Chicago Parking Meters' Bond Sale Shelved Amid Covenant Spat
July 23 2010 - 06:37PM
Dow Jones News
Chicago Parking Meters LLC shelved a $500 million private bond
sale Friday after a handful of investors insisted the company meet
two covenant tests at all times, whereas the borrower wanted to
have to meet either of the two.
One test required Chicago Parking Meters to maintain an
investment-grade credit rating or risk having bondholders demand
immediate redemption.
The other would forbid the company to borrow any more money
unless its previous four months' Ebitda--earnings before interest,
taxes, depreciation and amortization, a proxy for cash flow--was at
least twice its interest payments on the bonds.
"They weren't a problem in themselves," one investor said of the
individual covenants. Another said the problem came when a
substantial enough portion of the orders was conditional on the
company meeting both covenants, and Chicago Parking Meters opted
not to agree.
Requiring issuing companies to maintain such a large cash-flow
cushion is more typical of a high-yield, or junk, deal, according
to Chris Chaice, an analyst at Covenant Review, which advises
investors on such terms.
Moody's Investors Service rated the 10-year secured bonds Baa3,
and Standard & Poor's rated them by and BBB-minus; both are
investment-grade, although barely.
The deal was negotiated throughout the week after being
announced on Monday and the issuer had initially reached an
agreement with investors for a 6% coupon, before calling it
off.
Barclays Capital and Credit Suisse, who were leading the sale,
declined to comment on the deal.
"Chicago Parking Meters chose to postpone the transaction due to
unfavorable market conditions," according to a spokeswoman at
Morgan Stanley Infrastructure Partners, the majority equity holder
in the ownership consortium and the asset manager. Allianz Capital
Partners and the Abu Dhabi Investment Authority are co-owners;
neither immediately returned a request for comment.
The consortium was selected from a tender process in December
2008 to lease Chicago's parking system for 75 years. Its $1.15
billion bid was funded with equity from the sponsors and this
week's issue was its debut bond offering.
The operator of the street parking system, which is comprised of
approximately 36,800 spaces, is Hartford-based LAZ Parking. As part
of the agreement, the city of Chicago agreed to raise parking
rates, according to a Standard & Poor's report.
-By Katy Burne and Chris Dieterich, Dow Jones Newswires;
212-416-3084; katy.burne@dowjones.com