While Rating City's Hotel Bonds, Moody's Says Dallas Is "Vying For a Relatively Fixed Number of Conventions" Among "Strong Competition"
Do you think President Obama ever imagined his stimulus package would help Dallas build a convention center hotel? This guy sure did.
As the city's hotel development corporation prepares to sell what is now $505,230,000 in revenue bonds to build the convention center hotel, Moody's Investors Service has issued an A2 rating to the financing -- a decent, but unspectacular rating -- which will be funded by more than $459 million in Build America Bonds. Moody's also addressed the opinion of the city and HVS Consulting that the lack of an attached hotel is causing the convention center to lose business.
Nonetheless, in Moody's opinion many cities are vying for a relatively fixed number of conventions, and Dallas has strong competition both regionally and nationally. Texas-based competitors include San Antonio, Austin, Houston, and the 1,500-room Gaylord Texan located in close proximity to the Dallas-Ft. Worth airport. National competitors include San Diego, Chicago, Atlanta, New Orleans, and Phoenix. Revenue per available room (RevPAR) for hotels in downtown Dallas dropped in 2009 (YTD-April) by over 15% as a result of both the competitive nature of the convention industry as well as the softness in the regional and national economy.
The American Recovery and Reinvestment Act signed in February by President Barack Obama created the Build America Bond program, which are bonds used to help state and local governments reduce the cost of borrowing by subsidizing 35 percent of the interest rate. The city's interest rate won't be determined until the bonds are sold, which is expected to be sometime this week, but as we explained in June, the city will be able to exceed its 5.5 percent self-imposed threshold as long as the reimbursements from the federal government will yield an amount equivalent to or below 5.5 percent.
Apart from the $459 million in taxable Build America Bonds, a $38 million non-taxable issuance (presumably to cover the cost of the land) and an $8 million taxable issuance (presumably to cover the pre-development costs approved by the city council) compose the $505 million bond package. As opposed to the estimated $42.7 million senior debt service reserve and $10 million operating expense reserve, the final reserves include $40.9 million and $6 million respectively. Once those are tapped, Moody's outlines how taxpayers will be on the hook.
In the event that hotel net operating income, inclusive of tax collections, is insufficient to make required debt service fund deposits, the trustee will look to the various funds including the operating expense fund and the fully funded debt service reserve. After fully exhausting these resources the trustee will notify the City twenty days prior to the next debt service payment, and the City is committed to deposit the full amount of the shortfall into a holding account at least two days prior to the next debt payment date.The Economic Development Agreement between the city and issuer formalizes the City's commitment to provide these funds that are characterized as Appropriated Grant Payments.
In other convention center hotel news, it looks like the News thinks its future neighbor needs a makeover.Moody's bond rating -- Dallas Convention Center Hotel
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