Illinois’ credit rating hike is rippling through two Chicago-area borrowers hit hard by the pandemic as they prepare for debt restructurings to ease the pandemic’s fiscal damage.

The Metropolitan Pier and Exposition Authority, which operates the Chicago Convention Center campus, plans to price a $ 832 million forward delivery refund on Thursday to pay off current 2002 and 2012 obligations and to repay a unrated $ 148 million taxable private placement.

The deal will ease short-term debt service demands and avoid a levy on state sales taxes for fiscal year 2022, with an additional $ 100 million in present value savings as the agency is trying to get back on its feet.

The Illinois Sports Facilities Authority plans to sell $ 19 million in bonds as early as next week to collect and discard fiscal year 2021 debt service – action that frees Chicago from the burden of covering a pandemic-induced deficit in local hotel taxes that pay off its debt. The deal publicly offers a recently privately placed issue with RBC Capital Markets due to the timing of its request for state ownership.

This month, Moody’s Investors Service and S&P Global Ratings upgraded Illinois up a notch to Baa2 and BBB, respectively. Fitch Ratings raised its outlook on the government’s BBB-minus rating from negative to positive in June.

This brought related upgrades and outlook improvements to the two state-linked borrowers. They are also benefiting from an economic recovery which will help strengthen tourism and consumption taxes linked to the repayment of obligations.

Secondary market trading spreads have narrowed for Illinois state securities and state-linked borrowers, but the MPEA and ISFA will be the first to capture this rally in the primary market.

“These are ultimately creations in one form or another of the state that attracts the security and interest of lenders because of the state, so whether their credit has increased or not, they are going to be positively impacted. by state upgrades because their own finances and their own debt payment is now more stable, ”said Matt Fabian, managing partner at Municipal Market Analytics.

“The main message of the upgrades is that the state is less likely to be downgraded to junk, so there is a halo effect,” Fabian said.

“We have assigned a market outperformance rating to Met Pier bonds, and we reiterate our market outperformance rating on the State of Illinois GOs,” wrote John Ceffalio, senior municipal research analyst at CreditSights Inc. in a report on the upcoming deal. “We expect (based on transaction prices) that there is still room for both issuers to continue to tighten and outperform the overall market, but we caution that the amount of squeeze that has already had place leaves only a small margin for further tightening. “

MPEA
Fitch raised the outlook for MPEA from negative to positive by Fitch, affirming its BB-plus rating in a July 1 report on the upcoming deal. This kept the rating a notch below that of the state.

US Department of State

S&P reclassified MPEA to BBB-plus with a stable outlook, citing its revaluation of Illinois. The Kroll Bond rating agency is assigning a rating of AA-minus for the first time with a stable outlook. The agency has a debt of $ 3 billion.

The MPEA does not push back the final debt maturities and the final portfolio payment remains 2057, but the majority of the refinanced bonds are carried over as term bonds with $ 197 million maturing in 2042, $ 160 million in 2047 and $ 314 million in 2052.

Goldman Sachs and Citigroup are senior co-executives on the tax-exempt paper.

The authority is paying off its debt with taxes on restaurants, hotels, car rentals and airport taxi departures, all of which fell with the economy shutting down last year. A safeguard pledge of the state’s 6.25% sales tax after the state’s own Build Illinois bonds are paid strengthens the safety system.

The authority incurred a deficit in fiscal 2022 that required a $ 10 million levy on state sales taxes that must be repaid – a first since the Great Recession – but restructuring allows agency to avoid a direct debit for fiscal year 2022.

The Illinois state sales tax is expected to generate $ 10.4 billion in fiscal 2022, of which $ 262 million is committed to building Illinois debt, so there is strong coverage. The statutory maximum amount of state sales tax deposits that could be transferred to the expansion project fund is $ 300 million in fiscal 2021, rising to $ 450 million in fiscal year 2021. ‘fiscal year 2036.

“Based on the authorities’ recent fiscal performance, KBRA considers sales tax support to be the crucial factor in awarding the rating,” Kroll said. “The extensive statewide sales tax base provides extraordinary coverage of over 19 times the maximum debt service allowed.”

