Standard & Poor's Ratings Services said it has lowered its rating on Metropolitan Pier & Exposition Authority, Ill.'s McCormick Place expansion project bonds (MPEA bonds) to BBB-plus from AAA and placed the rating on CreditWatch with negative implications following the authority's failure to make its required monthly payment to the trustee.
The authority calls this a non-payment related technical default. Debt service on the bonds is due on Dec. 15, 2015. Although the trustee has sufficient monies in other funds to make the next debt service payment, the availability of those monies is subject to appropriation by the state of Illinois.
The Illinois legislature did not appropriate the sales tax revenue that is intended to support this monthly payment.
Although the statutory construct and bond document provisions historically have insulated these monthly payments--and ultimately debt service payments-from the budget and liquidity pressures occurring at the state level, the rating agency now believe this structure is vulnerable to those pressures as they play out in the state budget and appropriations process.
The rating action reflects that the bonds are in fact appropriation obligations of the state, rather than special tax bonds, and are now one notch below the current A-minus/Watch Neg general obligation rating on Illinois.
This event does not affect the state's GO rating but does underscore the fiscal challenges associated with the protracted budget stalemate.
Legislation has been introduced that would allow the state treasurer to make transfers sufficient to cover the monthly payments until a budget for fiscal 2016 is approved and appropriations are made.
The passage of legislation would not affect the rating on MPEA bonds. On July 20, the authority failed to make its $20.8 million required monthly payment to the trustee (Amalgamated Bank of Chicago), for the debt service on the bonds.
Although monies sufficient to make the payment are available in the authority's Tax Fund ($44.21 million) and in the McCormick Place Expansion Project Fund ($20.8 million), absent an appropriation these sums cannot be transferred to the trustee and need to remain on deposit in those funds.
Although strong debt service coverage and bond provisions that limit the use of the funds for any other purpose have provided significant credit strength in the past and have insulated the bond repayment from past budget and liquidity pressures, the absence of a budget and the inaction to avert a technical default has highlighted the appropriation linkage to the state.
