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New York sends a harsh message to Springfield

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he state budget stalemate led two Wall Street ratings agencies Wednesday to downgrade by several notches more than $3 billion in bonds issued by the agency that runs Navy Pier and McCormick Place.

Both Standard & Poor’s Ratings Services and Fitch Ratings kept the debt ratings of bonds used to build facilities near McCormick Place three levels above junk status, but S&P also placed it on a negative watch and Fitch gave it a negative outlook.

Although the Metropolitan Pier and Exposition Authority has more than enough money to make bond payments, it did not make a required $20.8 million monthly payment July 20 to a trust account because of lack of state authorization, according to the ratings reports. Enough money must be in that account to make debt service payments that are due Dec. 15.

Senate lawmakers had hoped to avoid the downgrade, and a day earlier passed legislation that would allow McPier to make the debt payment in spite of the budget impasse that had held up those dollars. S&P was dismissive of that legislation, saying its passage would not affect the rating.

* Crain’s explains why S&P wasn’t impressed by the Senate bill…

S&P acknowledged McPier’s financial ability to make its next debt service payment on Dec. 15 and that the funds cannot be used for any other purpose without legislative action. But “we now believe this (payment) structure is vulnerable to (state budget) pressures as they play out in the state budget and appropriations process,” the agency said in a statement. “The rating action reflects our view that the bonds are in fact appropriation obligations of the state, rather than special tax bonds, and are now one notch below our current A-/Watch Negative general obligation rating on Illinois.”

The BBB+ rating remains investment grade and three notches above junk status, according to S&P’s rating scale.

McPier bondholders are not immediately in jeopardy of not getting paid, but the ratings downgrade is the latest ripple effect of the deadlock in Springfield.

* Reuters…

While the legislation would ensure bondholders get paid later this year, it won’t impact MPEA’s rating given that Standard & Poor’s now considers it an appropriation obligation, which limits the rating to one notch below the state.

Several buyside analysts that follow the MPEA credit said they believe applying that methodology more accurately reflects the risk.

“It’s an example of why it’s hard to trust some public ratings,” said one buyside analyst of Standard & Poor’s previous view. […]

“The previous AA-minus rating reflected Fitch Ratings’ assessment that the bonds were distanced from the general operating pressures of the state,” Fitch analysts wrote.

“This is no longer the case,” they wrote. “Therefore, the rating is limited to one notch below the GO rating of the State of Illinois.”

* More…

In secondary market trading on Wednesday, the spread for some of the authority’s bonds over Municipal Market Data’s benchmark triple-A yield scale jumped to 136 basis points from 88 basis points on July 28. That involved $5 million of bonds due in 2028, according to MMD.

posted by Rich Miller
Thursday, Aug 6, 15 @ 9:57 am

Comments

Which is more distressing…

The downgrade on McPier bonds, or learning that McPier has more than $3 billion in outstanding bond debt? /s

Comment by Formerly Known As... Thursday, Aug 6, 15 @ 10:06 am
Those darn Unions, look at the mess they are causing! Ugh.

Comment by burbanite Thursday, Aug 6, 15 @ 10:11 am
Can’t wait for “ck’s” standard script blaming the whole thing on Madigan. One, two, three……..

Comment by Tough Guy Thursday, Aug 6, 15 @ 10:13 am
On a similar track, the next victim in this budget mess will be the NFL Draft. The NFL is scheduled to decide the location for next year’s draft party in the not so distant future. And, no tourism budget means no ability to promote Chicago again as the site for next year’s draft party. The State made a nice little bunch of hotel tax money that weekend along with increased sales tax revenue..

Comment by Not Rich Thursday, Aug 6, 15 @ 10:13 am
When a state does not respect its Constitution on in major areas from budgeting to legislative salaries, you may as well downgrade every bond we have.

Comment by Formerly Known As... Thursday, Aug 6, 15 @ 10:14 am
Good thing we have a multimillionaire financial whiz at the helm, who will straighten this out pronto. A guy who understands finance, bond markets, public debt. A guy w civic and tourism experience, who knows the worth of mcpier to the region? Right? /snark

Eventually, rauners gotta learn to take what he can get, and call it a day. Playing all or nothing yields…nothing.

Comment by Langhorne Thursday, Aug 6, 15 @ 10:14 am
Yet more claptrap from the financial agencies that almost brought the country to its knees with their ‘wisdom’ in 2007.

Mind your own houses first, please.

Comment by Anon Thursday, Aug 6, 15 @ 10:14 am
It also sounds like the financial agencies that “rate” public bond issues are changing their methodology in arriving at those ratings. Those changes sound like they are toughing things up.

Comment by Louis G. Atsaves Thursday, Aug 6, 15 @ 10:17 am
If only Madigan and the legislators he controls had not vetoed the budget in its entirety.

Oh…wait.

Comment by Juice Thursday, Aug 6, 15 @ 10:19 am
“The rating action reflects our view that the bonds are in fact appropriation obligations of the state, rather than special tax bonds..” S&P is just figuring that out? That’s scary.

Comment by Southside Markie Thursday, Aug 6, 15 @ 10:21 am
That’s a brutal kick in the swimsuit area from the rating agencies. This is a huge screwup by the administration debt managers.

For the first time in memory, the rating agencies are saying state government cannot be trusted to manage the routine no-brainer stuff.

That didn’t happen under Quinn, Blago, Walker, anybody.

There’s ample coverage on the bonds; hotel/motel, taxi, and restaurant taxes, plus a first claim on tne state sales tax if needed. That’s multiple times coverage. That’s why they were AA-.

