With PAB threat looming, Illinois conduit advances $1 billion in borrowing
CHICAGO – With its future under threat, the Illinois Finance Authority signed off on nearly $1 billion in deals that would lose their tax-exemption under the proposed House tax bill.
The financings that cleared the state conduit board allow Northwestern Memorial Healthcare to sell up to $800 million; finance a new dormitory on the campus of University of Illinois at Chicago; and finance housing developments in DuPage, Lake, and Kane Counties. Beginning farmer bonds were also approved.
“This month’s agenda demonstrates the direct, material and positive impact that tax-exempt conduit bonds have on the lives of our fellow citizens,” IFA Executive Director Christopher Meister told board members in addressing the impact of the House GOP tax bill that would eliminate private activity bonds, stripping the tax-exemption enjoyed by not-for-profit private higher education institutions and hospitals and healthcare systems.
The IFA said there’s been no immediate rush to get a deal through the review process before the end of the year, but Meister said he is hearing that borrowers, bankers, and counsel are talking about moving quickly if the house bill progresses.
The IFA would be accommodating, and is prepared to speed deals through the hearing process and would call special meetings “if any borrower has any needs that arise” up until Dec. 31, Meister said.
The tax bill cleared the House Ways and Means committee Thursday.
The IFA is the state’s primary avenue for such institutions – along with cultural institutions, housing groups, and charter schools -- to access the municipal market and $24 billion of its $25 billion debt portfolio falls under the PAB classification.
“Federally tax-exempt conduit bonds impose market discipline and harness the capital markets to lower the cost, through lower interest rates and longer loan maturities, of essential infrastructure, including hospitals, museums, schools, and housing, which provide benefits to our entire society,” Meister said. “If this tool is eliminated there is no replacement.”
"The authority intends to work with all of its stakeholders to persuade Congress to keep federal tax-exemption for all private activity bonds," Meister added.
In fiscal 2016 and 2017, PABs accounted for about 66% of authority revenues. The IFA spends about $4 million on operations annually. It could continue to sell state revolving fund bonds.
“The authority has sufficient reserves held independently of the state budget that would allow continued operations for a period of time,” said an IFA report to board members. “The authority has plans for revenue and mission diversification but these are untested.”
The board followed up on its initial approval granted in October with final approval Thursday for Northwestern’s sale that would raise $200 million of new money and refund about $600 million of existing debt.
The underwriters include JPMorgan, Barclays, Wells Fargo Securities, Loop Capital Markets, and Cabrera Capital Markets. Kaufman Hall is advising the system and Sycamore Advisors is advising the authority. Chapman and Cutler LLP is bond counsel.
Northwestern Memorial HealthCare is a seven hospital system that is anchored by Northwestern Memorial Hospital and Northwestern Medical Faculty Foundation and partners with Northwestern University’s Feinberg School of Medicine. The seven hospitals have 1,900 licensed beds and are located in Chicago and various northern and western suburbs as well as DeKalb and Sandwich.
The system is rated Aa2 by Moody’s Investors Service and AA-plus by S&P Global Ratings. The bonds will be secured by a pledge of gross receivables. S&P affirmed its short- and long-term ratings in July.
The board approved up to $120 million of borrowing on behalf of CHF-Chicago LLC in a financing for a 550-bed student residence and academic facility to be developed on land leased from the University of Illinois Board of Trustees on the university’s Chicago campus.
The project is owned by an affiliate of Collegiate Housing Foundation, a 501(c)(3) corporation based in Fairhope, Alabama that develops 501(c)(3)-owned student housing projects nationally. It is being developed and constructed by an affiliate American Campus Communities, Inc., a publicly-traded real estate investment trust in Austin, TX.
The bonds are secured by a leasehold mortgage and assignment of rents and leases. RBC Capital Markets is the senior manager.