The Metropolitan Pier and Exposition Authority of Illinois trimmed its spread penalties in the first primary outing of an Illinois-linked borrower to reap the benefits of the state’s positive rating momentum.
The agency that manages Chicago’s downtown convention center campus priced $811 million of refunding bonds Thursday.
It saw a 98 basis point spread to the Municipal Market Data’s AAA benchmark on its later maturing term bonds, and when accounting for the 4% coupons on the maturities the spread shrinks by 15 bps. Spreads also reflected a premium due the forward delivery of bonds in March which widens them.
Despite the premium, spread penalties narrowed to double-digits from triple digits.
MPEA saw a 199 bp spread on the only tax-exempt tranche in the agency’s deal last summer — a 22-year bond with a 5% coupon. In an early sign that the agency would fare better in the deal that priced Thursday, that bond had been trading at a 52 bp spread.
In a deal that priced in late 2019 and closed in early 2020, MPEA’s 30-year bond with a 4% coupon settled at a 162 bp spread to the AAA and more recently was trading at a 67 bp spread. Another 30-year bond in the deal with a 5% coupon landed at a 132 bp spread and had more recently traded at a 43 bp spread.
A combination of market conditions with demand outstripping supply, a hunt for yield, a wider national upswing of credit quality thanks to the flood of federal relief, and Met Pier rating and outlook upgrades that followed positive rating action on Illinois over the last month buoyed the deal.
“Munis of all stripes have been enjoying favorable perceptions of credit quality. Spreads (a leading indicator of credit quality) have been trending lower for the past six months and this is especially noticeable in some of the states with the highest profiles” like Illinois, New Jersey, and Connecticut, said Daniel Berger, senior market strategist at MMD-Refinitiv, said in the firm’s weekly report.
MPEA said it received orders from 49 investors.
“Interest in the authority’s bonds was strong across all maturities, including the current interest bonds and the capital appreciation bonds,” MPEA said in a statement. “While it’s always difficult to pinpoint, there were a number of tailwinds that likely helped the authority achieve a successful pricing” including rating momentum and market conditions.
The tourism and entertainment-driven taxes that backstop the authority’s debt were pummeled by the travel and social distancing measures imposed to fight the COVID-19 pandemic.
The deal scoops and tosses near-term debt service so Met Pier won’t have to draw on a state sales tax backup in fiscal 2022. The deal also achieved net present value savings.
Future scoop-and-toss restructurings are expected as the agency tries to match rebounding tax revenues on hotels, auto rentals, restaurants, and airport taxi rides — all of which plummeted in late fiscal 2020 and continued through fiscal 2021 — while also trimming the demands of an escalating debt service schedule.
Taxes are picking up and operations are resuming with the annual Chicago Auto Show opening Thursday for a five-day run. It typically runs in February for 10 days.
Ahead of the deal Fitch Ratings lifted MPEA’s outlook to positive from negative, affirming its BB-plus rating. That kept the rating one notch below the state’s. Fitch caps the rating at one notch below the state due to appropriation risk. Fitch last month moved the outlook on the state’s BBB-minus rating to positive.
S&P Global Ratings upgraded MPEA to BBB-plus with a stable outlook, citing its recent upgrade of Illinois to BBB from BBB-minus. S&P caps the rating at one notch above the state.
Kroll Bond Rating Agency assigned a first-time rating of AA-minus with a stable outlook.
Moody’s Investors Service raised MPEA’s rating one notch, bringing it back into investment grade at Baa3 after raising the state’s rating one notch to Baa2 earlier this month. It was not asked to rate the new MPEA bonds.
The agency has $3 billion of debt. Goldman Sachs and Citigroup were co-joint bookrunning senior managers.