CHICAGO — The Metropolitan Pier and Exposition Authority of Illinois will enter the market next week with nearly $1.2 billion of mostly refunding revenue bonds in the first phase of a debt portfolio restructuring intended to provide near-term fiscal relief and long-term financial stability.

The deal is comprised of three tranches, including $204 million of Series A new-money bonds to help cover the design, planning, and construction of an expansion of the Hyatt Regency McCormick Place Hotel that serves the McCormick Place Convention Center in Chicago. MetPier is building a new 450-room tower over an existing parking garage to complement its existing 800-room facility.

The $940.6 billion Series B will restructure outstanding debt, as will a $33.2 million taxable series. The three series includes a mix of current interest, capital appreciation, and deferred interest bonds with a final maturity in 2050. The authority has a $2 billion debt portfolio.

“The current offering’s restructuring portion will dramatically extend maturity — to an average life of about 37 years from 10 years,” Moody’s Investors Service wrote in its report on the issue.

Morgan Stanley and Goldman, Sachs & Co. are joint book-running senior managers. Cabrera Capital Markets LLC and Loop Capital Markets LLC are co-seniors. Citi, George K. Baum & Co., Jefferies & Co., JPMorgan, Ramirez & Co., and Siebert Brandford Shank & Co. round out the team as co-managers.

An investor call is set for Friday. Pricing is expected next week.

Acacia Financial Group and Public Financial Management Group are financial advisers. Katten Muchin Rosenman LLP is bond counsel. Gonzalez Saggio & Harlan LLP is underwriters’ counsel. Mayer Brown LLP is special counsel.

The restructuring accomplishes MetPier’s initial goals, which include raising funds for the hotel project, ending the draw on Illinois sales taxes, and freeing up some of its tax revenue to help cover operations, according to chief financial officer Richard Oldshue. The financing also will allow the agency to replenish its exhausted reserves. Additional transactions are expected to complete the restructuring in future years.

The bonds are secured by MetPier taxes on hotel rooms, restaurant meals, Chicago airport taxicab rides, and car rentals that produced $98.4 million in fiscal 2010. Those revenues flow into a project fund to cover debt service that is subject to an annual legislative appropriation. Rating agency analysts said there is little incentive for the state not to make the appropriation because the revenues otherwise remain in the project fund.

Collections of the taxes fell sharply after the Sept. 11, 2001, terrorist attacks. Their subsequent growth has failed to keep pace with MetPier’s existing debt-service schedule, prompting a draw on state sales taxes, which provide a backup pledge.

The state’s sales tax generated $6.7 billion in fiscal 2010, though a portion is first pledged to other outstanding debt, including the state’s Build Illinois bonds. Sales taxes fell by 5.9% in fiscal 2009 and by another 6.5% in fiscal 2010.

Under the legislation signed earlier this year, the state pledged $139 million of sales taxes as a backup in fiscal 2010. That figure will rise to $350 million in 2031 — up from an existing maximum level of $275 million — where it will remain in place until 2060.

The Illinois sales-tax pledge may provide solid coverage, but several investors said those strengths are undercut by the state’s budget and liquidity crisis. The fiscal distress has affected pricing on bonds sold by other borrowers with Illinois ties.

“I want to see what the projections are for the hotel and restaurant and other taxes,” said Thomas Spalding, senior investment officer at Nuveen Investments.

The bonds carry a range of ratings. Fitch Ratings assigns them a AA-minus with a stable outlook because of the strong debt-service coverage ratio provided by Illinois sales taxes. Moody’s assigns an A2 rating with a negative outlook because of the bonds’ link to the state’s A1 credit. Standard & Poor’s rates the bonds AAA because of the strength of the Illinois tax pledge.

Moody’s said MetPier’s strengths include strong legal provisions for the bonds, its important role as manager of McCormick Place, and the historic sales tax support. But the rating is challenged by the need for an annual appropriation, the authority’s use of a structure that defers principal amortization, and reliance on the state for the sales tax support.

“While Fitch does not view the extension of debt maturities as a credit positive, the rating is based on the strong debt-service coverage provided by the state sales tax revenue security,” analysts wrote. “It is expected that the refunding structure will provide the authority with the time needed to stabilize operations, increase authority tax revenues, and reduce the need to offset debt-service shortfalls with state sales tax revenues.”

Standard & Poor’s rating is tied to the state’s sales tax-backed bond credit, which also carries top marks. “The rating reflects the state’s highly diversified and very strong sales-tax base and very strong coverage of maximum annual debt service from state sales tax revenues,” said analyst John Kenward.

MetPier leaders have long sought state approval for a debt restructuring. Legislation allowing the agency to undertake the restructuring and issue new money for the hotel expansion finally won approval in the spring when it was included in a sweeping reform package that overhauled MetPier’s governance and operating structure.

The reforms lowered the costs for users of the convention center, eased union work rules, and called for a shift to private management. They were adopted to stave off the further flight of convention business to more affordable facilities in Las Vegas and Orlando. Major trade show and convention business managers have praised the changes.

Under the legislation, MetPier is authorized to have a total of $2.56 billion of debt outstanding, up from $2.1 billion. That gives it room to both restructure its existing $2 billion portfolio and to take on additional debt to finance the hotel expansion.

The legislation had strong bipartisan support from Chicago Mayor Richard Daley, Gov. Pat Quinn, and Republican and Democratic lawmakers seeking to preserve the estimated 65,000 jobs and $8 billion in economic activity from convention business. With Illinois facing a $12 billion budget deficit, lawmakers also sought to end MetPier’s draw on state revenues.

“The authority’s trustee has been given a limited time window of 18 months to get a lot accomplished and a big part of it is the debt restructuring,” Oldshue said in a recent interview.

The legislation allows MetPier to push off its current 2042 final maturity by eight years. It extends its taxing powers — including a 6% tax on auto rentals in Cook County, a 2.5% tax on Chicago hotel rooms, a 1% tax on downtown restaurants, and a departure tax on airport taxi rides — by 18 years through 2060. The taxi-ride rate was raised by $2 under the legislation. Those taxes are expected to respectively generate $25 million, $38 million, $31 million and $8 million in fiscal 2010.

The legislation also allows the authority to tap some of its taxes during a four-year window to subsidize operating shortfalls. The restructuring will free up the funds needed to cover the near-term operating subsidies. Longer-term subsidies could come from additional hotel revenue generated after the expansion.

MetPier used $18.8 million in Illinois sales tax revenue for its fiscal 2009 debt payments and estimated it would have needed about $37 million to $40 million this year had the restructuring not won state approval.

The legislation named Jim Reilly as special trustee to guide the reform process over an 18-month period. Reilly most recently was chairman of the Regional Transportation Authority of Illinois board and two decades ago was chief executive officer of McCormick Place. MetPier also manages Chicago’s Navy Pier.

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