CHICAGO — Wisconsin has agreed to purchase with general obligation bond proceeds the struggling Wisconsin Exposition Center under a $16.9 million deal that will retire its $40.7 million of tax-exempt debt — a move that eases a fiscal strain that had hurt the facility’s ability to operate in the black.
The exposition board approved the deal with the state at a board meeting Monday and the State Building Commission signed off on it Wednesday.
“This is good result that resolves a long-term problem. The exposition center will remain open and continue to be marketed for events,” said state capital finance director Frank Hoadley, who helped negotiate the deal as a representative of the state Department of Administration.
Under the agreement, the state will transfer $16.9 million of GO bond proceeds to the center that will in turn use them to purchase the existing $40.7 million of industrial revenue bonds from their sole owner — JPMorgan. The discounted price was negotiated by state and expo officials and JPMorgan which had been seeking buyers for the bonds.
With the bonds retired, a $3 million reserve tied to the original transaction will be freed and the center — housed on the Wisconsin State Fair grounds in West Allis — will forward the funds to the state. Under the agreement, the state will take title of the facility but the Wisconsin State Fair board will operate it under a lease with payments to the state tied to debt service on the state GO bonds.
“This is not unlike other transactions the Building Commission has entered into in the past on various facilities,” Hoadley said.
By trading $40.7 million of debt that carries a 6.1% interest rate for $13.9 million of debt that will carry roughly a 4% interest rate with the state’s GO credit behind it, the deal should shave at least $2 million off the center’s annual costs to service the debt, Hoadley said.
The 200,000-square feet facility was completed in 2002, funded by proceeds of $44.9 million of industrial development revenue bonds issued by West Allis a year earlier. The original variable-rate bonds were sold with Stifel Nicolaus & Co. acting as underwriter with a letter of credit from what is now US Bank. The LOC was backed by a credit default swap with Lehman Brothers.
State legislative audits have criticized as overly optimistic the projections used by the State Fair Park as it undertook a $160 million building program that included the exposition center to promote the park as a year-round attraction. The initial projections forecast the center would generate more than $7 million in its first year of operations after its 2002 opening and grow in future years but it operating revenue has never hit that mark.
As a default loomed, the center sought to restructure the debt and Lehman in 2007 remarketed the bonds as fixed-rate securities, eliminating annual costs for liquidity. Lehman ended up holding the bonds. At some point, the firm packaged the bonds in a larger pool that was pledged as collateral in some kind of transaction with JPMorgan. After Lehman’s bankruptcy, JPMorgan took ownership of the pool that included the center’s bonds.
The debt carried a final maturity in 2028 with annual interest payments of about $2.5 million. Debt service was on track to further strain the center’s balance sheet in 2017 when principal payments were to begin. A Legislative Audit Bureau review of the overall operations of the Wisconsin State Fair and its various facilities in June warned of the exposition center’s deteriorating finances.
The center carried a $4.3 million deficit in 2008 and the audit warned that “without an increase in its revenue or a decrease in expenses, other financial support may be necessary if the Exposition Center is to remain viable.” The recession has also cut into the number of events held at the exposition center of late.
In July, the center became aware that JPMorgan was seeking buyers for the debt as potential investors sought to tour the fair grounds. The Wisconsin State Fair Park interim executive director Craig Barkelar alerted the state. “The Department of Administration made the decision to participate in negotiations,” Hoadley said.