CHICAGO — The Chicago Park District will enter the market next week with $150 million of general obligation bonds to help finance construction of its 10th harbor on the Lake Michigan shoreline and to fund improvements and renovations to its existing harbors.
JPMorgan is the senior manager and Cabrera Capital Markets LLC is co-senior manager. Peralta Garcia Solutions and Scott Balice Strategies are financial advisers on the deal. Katten Muchin Rosenman LLP is bond counsel and Drinkle Biddle & Reath LLP is co-bond counsel.
While the district’s full faith and credit pledge backs the bonds, an alternate source of revenue is pledged in the form of funds generated by the harbor facilities.
The Park District is leaning towards holding a retail order period before to the institutional pricing, according to district treasurer Melinda Molloy. In its first retail order period, the agency sold at least 70% of its $16 million issue of GO refunding bonds earlier this year to retail buyers.
The district’s board approved the inclusion of taxable Build American Bonds in the $150 million sale, but Molloy said the finance team will decide closer to the pricing whether to use the program. Its value compared to a tax-exempt structure has shrunk amid the large supply of BABs slated to sell before the program’s expiration at the end of December and congressional delays in approving some form an extension.
The timing of the sale is being driven by the Park District’s cash needs. “We’ve started construction on the new 31st Street Harbor and so there is a need for funds,” Molloy said. “We considered the availability of the BAB program but it’s not what is driving our timing.”
Proceeds of the deal will go to cover initial planning and design work on the proposed downtown “Gateway Harbor,” ongoing construction of the new 31st Street Harbor that is slated to open in 2012, and for improvements at the existing harbors. The district is shifting some its traditional moorings — those that require boaters to use a dinghy to get to their vessel — to slips that provide direct-pier access to boats.
“We will still have a mix but the renovations are about following demand and making sure our product fits the market,” Molloy said. Even during the recession, more than 90% of harbor slots remained full. Any vacancies, however, were in the traditional mooring slots.
Ahead of the sale, Fitch Ratings affirmed the Park District’s AAA, Moody’s Investors Service affirmed its Aa2, and Standard & Poor’s affirmed its AA-plus. The district will have $952.8 million of GO debt outstanding after the sale.
The district benefits from a large and diverse property tax base, prudent fiscal management, and a moderate debt burden that is at 0.3% of full property value, according to Moody’s. Annual debt service accounts for 21% of the district’s annual revenue. About 60% of revenue come from its property tax levy.
The preliminary $400 million, 2011 budget relies on cuts, increases in user fees, and one-time funding sources.
“The continued ability to control expenditures in light of the economically sensitive revenue stream and to maintain structural balance between recurring revenues and expenditures is key to maintaining a high level of credit quality,” Fitch analysts wrote.
The issuer’s finances received a boost in 2006 when the district entered into an agreement with Chicago that led to a long-term lease of its garages to a private consortium. The district received $348 million and used $120 million to establish a reserve fund. That fund has dropped to $96 million, but the agency recently adopted a policy preventing it from drawing the fund below $85 million. The general fund balance of $40 million coupled with reserves represents 49% of fiscal 2009 revenues.
A weak spot for the Park District is its failure to make the actuarially determined annual required contribution to fund its pensions. In recent years the district has funded it only at the required statutory level, which is half of the ARC. The funded ratio dropped to 67.2% last year from 73.8% in 2008.