Chicago Infrastructure Trust Plots Second Deal

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CHICAGO — The Chicago Infrastructure Trust will open a search Wednesday for investors to finance energy efficiency upgrades for public swimming pools.

The pool financing would be the trust's second transaction for city related energy upgrades. The trust wants a structure that keeps the debt off the Chicago Park District's balance sheet and credit rating profile.

Those were the same goals sought in the trust's first deal, for the city government.

"The trust is pleased to begin a project to enhance the quality and comfort of our pools, while increasing their energy efficiency," Chief Executive Officer Steve Beitler said in a statement announcing the request for proposals.

The deal would fund energy efficiency upgrades to 100 indoor and outdoor pools across the city. The trust did not put a dollar amount on how much is being sought. As with its first financing, the trust would leverage savings expected from the financed work to repay private investors.

The boards of both the infrastructure trust and park district must approve it. Moody's Investors Service downgraded the district two notches to A3 Friday citing its close governance ties to Chicago and reliance on the same tax base.

The trust is seeking proposals from bidders that include at least one financial partner capable of financing the transaction, "preferably in an off-credit and off-balance sheet structure such as an ESA." Its first deal also used an energy savings agreement, or ESA, model to fund projects for the city's Department of Fleet and Facility Management.

The RFP will remain open for about 30 days.

Mayor Rahm Emanuel announced the creation of the trust two years ago as an alternative vehicle to leverage private investment for special projects. The city and trust initially pursued a plan to finance up to $200 million of energy upgrades to buildings owned by the city and its sister agencies including the district and schools.

The first batch of projects started out at $27 million but the deal size and term were scaled back as the trust struggled to find investors late last year.

The private placement's final size landed at $13 million. Bank of America Public Capital Corp. entered into a 15-year loan with the trust at a rate of 4.95%, about 220 basis points over the Municipal Market Data index as of Dec. 20, according to a review of the deal conducted for the trust by Phoenix Capital Partners LLP.

While the spread is higher than for city general obligation bonds, the review noted that the project risk falls on the lender. "Given these factors, the interest rate is reasonable," the report said. "The ESA platform selected by the Trust should provide the lowest overall credit, balance sheet and revenue risk to the City and allow the Trust to create consistent economic benefit for the city and the region."

The trust's first deal marked only the second tax-exempt ESA transaction to date. Legal advisors believe the tax-exemption is permitted because the trust is designated as the on-behalf issuer for the city and serves as the ESA project sponsor or owner and issues tax-exempt debt on behalf of the city.

If the savings are not achieved, energy contractors managing the projects must cover the gap.

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