The downgrades aren’t about money. It’s the equivalent of saying the GA and governor can’t be trusted to get together to pay tneir $1,000 mortgage when they have $10,000 in the bank.

Should never have happened. Who’s the superstar managing debt service in the Budget office?

How’s about giving the boss and the GA a heads up next time?

Comment by Wordslinger Thursday, Aug 6, 15 @ 10:25 am
There has to be more to this story.

Was the authorization to transfer to the trust account in one of the approps. bills vetoed by the governor?

When did the budget office realize they’d missed the July 20 transfer?

Again, this isn’t about money. This is routine management stuff that requires just a smidgen of communication between the governor’s office and the GA.

Comment by Wordslinger Thursday, Aug 6, 15 @ 10:43 am
If only Madigan and the legislators he controls had not passed an unbalanced fantasy budget for the second straight year.

Oh…wait.

Comment by Anonymous Thursday, Aug 6, 15 @ 10:43 am
===If only Madigan and the legislators he controls had not passed an unbalanced fantasy budget…===

You mean the budget that Rauner could have amended and would be law now had he not vetoed it outright?

Oh Wait!

Comment by PublicServant Thursday, Aug 6, 15 @ 10:52 am
“It also sounds like the financial agencies that “rate” public bond issues are changing their methodology in arriving at those ratings. Those changes sound like they are toughing things up.”
————

+1. That’s the real story. Anybody who was surprised at this just hasn’t been paying attention.

These bond rating agencies have all been running scared, and with the recent divergent pricing between commodities/stocks, well, they are even more ‘concerned’.

Interesting times ahead…..

Comment by Judgment Day (on the road) Thursday, Aug 6, 15 @ 10:57 am
The budget is being held hostage by the Governor until his demands are met. Those demands will not be met in a way that will satisfy the Governor. He won’t even negotiate until his demands are met. There is no end in sight and the rating agencies are taking note and you know businesses are taking note. Rauner was suppose to make Illinois more business friendly but his hardline, all or nothing stance is making matters worse. He’s 8 months into his term without the votes to pass his agenda. If he wants to be Governor then he needs to learn how to become a statesman first. What worked in the business world doesn’t translate into government. When you want laws passed you have to negotiate. He has over 3 years to negotiate and get his ‘Agenda’ enacted, it doesn’t have to be done today at the expense of the people of this state.
Oh wait…forget all of that…it’s Madigans fault.

Comment by Bulldog58 Thursday, Aug 6, 15 @ 11:07 am
Another negative consequence from Rauner’s march to eviscerate unions.

Comment by Norseman Thursday, Aug 6, 15 @ 11:08 am
I wouldn’t think that a state that keeps trying to declare police powers to get out of paying its debts, - or has a Governor who wants to allow its cities to declare bankruptcy - is impressing the bond rating agencies either. I’m speculating that if he could, Rauner would have Illinois declare bankruptcy also. Not good messages to be sending to the bond rating houses.

Comment by Joe M Thursday, Aug 6, 15 @ 11:16 am
As Word previously said, this falls on the Rauner administration. Just a thought, but maybe they should spend more time attending to potential problems and less time on their anti worker agenda.

Comment by The Dude Abides Thursday, Aug 6, 15 @ 11:33 am
Anyone know how the public “investment” is working out for McPier and McCormick PL facilities and operations? Is there an annual surplus of revenue to the state from this organization? If so, can it be used to lower tax rates for the Authority?

I don’t have to ask about how the Authority is working out for the unions. Do they still need union electricians to put a plug in a socket during expositions at the Place?

Comment by Arizona Bob Thursday, Aug 6, 15 @ 11:50 am
- Not Rich -
= The State made a nice little bunch of hotel tax money that weekend along with increased sales tax revenue.=

Really?

In one story, Choose Chicago claimed 5,500 room nights over the course of the NFL Draft event, or 1833.33 per day when divided by the three days of the event.

This year’s April average daily room rate was $200.47 or $1,102,585 for the 5,500 hotel rooms.

The total hotel tax of 16.4% on that amount would be $180,823.94.

By the way, Chicago’s share of that $180,824 would be $61,524.24 (5.58%)

Don Welsh claimed (and refused to provide any details) that the NFL Draft cost Choose Chicago $4,000,000 plus free rent from the Chicago Park District which was worth another $1 million plus you still need to add for the costs of the police and paramedics.

Don Welsh spent well over $5 million on the NFL Draft and we got “a nice little chunk” of $180,824 in return.

What is our return on that investment?

Hell where is our principle?

In what world do you spend over $5 million to get $180,824. That’s a net loss of over $4.8 million.

Comment by Chicago 20 Thursday, Aug 6, 15 @ 5:02 pm
Here is a harsh message to the taxpayers.

The MPEA debt payments are back loaded.

Looking at the MPEA annual report using 2014 as a baseline, these payments will increase substantially. Next year the payments will increase 20.3%, then in 2017 it will increase 28.58%, then in 2018 it will increase 39.35%, and in 2019 it will increase 76.71%.

But wait, it gets worse. In 2024 and until 2033, the debt service will increase 127.40% over what was paid in 2014.

Then from 2034-2048 the payments will be 133.09% until 2049 and 2050 when these payments will increase to 366.15% of what they were in 2014.

Teach your grand children to be thrifty, this is going to cost them.

Comment by Chicago 20 Thursday, Aug 6, 15 @ 5:18 pm