Suburban Chicago hotel dips into reserves a year after restructuring
CHICAGO — The Lombard Public Facilities Corp. drew on reserves to fully cover a $500,000 debt service payment due this month on a portion of the exchange bonds issued in a Chapter 11 debt restructuring last year.
The debt was restructured to give some breathing room to the public owner of a hotel and conference center in suburban Chicago that opened just in time for the Great Recession and never generated enough revenue to meet debt service.
Lombard drew $44,000 from reserves to make the payment on several series of the $142 million tax-exempt issue sold last year through the Wisconsin-based Public Finance Authority in exchange for the original $190 million 2005 issue. The deal imposed cuts in bondholder principal and pushed out repayment to a 50-year term.
Lombard established the corporation to issue the bonds and manage plans for the Westin Lombard Yorktown Center with village support through a tax rebate agreement and its appropriation pledge. The village, which once carried a AA rating from S&P Global Ratings, lost its investment grade rating after reneging on the pledge.
After years of failed negotiations, the village and corporation struck a deal with key bondholders and the insurer on a portion of the bonds and sought the bankruptcy’s court’s blessing in the Chapter 11 case filed in July, 2017.
The goal was to establish a capital structure they believed project revenues could support. The village’s appropriation pledge is no longer attached.
While that may prove to be the case over the long term, the corporation drew $44,000 and applied it to the July 1 debt service payment owed on four of the six series of bonds that make up the restructured bonds.
“Total debt service payment was $499,999.36,” reads the notice posted on the Municipal Securities Rulemaking Board’s EMMA site.
No additional details were provided on why the funds were needed. The village said its involvement with Lombard is now limited and referred inquiries to the LPFC’s counsel, who didn't respond to a request for further information.
The facility reported $101 million of assets and $150 of obligations, including the bonds, in its 2018 comprehensive annual financial report covering March 15, 2018 through December, 31 2018 that posted June 26.
The project generated revenue of $24.4 million and after deducting $11 million in expenses had operating income of $13.4 million. Other balance sheet costs resulted in a net loss of $4.5 million.
Bondholders saw recovery rates of 77%, 76% and 86% on the respective A1-, A2- and B series in the original deal with a subordinated $29 million series taking a near total loss.
As part of the reorganization, the village board approved a restructuring agreement that provided $3 million for facility improvements and up to a total of $3.7 million in tax-increment financing support in the coming years for site infrastructure improvements.
Though the village also continues to contribute revenue from a special 1% so-called Places for Eating Tax enacted last year through 2021 and a tax rebate of about $1 million remains in place, it’s no longer obligated to repay the bonds. The restructuring contains various legal releases for the village, significantly reducing its legal liability.
The reorganization received overwhelming to unanimous approval in a balloting process. Major bondholders included Nuveen Asset Management, Oppenheimer Rochester High Yield Municipal Fund, and ACA Financial Guaranty, insurer on a portion of the bonds and a holder and controlling party based on the original bond indenture.
S&P in 2012 dropped the village six notches to BBB from AA for failing to make up a debt service shortfall on a portion of the bonds instead allowing for bond reserves to be tapped. It dropped Lombard to speculative-grade B in February 2014, when the village reneged on its appropriation pledge causing a payment default.
Village officials said after the bankruptcy exit they hoped to then begin the long road back to investment grade status.
The board that endorsed the hotel project believed demand existed, that it would spur economic development, and that it was worth the risk to the village. The facility has a 500-room hotel, two restaurants, 39,000 square feet of meeting and convention space, a 25-meter indoor swimming pool and fitness center, and a 675-car, four-story parking deck.