The agency that runs McCormick Place got long-awaited financial relief Wednesday with the sale of $1.12 billion in bonds to restructure old expansion debt and finance an addition to the convention center hotel.
The bond deal, which represents the second step toward a state-mandated revamp of the convention center, also will restore depleted reserves and provide a short-term operating subsidy.
The Metropolitan Pier and Exposition Authority, the state-city agency known as McPier, took the bonds to market in a negotiated sale led by Morgan Stanley and Goldman Sachs. Its interest cost on the issue will average 5.5 percent, according to Richard Oldshue, McPier’s chief financial officer.
“We think we got as much as we could from the market today,” he said, noting interest from all the major institutional municipal bond investors.
The authority’s expansion debt is paid back with various tourism-related taxes, and when those fall short, as they have since fiscal 2008, the difference is made up with state sales taxes. That sum was $57 million through fiscal 2010, which ended June 30.
The bond issue will allow McPier to restructure $920 million of its existing expansion debt, extending its payment schedule by another eight years to reduce its annual obligation. Tourism taxes are expected to be sufficient to meet the reduced annual cost, ending the use of the state back-up, and reserves should be rebuilt.
The issue also will provide about $200 million for capital projects, primarily a long-stalled addition to the Hyatt Regency McCormick Place, which McPier owns.
The debt restructuring represents another major step toward revamping operations. In August, McPier rolled out show-floor changes, from cost cuts in electrical and food service to revised show-floor rules aimed at enabling exhibitors to reduce costs by doing more of their own set-up work.
The debt issue also will provide an operating subsidy of about $20 million a year, for four years, to make up for revenue lost due to the cost cuts on electrical and food service.
The deal “alleviates pressure on sales taxes, rebuilds our reserves, provides operating assistance and $200 million for the hotel,” Oldshue said. “From the authority’s standpoint, we completed all the objectives as laid out in the new state law.”
McPier is using only $200 million of $450 million in additional borrowing capacity provided in the new law, and anticipates going to market with more bond issues in the coming decade.
Separately, the authority also is moving toward the hiring of a private manager for McCormick Place, a process expected to be completed next May.