CHICAGO - Moody's Investors Service labeled the Metropolitan Pier and Exposition Authority's inability to make its monthly debt service deposit a "credit negative" for Illinois' A3 rating.

The authority issued a disclosure notice last week of its failure to make its monthly transfer of $20.8 million due on July 20 to a special trustee-managed debt service account. The authority's revenue streams can't be used for other purposes before first covering debt payments, and the lack of an appropriation due to the state budget stalemate traps the funds from being transferred.

"This lapse is symptomatic of the state's political paralysis and ongoing failure to enact a budget for fiscal 2016, which began 1 July, and is credit-negative for Illinois," Moody's analysts wrote in a report published Monday.

The failed monthly payment represents a technical default although MPEA's next debt service payment is not due until December.

The authority lost its AAA rating from Standard & Poor's and its AA-minus rating from Fitch Ratings last week over the failed transfer as the two revised how they view the credit. It's now seen as an appropriation risk which limits the rating to one notch below the state's general obligation rating. Both rate the state A-minus.

Moody's had already considered the credit an appropriation risk and so had applied a rating of Baa1 with a negative outlook, one notch lower than the state. "Our rating on these securities has always recognized their vulnerability to governmental inaction," Moody's said.

The authority's nearly $3 billion of bonds are backed by taxes on hotel stays, car rentals and other tourist services with statewide sales tax revenues allocated by statute to cover shortfalls between annual tourism tax revenues and debt service.

The bonds' legal provisions include a so-called trapping mechanism meant to ensure annual appropriations: if the government fails to act, state sales tax receipts equal to annual debt service are held in the expansion fund. Those protections won the authority its higher ratings from Fitch and Standard & Poor's.

Annual legislative approval is needed both for transfers to the project fund managed by the trustee. "This year's omission supports our long-held view that the mechanism does not fully offset non-appropriation risk," Moody's wrote.

The next debt service payment on the authority's bonds is not due until Dec. 15. The state Senate last week passed a measure that would allow for the transfer of fund, curing the technical default and avoiding an actual payment default. The House could vote as soon as this week on the legislation which is expected to be signed by Gov. Bruce Rauner.

The state also has about $40 million of Civic Center bonds subject to legislative appropriation. The lack of appropriation for these bonds hasn't interrupted monthly transfers to date, but if not addressed by the Dec. 15 payment date, would lead to a default, Moody's said.

"Continued inaction would put additional negative pressure on the credit quality and rating of Met Pier and other state securities, including those for which annual appropriation of payment is not needed," Moody's said.

 

 

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