms lowered the costs for users of the convention center and eased union work rules, helping stave off the further flight of convention business to more affordable facilities.



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