* Fitch…
Fitch Ratings has assigned a ‘BB+’ rating to the following Metropolitan Pier and Exposition Authority (MPEA) (Illinois) McCormick Place expansion project bonds:
–$67.325 million expansion project refunding bonds, series 2020B;
–$49.065 million expansion project refunding bonds, series 2020C (taxable);
–$46.27 million expansion project bonds, series 2020D (taxable).
The bonds will be sold via negotiation on or about the weeks of Aug. 31 or Sept. 7, 2020.
The Rating Outlook is Negative.
The Fitch ratings scale is here.
* Reasoning…
Appropriation Requirement Links Rating to State: MPEA’s ability to make full and timely payment of debt service is contingent on the state legislature’s annual appropriation of revenue, including of state sales tax deposits and authority taxes, to the indenture trustee. This appropriation requirement caps the rating at one notch below the state’s IDR, well below Fitch’s assessment of the underlying credit quality of the debt structure. The rating does not consider MPEA’s operations as state sales tax deposits are collected and owned entirely by the state before being appropriated directly to the bond trustee.
Robust Coverage and Resiliance: Given the legal leverage limitations on the Build Illinois bonds and the statutory cap on state sales tax deposits for expansion project bonds, state sales taxes can sustain a significant level of decline and still maintain ample debt service coverage on all obligations. This is consistent with a ‘aaa’ assessment of resilience through moderate economic declines.
Modest Revenue Growth Anticipated: Illinois’ economic performance, while positive, has lagged that of the U.S. as a whole, and Fitch anticipates state sales taxes will grow essentially in line with inflation. This is consistent with a ‘a’ assessment for pledged revenue growth prospects. [Emphasis added.]
The ratings agencies are such a mess.
- Anyone Remember - Thursday, Aug 27, 20 @ 1:11 pm:
Remembering the lack of discipline / punishment for the rating agencies after the 2008 financial mess, it’s really sad governments still have to kiss the ring of the ratings agencies.
- Oswego Willy - Thursday, Aug 27, 20 @ 1:43 pm:
Another time where I miss both Wordslinger and Arthur Andersen
Wordslinger would again remind us about the bond ratings and how arbitrary they can be, even when some cases of paying back and statutes seemingly negate risk.
AA would probably tell me about process and how today and the financial problems in all areas of life need smart folks to look at financing and bonding… and explain patiently to me his own thoughts.
To the post and my own thoughts,
A bigger picture solution to so much, including McPier, must be the realistic approach and thinking that isolated solutions without seeing funding (in this case bonds) as a mere life preserver, I hope a longer look is also at play outside seeing this turn of events in a window of now.
- Curious George - Thursday, Aug 27, 20 @ 5:22 pm:
Yup , let’s expand , M place and the pier need more space . This and all McPherson deals are for the bond houses and the union building jobs . . Maybe another hotel while we ar at it
- Denise - Thursday, Aug 27, 20 @ 5:45 pm:
Anyone remember - you nailed it. After watching the Big Short I was furious even more.
- Southwest Sider - Thursday, Aug 27, 20 @ 5:46 pm:
==remind us about the bond ratings and how arbitrary they can be== Not to institutional buyers. That rating matters.
- Oswego Willy - Thursday, Aug 27, 20 @ 5:48 pm:
=== Not to institutional buyers. That rating matters.===
To the profit, agreed.
- Chicago 20 - Thursday, Aug 27, 20 @ 9:42 pm:
Since the MPEA reforms in 2010 the MPEA, like clockwork, refinances bonds and extends their debt service out for another 4 or 5 years.
The MPEA has to refinance every couple of years because the repayment schedule is ramped with heavy discounts in the beginning. Every couple of years, when the ramp payments exceed the MPEA revenue, it’s time again for a refinance and extension of the debt service.
As of the MPEA FY 2019 financial report the debt service will exceed projected 2020 MPEA revenue by $56.8 million a year and ramps up to $193 million a year in 14 years until the year 2057.
I’m sure the actual numbers for FY 2020 will be much worse.
The MPEA has no other revenue sources. All of the profitable in-house service business were shut down with the 2010 “reforms”. The plumbing services which earned the MPEA $8 million a year was sold for the value of the inventory to a private contractors.
These services are now provided by private contractors with exhibitors costs increasing by up to 300%. Crain’s has previously reported that these contractors were clients of Jim Reilly before the “reforms”.
The last MPEA refinance extended the repayment schedule from 2054 to 2057. Using the FY 2019 financial report data, this extension will cost the MPEA an additional $1.389 billion in interest charges alone.