St. Louis Hotel Bondholders to Get More Information Today

CHICAGO -Holders of $98 million of senior-lien revenue bonds issued for the St. Louis convention center hotel complex will get more information today on the announcement late last week that the developer will fund a $2.2 million shortfall in a debt service payment owed this week as it elevates its role in finding a solution to the hotel's fiscal struggles.

Historic Restoration Inc. will fund the shortfall in available hotel revenues to cover the interest-only $3.5 million payment owed Thursday, according to a letter sent last week from HRI's president A. Thomas Leonhard Jr. to bond trustee UMB Bank NA.

A conference call is scheduled for bondholders today at 2:00 p.m. Central Daylight Time, according to notice posted by the trustee at www.conventionhotelbondholders.com. The decision from HRI that it would cover the payment was made in conjunction with a deal struck for HRI to purchase the majority ownership owned by Kimberly-Clark Corp. The transfer of ownership, however, was blocked by hotel operator Marriott Corp. HRI still intends to take over $18 million in subordinate notes and elevate its role in the ownership group, Leonhard said.

HRI currently acts a managing member of the group - known as Gateway Hotel Partners LLCand Gateway Tower Partners LLC - but it is Kimberly-Clark, through its subsidiary Housing Horizons LLC, that holds a majority stake of 85%.

Hotel revenues have regularly fallen short of what's needed to cover debt service, Housing Horizons has covered the shortfalls. Kimberly-Clark had significant incentive to subsidize the shortfalls as it received tax credits that exceeded its extra support for the project. Those credits ended this year.

Marriott has blocked the ownership transfer plan, so bondholders will be told in the conference call today that HRI will take over as holder of the subordinate notes and elevate its role in trying to find a "financial remedy," Leonhard said yesterday in an interview.

Housing Horizons last week wrote it "has concluded that it is in its business interest to exit the project owner [the Gateway partners groups] and has tentatively agreed ... to sell its ownership interest," the letter reads. Once the deal is completed HRI "would assume complete management control" of the ownership group.

HRI's commitment to fund the June shortfall may ease bondholders concerns, at least temporarily, regarding the near-term shortfalls in debt service. It's still possible that future action might be needed to avert a default or bankruptcy filing. Options include a debt restructuring or an infusion of additional capital.

Leonhard said yesterday he hopes to avert a debt restructuring that hurts bondholders. "Our first priority is the bondholders and we think there is a financial solution for us to create value for the bondholders ... and other stakeholders," he said.

The company, that employs 500 and manages a handful of hotels, has not defaulted on a project or filed bankruptcy or seen a property go into foreclosure in its 25-year history. "We don't want this to be our first. We don't want that stain on our track record," Leonhard said, adding that HRI's goal is for the hotels to generate enoughfor a December payment.

Earlier this year, Marriott officials said they expected the hotels to generate cash flow of about $5.6 million for the full year. The hotels finished off last year with an occupancy rate of 64.8% compared to 65.4% in 2006. An occupancy rate of 64.6% is expected this year.

The latest consultants' report has offered a gloomy prediction for the hotels' future ability to cover debt service, warning that if various upgrades, such as increased ballroom space, are not made to the complex it won't generate enough cash on its own to cover debt service until 2012. Consultants previously believed revenues were on pace to cover interest payments by next year and principal payments when they begin in 2010.

The St. Louis Industrial Development Authority issued the senior-lien revenue bonds in 2000 as part of a financing scheme to acquire and renovate the $266 million hotel complex at the convention center. The 165-room Renaissance Suites opened in 2002 and the 918-room Renaissance Grand opened a year later.

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