CHICAGO - The Illinois Metropolitan Pier and Exposition Authority is warning state lawmakers that without legislation allowing the agency to restructure a portion of its $2.1 billion debt portfolio, it will have to tap a state sale-tax backup to cover debt service as tourism taxes are expected to fall short this year.
Legislation that allows the MPEA, also known as MetPier, to extend the final maturity of its debt by six years to 2048, raise its debt ceiling by $350 million to $2.5 billion, and increase the pledged level of sales taxes in the later years of the debt service schedule to $350 million from $275 million cleared the Senate Revenue Committee last week. The additional $350 million borrowing capacity would finance construction of a new tower at the convention center's hotel.
Though the legislation has bipartisan support, its fate on the Senate and House floors is murky as lawmakers are grappling with a fiscal 2009 operating budget and pressure to pass a capital plan. Lawmakers also remain at odds with Gov. Rod Blagojevich over his spending proposals.
The authority recently sought proposals from financial advisers interested in working on a potential restructuring but officials have not named an adviser yet. A request for qualifications for bankers is expected to be issued later this month.
The sales tax pledge - subject to an annual appropriation - was attached to the MPEA's $1.5 billion sale in 2002 for the expansion of its McCormick Place Convention Center in Chicago to ensure a strong credit.
"It was only meant to be a credit enhancement and not to service the debt," said Richard Oldshue, director of treasury management at the MPEA.
By extending the final maturity on its debt, Oldshue acknowledged that the authority will add significantly to the overall borrowing cost for the projects it funded with the original issues, but it's considered the best option for a long-term solution.
"If collections hadn't declined so much after 9/11 this would not be necessary. We think it's the best solution so the tax collections that were created to service the debt continue to cover the debt and so that debt repayment is scaled within the expected growth of collections," Oldshue said.
The change would also give the MPEA more breathing room over the long term should its tourism taxes on hotels, restaurants, car rentals, and airport taxi rides slump again in the future.
MetPier collected $110.2 million from its tourism taxes last year, just enough to cover debt service. It needs $125.5 million in the current fiscal year, but expects to collect just $114 million and its projections in more recent years have been on target. The shortfall would trigger the sales tax backup.
The debt service has begun to ramp up on the 2002 deal. That's because the original structure relied heavily on premium securities to raise more cash up front and used a back-loaded amortization structure so as to fit into MetPier's existing bond portfolio without the need for any tax increases. It was an aggressive schedule built around existing debt repayment and was considered viable given historical growth of the taxes at an average of 5.5%.
In 2010, the debt service rises to $139 million. It rises at an average clip of 5.1% until it tops out at $275 million. The increase to $350 million of the state sales tax backup pledge in the later years reflects the authority's plan to push out the schedule to 2048 with debt service rising to $350 million. The savings achieved from lowering its interest rates combined with the extension of maturities would reduce the immediate burden of rapidly escalating debt service.
The new $350 million borrowing authority would finance construction of a new tower, parking facility and other improvements, adding 600 rooms and some ballroom and meeting space needed to help Chicago remain competitive for large conventions. A feasibility study has shown there's sufficient demand for both the tower and other privately proposed hotel projects around McCormick Place, located just south of downtown Chicago. The agency, which also manages Chicago's Navy Pier, sold $133 million of debt in 1996 to finance construction of the original hotel.
Oldshue said the ultimate size of the transaction, if the legislation is approved, will depend on market conditions at the time of pricing. Given the volatility of recent months he did not want to speculate. The authority currently does not hold any floating rate debt or any swaps.
"It's a challenging market, but at the end of the day we have strong credit story to tell," he said. The 2002 bonds are insured by MBIA Insurance Corp. and carry underlying ratings that range from the single A to triple-A.
State Sen. Jeff Schoenberg, D-Evanston, who sits on the revenue committee and is a co-sponsor of the legislation, said: "There's no doubt that this is essential for MetPier and it should not be linked to other legislation, but there is lingering resentment among downstate legislators still smarting over passage of a transit bailout earlier this year without a vote on the capital budget."
Some Democratic and Republican lawmakers initially refused to vote on a transit package until a $25 billion capital budget was approved, but they gave in amid threats of looming service cuts and fare hikes in the Chicago area.