OREANDA-NEWS. Fitch Ratings has downgraded the rating on the following outstanding Metropolitan Pier & Exposition Authority (MPEA) McCormick Place Expansion Project bonds to 'BBB+' from 'AA-':

--$3.3 billion McCormick Place expansion project bonds.

The Rating Outlook is Negative.

This action brings the rating to the level of the state of Illinois's appropriation-backed debt, where it will be capped going forward.

SECURITY

The bonds are special limited obligations of MPEA secured by a pledge of revenues including amounts received by the trustee from the expansion project fund, bond proceeds and other funds held under the Indenture. The expansion project fund receives authority taxes and state sales tax deposits. Payments to the trustee from the expansion project fund are subject to annual appropriation by the state legislature.
KEY RATING DRIVERS

VETO OF APPROPRIATION: The downgrade reflects the veto of appropriations necessary to make transfers of MPEA's tax revenues to its expansion project fund and subsequently, of authority and state sales tax revenues to the bond trustee. The state has yet to pass a budget for the fiscal year that began on July 1, and the veto covered all appropriations except for school funding. Although it expects to collect sufficient revenues to make the next scheduled debt service payment on Dec. 15, the authority is unable to make scheduled transfers to the trustee, in accordance with the bond indenture, in the absence of an appropriation by the state.

RATING LINKED TO THE STATE OF ILLINOIS: The previous 'AA-' rating reflected Fitch Ratings' assessment that the bonds were distanced from the general operating pressures of the state, with diversion of state sales tax revenues into the expansion project fund in the absence of an appropriation and no mechanism for non-appropriated revenues to flow back to the state. The veto clearly indicates that this is no longer the case; therefore, the rating is limited to one notch below the GO rating of the State of Illinois ('A-', Outlook Negative).

RATING SENSITIVITIES

The rating is sensitive to changes in the rating of the State of Illinois, to which it is linked.

CREDIT PROFILE

MPEA bonds are designed to be paid from authority tax revenues, which consist of restaurant, hotel and car rental and airport departure taxes as well as part of the Illinois Sports Facility Authority surplus. These revenues are sufficient to pay debt service requirements but are subject to appropriation, following collection, to the expansion project fund and subsequently to the indenture trustee.

If authority tax revenues are insufficient to make any monthly deposit to the expansion project fund, or have not been appropriated, state sales tax revenues are automatically deposited into the expansion project fund in amounts sufficient to address the shortfall. This pledge is subordinate to outstanding Build Illinois sales tax revenue bonds. This mechanism is working as intended; $20.8 million in sales tax revenues were deposited in the expansion project fund in July. However, as noted above, the transfer of sales tax revenues from the expansion project fund to the bond trustee is subject to appropriation.