CHICAGO -- The Metropolitan Pier and Exposition Authority will send out a request for qualifications as early as next month to underwriters for the senior and co-manager spots on next year's $935 million revenue bond issue for the McCormick Place convention center in Chicago, authority officials said this week.
The deal, which would be one of the Midwest's biggest tax-exempt bond issues ever, has set the rumor mill into overtime with speculation over how firms will be selected and which firm would be chosen as book-running manager.
But John Schmidt, the authority's chairman, labeled as "sheer speculation" Chicago press reports that named as front-runners Donaldson, Lufkin & Jenrette Securities Corp.; Lehman Brothers; Smith Barney, Harris Upham & Co.; Goldman, Sachs & Co.; Morgan Stanley & Co.; First Chicago Capital Morkets, and PaineWebber Inc.
"We have made no decision publicly or privately," he said.
He said a request covering both the senior manager and co-manager positions would be put out "as soon a practicable after the governor signs the bill." And the indication from Gov. Jim Edgar's staff is that the signing will take place in early September, he added.
However, a spokesman for the governor said no date has been set for the signing.
Even though legislation passed last month by the Illinois General Assembly authorizing issuance of up to $935 million of special obligation revenue bonds does not not take effect until July 1, 1992, Mr. Schmidt said the authority board would pick the underwriting team before them.
If the requests are sent out by mid-September, he said the authority's finance committee would make recommendations that could be considered by the board at its October or November meetings. The authority has retained Bear, Stearns & Co. as its financial adviser on the deal.
As for the political forces behind the selection process, one public finance source said Mayor Richard Daley of Chicago and former Gov. Jim Thompson would wield some power. The authority, which is jointly controlled by the city and the state, has a governing board composed of 12 appointees, six named by the mayor and six by the governor. According to a spokeswoman for the authority, Gov. Edgar, who took office in January, has only appointed one person to the board.
One option under consideration is having two or more bond issues, possibly with different senior managers, according to Mr. Schmidt. He pointed out that the legislation prohibits the authority from using about 20% of the debt service funds until one of the new taxes specifically set up for financing the project is adjudicated. That tax is a 1% charge on restaurant meals within a special taxing district in downtown Chicago.
Mr. Schmidt said that while the tax does not pose "any serious legal issue," the litigation process could run past the July 1 date the legislation becomes effective. That, he added, could dictate splitting the issue into parts.
In addition to the 1% restaurant tax, the legislature also approved a 6% tax on auto rentals in Cook County, a 2.5% tax on hotel rooms in Chicago, and per-ride fees of 75 cents to $1 on taxi, limousine and bus trips to and from the city's two airports. If the new taxes do not provide enough money to pay debt service, the legislation calls for a portion of the state sales tax to be used to make the payments and provide additional security for the bonds.
The authority has estimated that revenues from the taxes will raise $53 million in 1993, climb to $93 million by 2004, and remain at the level through 2021, when the 30-year bonds would mature.
In the request, Mr. Schmidt said firms will be asked for their ideas on hedging interest rate risk through the use of forwards and other vehicles. He said that would be necessary because the bond authorization was based on the interest rate climate that existed last month when the legislation was approved.
"If interest rates go up significantly, we will have a difficult time doing the financing within the parameters and we will presumably have to scale down the project," he said.
The entire cost of the convention center's 1-million-square-foot expansion, scheduled for completion in 1996, is estimated at $987 million.
The prospect of handling the bond issue has officials at many firms salivating.
"Everybody's interest," said one public finance source in Chicago. "It's a huge bond issue, and all the major banks and brokerage firms will do whatever they can to get in the deal and be senior manager."
One firm that will not be able to compete is Merrill Lynch & Co. Mr. Schmidt said that because Jim Bolin, a vice president at the firm, is a board member and heads the board's finance committee, his firm would be disqualified from doing business with the authority.
Other than Merrill Lynch, Mr. Schmidt said he expects "everyone else in world will reply" to the request.
Officials at some firms had feared the authority would turn to a request it sent out in December 1989, when the project included both the convention center expansion and a domed stadium. According to Mike Colsch, the authority's executive assistant for finance, senior manager finalists for the deal were Morgan Stanley, William Blair & Co., Smith Barney, Kemper Capital Markets, Goldman Sachs, and PaineWebber.
He explained that under its governing statutes, the authority is required to sent out a request for every new project.