The offer statement lays bare the devastating blows of the pandemic on the authorities’ taxes. From 2011 to 2020, tourism-related taxes averaged 4.2% of annual growth until fiscal 2021, when they fell 69% to $ 47.6 million over the past year. fiscal year 2020.

The fiscal punch came as operations came to a halt. The authority has seen 233 canceled events since March 2020, losing 3.4 million attendees that would have generated 441,000 hotel stays and $ 275 million in operating revenue. The capacity limits having now been lifted, activities have resumed and 317 events have been reserved.

Fitch caps MPEA’s rating one notch below the state’s BBB-minus rating because of the credits needed to free up funds for debt service.

Fitch calls the restructuring “a reasonable approach to dealing with the sharp drops in income.” An increasing schedule of debt servicing has resulted in past restructurings and another is planned in FY2022 and in the years to come to align fiscal projections with debt servicing.

S & P’s rating is based on its priority tax debt criteria, which takes into account both the agency’s tax profile and that of the sponsoring government and is capped one notch above the sponsor.

Along with the government uplift, Moody’s upgraded MPEA’s rating up a notch, downgrading it to investment grade Baa3 with a stable outlook. The new MPEA obligations were not requested to be rated.

ISFA
The Illinois Sports Facilities Authority moved quickly to push back on debt servicing to avoid forcing the city government to cover a deficit by privately placing a nearly $ 30 million RBC issue in the intention to then proceed to a public offer.

ISFA has approximately $ 415 million in past due debt primarily related to the 2003 expansion of Soldier Field, owned by the Chicago Park District, where the Chicago Bears of the National Football League play.

Much of the debt issued for the guaranteed rate estate owned by the authority that houses the Chicago White Sox of Major League Baseball has been repaid.

Last week, both Fitch and S&P Global Ratings revised their sports authority outlook to positive and assertive BB-plus speculative grade ratings.

Fitch’s rating is capped one notch below that of the state, as state ownership is required to authorize the transfer of state hotel tax revenues pledged to the bond trustee.

S&P raised the outlook from stable to positive last week after changing it from negative to stable in May.

“The positive outlook reflects both the general government bond rating and ISFA management’s request for fiscal year 2022 for a president’s certificate sufficient to cover debt service, debt restrictions. COVID-19 social distancing is lifted and reduced, but reserve levels stable, ”S&P said. The rating, like that of MPEA, is capped one notch above the state.

The “president’s certificate” represents the authority’s request to the state for an “advance” on state hotel taxes to cover debt service and operations. The authority then repays this advance with its own tax revenue and a city grant of $ 5 million and a state grant of $ 5 million.

Last year, the agency asked for less than needed with plans to dip into reserves to avoid hitting the city, but tax collections weakened further and a shortfall remained, which resulted in the debt restructuring plans.

About $ 79 million was collected on 5% of the state’s 6% hotel tax that can be used for bond repayments, down $ 209 million from 2020. About 60% is available as backup to repay bonds. The tax rebounds with collections reported in April, May and June up 17%, 100% and 268% from a year ago, respectively. The state expects $ 104 million in recovery in fiscal year 2022, of which $ 62.5 million is available for payment of the authority’s $ 45.4 million debt.

Fitch considers the projections for fiscal year 2022 to be achievable given the reopening of the city and state and the resumption of conventions and trade shows that are a big driver of hotel stays.

Chicago is responsible if the authority’s own hotel tax and city and state subsidies are insufficient to repay the “state advance.” The state can automatically withdraw the necessary amount from the city’s share of tax revenue which stood at $ 267 million in 2020.

As restructuring frees the city from the current deficit, Mayor Lori Lightfoot’s administration wants a long-term solution as debt service rises. The agency owes $ 46.5 million in debt service for fiscal year 2021, $ 49 million in 2022, $ 59 million in 2027, $ 81 million in 2031 and $ 87 million in 2032 when all debts will be repaid.

The authority will now repay service on the restructured debt between 2030 and 2032, adding approximately $ 468,000 in present value costs to the debt.