CHICAGO — The Metropolitan Pier and Exposition Authority of Illinois has picked Goldman, Sachs & Co. and Morgan Stanley as the joint book-running senior managers on its first financing under legislation that allows it to restructure a $2.1 billion debt portfolio.
The deal is slated for an October sale and will include $200 million of new-money revenue bonds to finance an expansion of the hotel that serves the MetPier-owned McCormick Place Convention Center in Chicago. The first piece of debt restructuring has not yet been sized, said MPEA chief financial officer Richard Oldshue.
Cabrera Capital Markets LLC and Loop Capital Markets LLC will serve as co-senior managers. Citi, George K. Baum & Co., Jefferies & Co., JPMorgan, Ramirez & Co. and Siebert Brandford Shank & Co. will round out the team as co-managers.
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 and Mayer Brown LLP is special counsel.
The broker-dealers were among 17 firms pre-qualified following a request-for-proposals process. The pool is valid for two years.
“After evaluating the proposals, Goldman and Morgan Stanley came out with the highest rating,” Oldshue said. “It’s a complicated restructuring and a big part of the scoring was the firms’ understanding of the state legislation and how it applies to the authority’s outstanding debt.”
The restructuring will provide MetPier with near-term fiscal relief and long-term financial stability. The deal has long been in the works as faltering tourism-tax collections have failed to keep pace with escalating debt service payments, forcing the authority last year to tap a state backup pledge of sales taxes.
Legislation allowing the agency to proceed with the restructuring and to issue new money for the hotel expansion finally cleared the General Assembly this past spring. The restructuring was included in a more sweeping package that overhauled the MPEA’s governance and operating structure. The changes have lowered the costs for users of the convention center and eased union work rules. They followed the loss of several trade shows to other more affordable facilities in Las Vegas and Orlando.
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 impact 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. The overall restructuring could take years to complete, but in the initial financing officials will seek to raise funds for the hotel expansion, end the draw on state sales taxes, and to free up some of its tax revenues to help cover operations.
The legislation allows the authority to sell up to another $450 million of debt that will carry the state’s backup pledge to finance a hotel expansion or other capital improvements at existing facilities. The current limit is $2.1 billion. The agency can refinance its existing $2 billion of convention center bonds and $140 million of older debt, pushing off the current 2042 final maturity by eight years.
Under the current schedule, debt service hits $139 million in fiscal 2010 and then rises at an annual clip of 5.1% until it tops out at $275 million.
The legislation extends MetPier’s 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, including $10 million in fiscal 2011 and $5 million in each of the next three years. The restructuring will free up the funds needed to cover the four-year 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 if the restructuring had not won state approval. The state’s sales tax revenue can be used as a backup pledge — subject to appropriation — on its bonds. Officials estimated that if no action had been taken the subsidies would cost the state $800 million.
The legislation named Jim Reilly as the special trustee to guide the reform process over an 18-month period. Reilly most recently served as chairman of the Regional Transportation Authority of Illinois board and two decades ago was chief executive officer of McCormick Place. An interim board appointed by Daley and Quinn is running MetPier. David Mosena, a former mayoral aide and president of the Museum of Science and Industry, was picked by the board to serve as its chairman.
Authority officials and Daley recently held a news conference with representatives from the convention and tourism industries to highlight positive developments in the wake of the reforms.
They included the International Manufacturing Technology Show’s commitment to host its biannual convention with more than 250,000 attendees and an estimated $600 million economic impact at McCormick Place through 2016. The announcement came during the Orgill Fall Dealers Market show, which was the first to benefit from the reforms that were praised by Orgill officials.
“Today, we began a new era at McCormick Place, which will positively impact hundreds of thousands of Chicagoans whose livelihoods depend upon the convention industry” Reilly said. “The convention reform legislation has allowed us to make substantive changes, resulting in decreased costs and increased flexibility for our customers. This should allow us to retain trade shows and win back convention business for Chicago.”
MetPier’s fiscal pressures prompted Fitch Ratings last year to drop the authority’s rating on its convention-center expansion bonds one notch to A-plus, but it was raised this year to AA-minus under recalibration. Moody’s Investors Service downgraded MPEA bonds tied to the state’s credit to A3 after it downgraded Illinois, but has since recalibrated the rating up to A2. Standard & Poor’s rates the expansion bonds AAA. The authority also operates Navy Pier.
The authority’s qualified pool of senior manager underwriters includes Goldman, Morgan Stanley, Citi, and Jeffries. The co-senior list includes Cabrera and Loop, and Barclays Capital Inc., JPMorgan, Bank of America Merrill Lynch, Ramirez, Robert W. Baird & Co. Inc., Siebert, and William Blair & Co. Inc. The co-manager list includes Baum, BMO Capital Markets, Rice Financial Products, and Wells Fargo Securities.