OREANDA-NEWS. September 16, 2015. Fitch Ratings has assigned a 'BBB+' rating to the following Metropolitan Pier & Exposition Authority (MPEA or the authority) McCormick Place Expansion Project bonds:

--\\$153.002 million McCormick Place expansion project bonds, series 2015A;
--\\$69.74 million McCormick Place expansion project refunding bonds, series 2015B.

The bonds are expected to sell via negotiation on Sept. 16, 2015.

Fitch also affirms the 'BBB+'rating on \\$2.4 billion in outstanding expansion project bonds.

The Rating Outlook is Negative.

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 if authority taxes are insufficient. Payments to the trustee from the expansion project fund are subject to annual appropriation by the state of Illinois legislature.

KEY RATING DRIVERS

RATING LINKED TO STATE OF ILLINOIS: MPEA's ability to make full and timely payment of debt service is contingent on the State of Illinois General Assembly's appropriation of revenue to the bond trustee; therefore, the rating is capped by the state appropriation debt rating. Although the state has not yet enacted a budget for the current fiscal year, it has enacted the appropriation necessary for MPEA to make its debt service payments.

AMPLE COVERAGE BY STATE-WIDE SALES TAX: Strong bondholder security is derived from the substantial coverage of debt service requirements from the statewide sales tax that serves as a back-up pledge to MPEA's own tax revenue stream, subordinate in lien to state-issued Build Illinois sales tax revenue bonds.

STATE NON-IMPAIRMENT LANGUAGE: The state pledges that it will not limit or alter the powers of MPEA or the basis on which state funds are paid to it. Issuance of Build Illinois bonds, senior to authority bonds, is not considered an impairment so long as Build Illinois debt service does not exceed one-third of sales tax revenues for the prior year.
RATING SENSITIVITIES
The rating is sensitive to changes in the rating of the state of Illinois, to which it is linked.

CREDIT PROFILE

The authority owns McCormick Place, Navy Pier, the Hyatt Regency McCormick Place and the Energy Center, all of which are located in Chicago. McCormick Place is one of the largest convention centers in the country. Operations of these facilities have been privatized.

The current offering will provide partial financing for hotel construction, which is expected to enhance MPEA's ability to attract conventions and meetings. With this issuance, MPEA's bonding authority will be fully utilized. The current offering also includes a refunding that is designed to keep debt service within expected authority revenues while allowing for issuance of the new money bonds.

APPROPRIATION REQUIREMENT

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, 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 (rated 'AA+' by Fitch). These funds, however, must also be appropriated from the expansion project fund to the rustee.

The state of Illinois entered fiscal 2016, which began July 1, 2015, without an enacted budget. An initial budget was passed, but the governor vetoed most of the package including the appropriations for MPEA, prompting Fitch to downgrade the bonds' rating to 'BBB+', from 'AA-' on Aug. 5, 2015. (Previously Fitch had viewed the incentive to not appropriate to be limited given that pledged revenues cannot flow to the state.) Lacking an appropriation, MPEA was unable to make transfers to the trustee as dictated by its bond indentures.

Subsequent to the issuance of a default notice from the trustee related to the failure to make required transfers, the General Assembly passed an appropriation for MPEA allowing transfers to take place, and curing the prior deficiency within the mandated 30 days.

BACK-UP SALES TAX PLEDGE

In each fiscal year, the chairman of the authority must certify to the state comptroller and treasurer the amount needed to meet debt service requirements. The state treasurer is required to make monthly deposits on the 20th day of the first eight months of the fiscal year equal to one-eighth of the annual debt service amount into the expansion project fund. If authority tax revenues are insufficient in any month, state sales tax revenues are deposited into the expansion project fund in amounts sufficient to address the shortfall.

There is strong non-impairment language wherein the state pledges that it will not limit or alter the basis on which the sales taxes are collected. The state sales tax is imposed at a unified state and local rate of 6.25%; the 5% state rate portion equals 80% of total collection, with the local rate portion of 1.25% accounting for the remainder.

Recent sales tax collections have shown relatively strong growth, increasing 4.4% in fiscal 2014 and 3.7% in fiscal 2015. Debt service coverage provided by state sales tax revenues is substantial at 15.5x, based on fiscal 2015 sales tax revenues and assuming the maximum annual debt service on both the authority's bonds and the prior lien Build Illinois bonds.

AUTHORITY OPERATIONS IMPROVED
Authority operations have significantly improved since a major restructuring of operations and debt that began with amendments to the MPEA Act in May 2010. These changes were a response in part to the weakened economic environment and a decline in convention center business activity that caused authority tax revenues to deteriorate and led to a reliance on state sales tax revenues to meet debt service requirements. By 2010, MPEA had drawn a total of \\$57 million in support of debt service on its bonds.

Authority taxes have rebounded from a low of \\$98.4 million in 2010, reaching \\$140.2 million in fiscal 2015. With improved operations and growing tax revenues, MPEA is able to meet its debt service requirements and to begin to repay the state for the earlier sales tax draw, making a \\$9.7 million payment from its fiscal 2015 surplus.