CHICAGO - The Illinois Sports Facilities Authority is hoping to bring a roughly $278 million refunding to market this summer as it looks to ease the challenges of managing an escalating debt service schedule with an economically sensitive revenue stream.
The authority's primary revenue stream comes from a 2% tax on city hotels, which can be volatile. The agency has been under pressure to reduce the chances it will again tap a Chicago backstop to cover debt service on its Soldier Field renovation bonds.
The refunding bonds are being issued for debt service savings. Structural details of the sale have not yet been released and the preliminary offering statement has not been published. Market participants said the deal is interest-rate sensitive so its timing is fluid.
The authority previously selected Barclays and Goldman Sachs to serve as joint bookrunning senior managers. The authority owns and operates U.S. Cellular Field, home of the Chicago White Sox, and served as issuer for $400 million of revenue bonds in 2001 to finance renovations to the Chicago Park District-owned Soldier Field, home of the Chicago Bears.
Fitch Ratings has assigned a BBB-plus rating to the refunding bonds and affirmed the same rating for the original Soldier Field financing.
The bonds are secured by state tax payments which include an advance from a portion of the 5% statewide hotel tax in an amount tied to debt service needs and $10 million in annual state and city of Chicago subsidies. The state tax payments are subject to annual appropriation. The authority then reimburses the state for the advance with its own tax on city hotels.
In the event of a shortfall in ISFA hotel taxes, the city's share of state income taxes are pledged to repayment of the state advance. "Thus, there is no impact on the state's own fiscal operations based on the requirement to appropriate debt service for the bonds beyond its $5 million subsidy," Fitch said of the state's incentive to appropriate.
A gap between hotel tax collections and debt service forced the agency in 2011 for the first time since the Soldier Field issue to tap the city's backstop. The agency needed about $185,000.
The rating, notched one level lower than the state's general obligation rating, carries a negative outlook to reflect the negative view on the state's credit.
Another central factor in the rating is the health of hotel tax collections.
Fitch called current revenues adequate but warned of the steady growth needed to meet escalating debt service demands. Debt service for the original Soldier Field deal was backloaded to pick up when the ISFA's debt for construction of the new White Sox ballpark was retired.
"Current revenues, while sufficient to meet current debt service requirements, require annual growth of 4.5% to provide continuous coverage of the increasing debt service schedule," Fitch said.
The authority's hotel tax averaged 5% annual growth over the last 20 years but average growth is only 2% when during the last five years due to a steep fall during the recession. The numbers have since rebounded.
To help offset the volatility of hotel tax collections, the authority has bolstered its hotel tax reserve account which was originally funded at $6.8 million. It held $20 million as of June 2013.
The authority's debt is governed by state statutes so any move to push out final maturities or increase debt size would require legislative authorization.
ISFA had $442 million outstanding from its 2001, 2003, and 2008 deals, according to a July 2012 report. Annual debt service on the bonds ramps up dramatically from $32 million in fiscal 2013 to $88.5 million in fiscal 2032.
Members of the agency's board are appointed by Illinois Gov. Pat Quinn and Chicago Mayor Rahm Emanuel.
