MPEA takes major step in debt reconstruction

The Metropolitan Pier and Exposition Authority (MPEA) announced the sale of $1.1 billion expansion project bonds. The issue included $198 million series A new money bonds to provide funds for the expansion of the hotel on the convention center campus, and $921 million series B refunding bonds designed to restructure MPEA’s outstanding debt, replenish reserves and alleviate pressure on the state sales tax.


Accomplishing these objectives is a critical piece in the overall plan to restructure the MPEA’s finances and operations.
“We are pleased this important restructuring plan is now in place and we are moving forward to implement phase two of the McCormick Place legislation,” said Jim Reilly, trustee, MPEA. “These changes are designed to keep McCormick Place a premier destination for the convention and tradeshow industry.”

The bond issue will generate about $200 million to add a 450-room tower onto the existing 800-room Hyatt Regency McCormick Place hotel. It will also allow the agency that owns and operates both McCormick Place and historic Navy Pier, to restructure outstanding debt incurred from previous expansions.

The issue will extend the payment schedule on the debt by eight years, from 2042 to 2050. This is expected to provide MPEA with some immediate fiscal relief.

“This bond issue, in addition to restructuring debt and raising new capital for the hotel expansion, will generate funds for temporary operating assistance while we build the second hotel tower,” said Richard Oldshue, chief financial officer, MPEA. “Expanding our on-site hotel will help stabilize the Authority’s operating budget over the long term, while enhancing an amenity that provides great service and convenience for our customers.”

Additionally, revenues from the bond issue will allow the MPEA to end draws against the Illinois sales tax revenues that back

Authority tax collections. Authority taxes that covered debt service had fallen sharply after 9/11 which eventually depleted reserves and led to draws on the sales tax backup.

The team selling the bonds included Morgan Stanley and Goldman Sachs & Co. as joint book-running senior managers. Cabrera Capital Markets, LLC and Loop Capital Markets, LLC were co-seniors. Citi, George K. Baum & Co., Jefferies & Co., JPMorgan, Ramirez & Co., and Siebert Brandford Shank & Co. served as co-managers.

The debt will be paid back through tourism-related taxes collected by the MPEA, which includes a six percent tax on auto rentals in Cook County, a 2.5 percent tax on Chicago hotel rooms, a one percent tax on downtown restaurants, as well as a departure tax on airport taxi rides.

If there is a shortfall in those collections, state sales tax deposits are drawn on to cover the shortfall. The three major rating services reaffirmed their ratings of the credit structure supporting the Authority’s bond issue; Standard & Poor’s Ratings Services at AAA, Fitch Ratings at AA-, and Moody’s Investors Service at A2.

Sweeping reform legislation approved last spring by the Illinois general assembly is allowing the MPEA to not only restructure its debt, but also to make major changes in operations. Those reforms include lowered costs for exhibitors using the convention center, eased union work rules and a private manager to run the facility. Lawmakers and MPEA officials believe these reforms will help McCormick Place compete against Las Vegas, Orlando and other tradeshow competitors.

Chicago’s convention business supports more than 66,000 area jobs and generates $8 billion annually in economic activity. Thus far, the new reforms have allowed McCormick Place to attract new conventions and tradeshows while retaining current clients.

According to the Chicago Convention & Tourism Bureau, the new legislation already has helped Chicago attract more than $1.6 billion in direct spending as the result of future convention and tradeshow business.