CHICAGO — The Chicago Park District heads into the market to price $119 million of bonds as pension reform clouds overshadow its strong operating results.
Wednesday's sale will raise $75 million of new money for capital expenses with the rest refunding a mix of unlimited tax general obligation bonds with an alternate revenue pledge and limited tax GOs.
Cabrera Capital Markets is running the books with PNC Capital Markets as co-senior manager.
The district is rated AA-minus by Fitch Ratings, AA by Kroll Bond Rating Agency, and AA-plus by S&P Global Ratings.
Moody's Investors Service, which was not asked to rate the new bonds assigns a junk rating to the district's past issuance because of its close governance link to Chicago, which is rated junk by Moody's.
The district has $800 million of debt.
The district highlights in an investor presentation its solid operating results that have helped ease the burden of funding higher pension contributions under reforms negotiated with unions. The reforms that took effect early last year later became the subject of a legal challenge.
After the Illinois Supreme Court voided as unconstitutional Chicago and state pension reforms, the largest park district union — Service Employees International Union Local 73 -- joined one current district employee and one retiree and sued last fall.
The district's fund balance grew to $203 million last year from $185 million in 2011 as revenues came in stronger than expected and expenses were held in check. Stronger results helped cover supplemental payments owed under its pension reform plan of $12.5 million last year and another $12.5 million due this year. Another for $50 million comes due in 2019.
"As a result of these [stronger results] the district created the long term liability pension fund" that currently holds $22.5 million, chief financial officer Steve Lux told potential investors. The district is funding higher contributions through the use of its fund balance, increases in fees and its tax levy, and freeing some personal property replacement tax revenue by restructuring bonds.
The deal comes as negotiations are ongoing in an attempt to settle the lawsuit and reach a "modified approach to pension relief," according to the offering statement. The district currently has $517 million of unfunded liabilities for a net funded status of under 50%. If all the reforms are thrown out the district's net pension liabilities would rise by $111 million, the offering statement warns.
The reforms raised employee and employer contributions, altered pensionable salaries and retirement ages for some, and cut cost of living adjustments to put the fund on path to a 90% funded ratio by 2050. Absent reform, the pension fund is headed toward insolvency in 2023.
The district and its litigants told the court in June that they were working on a "agreed to solution." No resolution was announced at recent status hearings.
Last week, a Cook County Circuit Court judge signed off on an agreed order that grants employees and retirees interim relief. It reinstates annuity raises, makes a lump sum retroactive payment to annuitants, and temporarily suspends an increase in the district's tax levy as well as higher employee contributions. The next status hearing is set for Dec. 21.
S&P said its rating is supported by the district's large and diverse tax base, good income levels, strong operations with very strong reserves, and diversifying revenue streams.
The district collected about $80 million from the private operations of park-owned facilities like the Soldier Field stadium, harbors, and gold courses. Property taxes account for nearly 60% of revenues.
Of the district's $203 million fund balance about $75 million is unassigned which S&P said represents a "very strong" 25% of expenditures.
Challenges include its low pension funded level and moderately high debt burden.
"While we view the possible reversal of some of the terms of the original settlement as disruptive to the district's plan to dramatically increase the funding of its pension system, we do not believe a settlement will likely cause a pension funding crisis in the near term," S&P said.
"Management has consistently maintained stable financial operations reflected in the district's strong operating performance over the past decade; however, incorporated into that performance is the district's consistent underfunding of pension obligations," Fitch said. "Failure to implement a sustainable plan to consistently fund the actuarially required pension contribution would cause downward rating pressure."
The district paid a steep yield premium on its August 2015 pricing as yield penalties nearly doubled on some maturities to 150 basis points over the Municipal Market Data top-rated benchmark when compared to a June 2014 sale.
The district operates 585 parks, 231 field houses, Soldier Field, and 26 miles of lakefront property that house a handful of cultural institutions including the Museum of Science and Industry, Field Museum of Natural History, DuSable Museum of African American History, Adler Planetarium, John G. Shedd Aquarium, and the Art Institute of Chicago.