CHICAGO – The Illinois Sports Facilities Authority may refund bonds sold for the renovation of Chicago’s Soldier Field to ease the risk that Chicago will be called on to make up for potential shortfalls in hotel tax revenues used to repay the debt.

“We are going to take a look at refunding the bonds,” said James Reynolds, head of the authority board’s finance committee and chief executive officer of Chicago-based investment bank Loop Capital Markets LLC.

Although interest rates are attractive, negative arbitrage complicates the potential economical savings of a traditional refunding based on the statutory boundaries on the Soldier Field debt, market participants said. 

The authority owns and operates U.S. Cellular Field, home of Major League Baseball’s White Sox. It served as issuer for the 2001 bonds that financed the renovation of Soldier Field, the Chicago Park District-owned home of the National Football League’s Chicago Bears.

A gap in hotel tax collections and debt service forced the agency last year for the first time since the $400 million bond issue to tap the city’s backstop that comes from a pledge of income taxes. The agency needed about $185,000 to cover debt service. Due to a state error, the agency initially believed the number to be about $1 million. Mayor Rahm Emmanuel reacted angrily to the initial news saying city taxpayers would not be left on the hook for the stadium debt.

At the board meeting Friday, the authority’s chief financial officer, Dana Phillips Goodum, delivered the welcome news that the hotel tax had generated about $5.7 million more than initially projected in fiscal 2012 which ended June 30.

“We are not going to have the shortfall we had last year” forcing the need to tap the city backup, said board member Manny Sanchez, whose law firm Sanchez Daniels & Hoffman LLP includes public finance.

Collections for the first few months of the new fiscal year are also tracking well, Goodum said.

With debt service rising 6.2% next year and increasing steadily, the authority is under pressure to find a long-term solution.

An assessment of whether a traditional refunding would generate sufficient savings on the backloaded bonds is in the early stages, Reynolds said. The agency’s financial advisory contract with Public Financial Management Inc. has expired but Reynolds said he has approached the firm about reviewing refunding opportunities.

The authority faces strict limitations in its ability to restructure the bonds. Reynolds said the best solution would be to extend the final maturity “which would give us more runway room.”

Such a step, however, would require state General Assembly approval. The authority is also limited to the total overall size of its issuance and the Chicago Park District and Bears would need to negotiate a new lease, as the current lease expiration is tied to the bonds’ maturity.

With state lawmakers currently distracted by the November election and likely focused on budget and pension matters when they convene early next year, legislative approval is a long shot.

“First we are going to look at whether we can just get the rate down and take the present value savings. We could try to issue more debt or just take the savings,” Reynolds said.

Officials said past reviews of refunding opportunities have fallen short economically but rates have since dropped.

After Emanuel took office last year he named three financial professionals to the board – Reynolds; Norman Bobins, president of the former LaSalle Bank; and Christopher Melvin, CEO of the broker-dealer Melvin & Co. Inc.

Melvin recently resigned to accept an another board appointment  Emanuel this week named Richard Price, CEO of Chicago-based Mesirow Financial Inc. to replace him.  The mayor appoints three of the seven members while the governor appoints four. Gov. Pat Quinn tapped former Senate President Emil Jones to serve as chairman.

The city provides an annual $5 million subsidy from its share of income taxes under the complex deal struck among city, the district, the ISFA, Illinois and Bears officials. The income tax serves as an additional backstop to make up any shortfall in hotel revenues.

The backloaded Soldier Field debt-service schedule was driven by the need to accommodate repayment of the White Sox bonds which were also covered with hotel taxes. The White Sox bonds were retired in 2010.

The state’s pledge to annually appropriate a portion of its 5% statewide hotel tax along with the $10 million in state and city subsidies secures the Soldier Field bonds. Illinois advances the authority the funds needed to cover debt service and then reimburses itself with funds from the agency’s 2% tax on hotels in Chicago. The revenue has long provided just narrow coverage levels, hurt by a drop in tourism after the 2001 terrorist attacks and the recent recession.

The deal included a mix of capital appreciation bonds with rates between 4.2% and 5.5 %, a $188 million term bond at a 5 % interest rate due in 2032, and conversion bonds with rates at 4.5% to 5.5%. The use of premium bonds raised the amount of the proceeds to $425 million. The total costs for principal and interest under the current schedule is nearly $1.2 billion. Debt service is $28 million in 2013, rising to $51 million in 2023 and $88.5 million in 2032.

The bonds carried insurance from Ambac Assurance Co. and underlying ratings of A from Standard & Poor’s and A-plus from Fitch Ratings. Fitch in 2009 downgraded them to A-minus after downgrading the state,

At the time, then-Mayor Richard Daley dismissed concerns that additional city subsidies would be needed to repay the bonds, saying at a news conference in 2001, “I remain absolutely confident that taxpayers are not at risk.”

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