Illinois sports agency's new board chief inherits coronavirus-driven debt woes

BY SourceMedia | MUNICIPAL | 01/25/21 03:10 PM EST By Yvette Shields

Illinois Gov. J.B. Pritzker tapped incumbent Illinois Sports Facilities Authority board member Leslie Darling to replace outgoing chairman Manuel ?Manny? Sanchez, putting her at the helm of the agency hit hard by the COVID-19 pandemic?s deep wounds to hotel taxes, which are used to repay its debts.

The board governs the agency that owns and operates and issued $150 million of bonds in 1989 for Guaranteed Rate Field where Major League Baseball?s White Sox play and served as the issuer for $400 million of 2001 bonds that financed the renovation of the Chicago Park District-owned Soldier Field ? home of the National Football League?s Chicago Bears. About $430 million of debt is outstanding.

As a member of the board, Darling knows the authority?s COVID-19-plagued fiscal picture and debt repayment struggles that could lie ahead in the absence of a strong economic recovery that fuels a big pickup in hotel tax revenues or a debt restructuring.

Darling served on Pritzker?s transition team after his November 2018 election and was first named to the ISFA board in December 2019. She is an executive vice president and general counsel at the Art Institute of Chicago.

Darling served as a top aide to former Chicago Mayor Rahm Emanuel, including as chief executive officer of the now defunct Chicago Infrastructure Trust. The agency failed to live up to Emanuel?s early expectations as an affordable alternative financing vehicle for the city. Darling also was a first assistant corporation counsel in the city?s law department and legislative counsel for the mayor?s office, and a partner at Ungaretti & Harris for seven years.

The Illinois Senate must confirm the appointment before it becomes official. The board is comprised of three mayoral appointees and three gubernatorial appointees with the governor picking the chairperson, sometimes with the mayor?s input.

Sanchez, whose firm Sanchez Daniels & Hoffman does bond work, announced his resignation last month. Sanchez was named to the post by former Gov. Bruce Rauner, so his resignation paved the way for a Pritzker pick.

The authority is expected to pursue a debt restructuring this year that at least eases debt service in fiscal 2021 and 2022.

Bolstered by the use of a special reserves, the junk-rated authority has sufficient funds to cover the fiscal 2021 debt service payments that were due last December and on June 15, 2021. That?s despite the battering hotel tax revenues have taken due to pandemic-driven economic shutdowns, canceled conventions, and lackluster tourism.

?We are not in jeopardy? of a default as ?we do have ample reserves to get us through this fiscal year as well as with the state advance we are receiving along with the subsidy,? ISFA Chief Financial Officer Dana Phillips Goodum told board members in an update of fiscal 2021 operations at a December board meeting. Revenues were down by 90.7% through September.

A ?state advance? of up to 60% of a 5% statewide hotel tax is pledged to the bonds but the agency must repay most of that advance at the June 30 fiscal year end. The authority?s revenues come from a local 2% hotel tax, a $5 million annual state subsidy and a $5 million city subsidy.

Chicago is on the hook should the authority?s 2% tax on hotels combined with the subsidies fall short of what?s needed to eventually repay the ?state advance.? The state can automatically withdraw the amount needed from the city?s share of income tax revenues.

While the agency can meet fiscal 2021 obligations through June 30 with the help of reserves, it still expects Chicago will be called on to cover a shortfall in hotel tax revenues even after taking steps to ease that risk by requesting a lower-than-needed ?state advance? last year.

Chicago Mayor Lori Lightfoot?s administration has urged the authority to pursue a debt restructuring. Legislative approval would be need to extend the debt maturity.

S&P Global Ratings downgraded the authority to junk over the summer due to ?lower coverage and the need to use non-pledged revenues to pay fiscal 2021 debt service.? It dropped the rating to BB-plus from BBB. Many series carry bond insurance.

Fitch Ratings also rates the ISFA at junk, but that?s due to the state link. Fitch cut the rating to junk BB-plus after it downgraded Illinois to BBB-minus as the rating is capped at one notch below the state to reflect that bondholder payments are subject to a state appropriation. Fitch affirmed the rating in October when it affirmed the state. The authority last borrowed in 2019 after a five-year absence with a $130 million refunding.

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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.

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