Table set for deal to manage Chicago coronavirus convention losses

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The public agency that runs Chicago’s convention center expects to hit the market in September with an up to $200 million deal aimed at softening the COVID-19 pandemic's fiscal blows to its taxes and operations.

The Metropolitan Pier and Exposition Authority is funded with revenues from hosting conventions and events that aren't happening, and taxing visitors who aren't coming and restaurant guests who aren't eating or drinking.

Chicago's Mccormick Place has been bereft of conventions, though for a time it hosted a field hospital to provide extra capacity for a feared surge in COVID-19 patients.

The authority's board signed off on the recommendation from authority staff that Morgan Stanley and Loop Capital Markets LLC serve as co-senior managers.

The authority conducted a request for proposals among its existing pool to select the senior managers and the choices were made based on responses related to the agency’s objectives on a debt restructuring to relieve immediate pressures, acting chief financial officer Jason Bormann told board members.

Goldman Sachs, Cabrera Capital Markets LLC, and Siebert Williams Shank & Co. will be co-managers. Charity & Associates PC was named as disclosure counsel and Burke Burns & Pinelli Ltd. will be issuer’s counsel.

Katten Muchin Rosenman LLP will be bond counsel and PFM Financial Advisors LLC is advising the authority.

The deal will ease near-term debt service demands, giving the agency some breathing room to avoid triggering a state sales tax backup pledge should authority tax revenues falter.

The agency reported tax collections that support debt repayment fell 70% in fiscal 2020 from fiscal 2019 although the numbers don’t fully account for pandemic’s blow as there’s a three month lag on restaurant and beverage, hotel, and car rental collections forwarded from the state. Taxi departures from the airport are reported on a one month lag.

The agency’s campus that houses McCormick Place Convention Center — a 2.6-million-square-foot facility that is the largest convention center in North America — and the Wintrust Arena has been shuttered since March. One of two hotels remains open and the convention center served for a few weeks as a field hospital for overflow patients.

In June, the agency lost nine major events resulting in an estimated economic loss for the city of $176.5 million, controller Stephanie Lovelace-Nieves told the board at its July meeting Tuesday. More than 100 events have been cancelled due to the pandemic.

Illinois is in phase four of a reopening plan but large gatherings are not allowed until phase five and Gov. J.B. Pritzker has warned the state might not be able to completely reopen until a vaccine for COVID-19 is developed and widely distributed or treatments improve.

“We are continuing in our efforts to book events, to stay in touch with our current shows, those that have cancelled and rebooked” so that they know “we are moving forward with plans to be prepared to open when the time allows,” MPEA chief executive officer Larita Clark told board members.

MPEA is taking steps similar to others across the country stung by the pandemic’s economic shutdown.

“To date authorities have made adjustments to stabilize operations — including reducing budgets, readying available liquidity, furloughing staff, retiring debt in advance of scheduled maturities, and holding off on new debt or capital plans,” S&P Global Ratings said in a report on the convention center sector published this week. “However, despite these adjustments we think there is potential for steep pledged-revenue declines at least through next year and likely an unstable revenue climate for many years beyond 2021.”

The agency suffered a $5.9 million loss for June, which came in better than projected in the spring when the agency forecast an $8.7 million loss for June. That brings MPEA’s year to date operating loss to $30.1 million, $6.5 million better than the revised forecast.

Tax collection revenues for June, which represents March actual figures, were down 72% from June 2019. Hotel taxes fell by 83% compared to last year and airport departure fees were down 97%. Food and beverage fell by 56% and car rentals by 76%.

Authority tax collections closed out fiscal 2020 at $154.4 million. That’s $4 million lower than 2019 and down from an original forecast of $166.9 million. The pandemic’s effect won’t be fully known until the coming months due to the three-month lag.

Tax revenues fell $3.8 million below the amount budgeted for debt service. MPEA sets a goal to exceed the number by $8.6 million so it can both cover debt service and replenish any funds tapped from its $30 million reserve.

Lawmakers signed off on legislation during their spring session that gave the authority more debt issuing flexibility to manage the severe revenue losses.

The bill helps the authority deal with a potential shortfall in authority tax collections through fiscal 2021 and potential working capital needed if McCormick Place cannot host any events between now and June 2021, said authority spokeswoman Cynthia McCafferty.

The state budget legislation raised the amount of state tax deposits pledged as a backup for debt service which will help in debt restructurings. The budget package also allows the authority to use its remaining expansion project bond authorization to finance working capital expenses during fiscal 2021 and fiscal 2022.

MPEA intends to refinance any debt service that exceeds projected authority tax collections to prevent draws on state sales tax deposits. It’s a practice the authority adopted years ago as its original debt service schedule included a steep ramp.

The agency is tapping for near-term relief a special $30 million fund designed to offset shortfalls in tax collections.

The MPEA, which is governed by a board appointed by the Chicago mayor and Illinois governor, is rated BBB by S&P Global Ratings, with a negative outlook, a rating linked to the state's BBB-minus rating and negative outlook because of the need for a state appropriation for debt service.

Fitch Ratings had most recently rated the bonds BBB-minus but its recent downgrade of Illinois to BBB-minus moved MPEA’s rating to the junk level of BB-plus with a negative outlook. Moody’s Investors Service already had the rating at the Ba1 junk level. It assigns a negative outlook tied to the state’s outlook. The authority has about $2.8 billion of debt.

S&P highlighted the sector’s deepening strains in “Changing Landscape Threatens Credit Quality Of U.S. Convention Centers, Arenas, And Stadiums.” After seeing numerous downgrades this year, a recent resurgence in positive cases of COVID-19 does not bode well for the sector, particularly as planned re-openings falter or are reversed, directly affecting large crowd venues, S&P warned.

Analysts said they would be closely scrutinizing over the next six to 12 months the impact social distancing measures have on the sector, as well as issuers' ability to realign expenditures with drastically reduced revenues, particularly if very large sized events remain prohibited.

A prolonged environment of weak revenue collection and further deterioration in coverage will equate to additional downward pressure on ratings, S&P said. Longer term threats stem from potential permanent changes in large scale gathering that would impact the convention and trade business.

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