Chicago's convention center and two health systems add COVID-19 disclosure

BY SourceMedia | MUNICIPAL | 03/06/20 02:32 PM EST By Yvette Shields

The public agency that manages Chicago’s convention center is warning of the potential fiscal fallout from the COVID-19 outbreak in an updated offering statement.

Two Illinois-based health systems with deals scheduled this month are also disclosing potential risks in their offering documents.

The Metropolitan Pier and Exposition Authority, hit with the loss of three upcoming shows as of Friday, published an updated and supplemented final offering statement ahead of the March 17 delivery of its $881 million forward refunding issue that revises the “Certain Investment Considerations” section.

Where the agency reports the sensitivity of its sales and other tourist-related taxes to economic conditions, revisions add the effect of a pandemic or health epidemic as a factor that could drive economic changes that could impact MPEA revenues.

An additional section on “The Coronavirus and Other Health-Related Risks” is added to investment considerations outlining information to date on the outbreak and reporting the cancellation of two shows at McCormick Place convention center slated for this month — an International Housewares Association show that was to have drawn 56,000 and an Oracle Corp. (ORCL) gathering that was to have drawn 5,000.

The updated OS adds that a third event was cancelled March 5. It was scheduled to take place this month at MPEA’s hotels. The national meeting was being hosted by a “global corporation” with an estimated attendance of 1,800. Ace Hardware is the company but it did not make public until Friday its cancellation.

“The cancellation of such foregoing-described events will likely adversely affect the commercial activity and taxable transactions expected to be realized in convention with these events, tough the authority makes no prediction as to the degree of the effect of the announced McCormick Place cancellations and the hotel cancellation on commercial activity or taxable transactions,” the updated OS reads.

The authority said additional cancellations could occur as a result of travel or event restrictions taken by sponsors or local and federal authorities or voluntary attendee decisions. It’s not “possible for the authority to predict whether or to what extend COVID-19 or any other pandemic, epidemic or other health-related conditions will affect the authority’s operations, commercial activity, or taxable transactions or the revenues,” it reads.

MPEA spokeswoman Cynthia McCafferty said no dollar amount on the fiscal loss associated with the show was available and said the updated offering statement was not connected with the cancellations but the March 17 delivery date on the bonds.

“We are fortunate that MPEA is entering the coronavirus situation in a strong financial position with healthy reserves that should help the authority to navigate through this period. Certainly, we are watching the situation carefully and in close communication with our customers for upcoming events,” McCafferty said.

The agency replenished a $30 million reserve with savings associated with the refunding and while the agency's bonds are repaid with its own tourism and sales taxes they are ultimately backed up by a state sales tax backup pledge that provides healthy double-digit coverage to cover any shortfall. The supplement also updated leadership information since the appointment of Larita Clark to run the agency.

NorthShore University HealthSystem's $435 million sale expected to price in the coming days lists the virus in two sections.

Under the section “Other Industry and Investment Risks,” NorthShore lists a subsection “Investments Generally, and Market Disruptions Relating to Coronavirus.”

“The continued spread of COVID-19 or any other similar outbreaks in the future may materially adversely impact” economies and “may materially adversely impact the financial condition of the credit group,” the offering statement reads.

NorthShore also warns in a section on “Other Risk Factors” for healthcare facilities of the potential impairment on operations it sees a high demand to treat patients with COVID-19 or other viruses or if some individuals put off elective procedures.

In Rush Obligated Group's $300 million taxable offering statement scheduled to price March 17 under a listing of "Unanticipated Catastrophic Events Could Adversely Affect Operations and Revenues,” it lists "Infectious Disease Outbreak" and references COVID-19 as well as the Zika virus or Ebola outbreak.

If a national or local occurs Rush's "business or financial condition could be adversely affected," the offering statement reads. It could result in a facility shutdown, diversion of patients or the deferral of elective procedures.

"Management cannot predict any costs associated with the potential treatment of an infectious disease outbreak or preparation for such treatments,” the offering statement reads. A pandemic or epidemic outside the U.S. could disrupts the production or supply of pharmaceuticals and medical supplies or otherwise adversely impact Rush's business "that are difficult to predict at this time."

The forward refunding deal priced late last year as part of the agency’s ongoing efforts to ease an escalating and back-loaded debt service schedule. The agency took $20 million of the savings upfront to replenish a $30 million reserve that serves as a buffer if the authority’s taxes fall short so that it doesn’t need to tap a state backup of state sales taxes.

The authority's bonds are backed by taxes on Chicago-area hotel stays, car rentals and other tourist services, with statewide sales tax revenues allocated by statute to cover shortfalls between those annual tourism tax revenues and debt service.

MPEA, owner and operator of the 2.6-million-square-foot McCormick Place, which is the largest convention center in North America, drew $8.6 million from the reserve in fiscal 2019 and had previously said it anticipated a possible draw of $12 million in fiscal 2020 based on projected tax collections.

Tax revenue growth remained solid at 4.5% for fiscal 2019 and was at 3% for ahead of the deal’s late 2019 pricing.

The authority also owns two hotels, the Wintrust Arena and Navy Pier, which are privately operated.

The authority once enjoyed a AAA rating from S&P Global Ratings and a AA-minus rating from Fitch Ratings. Both cut the ratings to reflect state-appropriation risk after a technical default occurred in 2016 during the state’s two-year budget impasse that ended in mid-2017. S&P rates the agency BBB and Fitch rates it BBB-minus. Moody’s Investors Service rates it at the junk level but is not asked to rate new deals. The authority has $2.8 billion of debt.

An authority-commissioned economic impact study conducted in 2017 by a unit of the University of Illinois at Chicago concluded that between 2014 and 2018 MPEA facilities would generate more than $9.4 billion in economic impact from operations, infrastructure improvements and construction of a major new hotel and events center.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.