The Illinois Finance Authority gave initial approval to a $120 million issue tied to the installation of a new open fare collection system for the Chicago Transit Authority using a unique financing structure.
Under the tentative structured project financing, the IFA would issue $120 million of tax-exempt government purpose facilities revenue bonds on behalf of the firm that’s supplying the payment system, California-based Cubic Transportation Systems Chicago Inc., after the project’s completion late next year.
The CTA would take ownership of the system and payments to the company would be pledged to the bond trustee to repay the bonds. The terms of the contract between the CTA and the company would provide a fixed monthly payment of $2.5 million under the public-private partnership deal that would run between 10 and 12 years.
“This will be the sole source of revenues available to cover debt service payments on the bonds,” IFA documents said. “Accordingly, the bonds will be rated and structured as a structured financing secured solely by the pledged enterprise revenues under the proposed contract between CTA and Chicago Transportation Systems Chicago, Inc.”
The CTA earlier this year picked the company to oversee implementation of the system, which will allow CTA users to pay fares by swiping their credit and debit cards.
The transaction is still in the early stages as the company is working on obtaining a financing commitment and regulatory approvals, IFA documents said. The company is expected to return for final approval late next year ahead of the anticipated closing and completion of the project in December 2013.
The company anticipates fixed interest rates in the range of 3% and 3.5% based on anticipated rating of BBB-plus, current market conditions, and a final maturity of between 10 to 12 years, according to IFA documents.
Bank of America Merrill Lynch would serve as senior manager. Katten Muchin Rosenman LLP would act as bond counsel.
Cubic Transportation Systems, Inc. — which had sales of $1.2 billion in fiscal 2010 — is the parent company of Chicago Transportations Systems Chicago, Inc., which it formed to finance, install, and operate the system that the CTA will own when completed. The contract payments would begin when the CTA takes ownership.
Cubic Transportation provides automated fare collection systems for public transport, including bus, bus rapid transit, light rail, commuter rail, heavy rail, ferry and parking across the globe. The CTA signed a contract with the company last January after completing a request for proposals process.
The board also gave final approval to Ingalls Health System’s $90 million financing to refund its 1994 debt and pay for various renovations. Ingalls — located south of Chicago in Harvey — expects to receive a rating in the high triple-B category from Moody’s Investors Service. Bank of America Merrill Lynch is underwriter and Jones Day is bond counsel with Kaufman Hall serving as financial advisor.
The authority board also gave preliminary approval to the sale of up to $17.5 million on behalf of the Melrose Cooperative Nursery Inc. which operates the Catherine Cook School. Proceeds would refund existing debt and finance a new 25,000 square foot addition to the school’s campus in Chicago. It would house a new library, eleven new classrooms, two new middle school science rooms, a lower school discovery center, and another rooftop playground. The school — established in 1975 — serves 500 students in preschool through eighth grade.
The school is considering a private placement for a portion of the deal along with a senior bank loan or a structure using a direct bank purchase.
The board did not take action on a proposed restructuring of a bankrupt continuing care retirement community’s $116 million 2006 bond issue with a $90 million issue. The federal bankruptcy court in Chicago recently confirmed a reorganization plan sponsored by the bond trustee Wells Fargo NA and bondholders for Clare Oaks in suburban Chicago
IFA officials said they are still reviewing the application. Although no IFA funds are on the hook in its role as a conduit, officials there want to scrutinize the plan as its name would still appear as the issuer of the bonds.