CHICAGO - Holders of $98 million of senior-lien revenue bonds issued for a St. Louis convention center hotel complex, along with its operator and developer, are scheduled to meet Nov. 11 to discuss the project's future amid warnings of a $1.4 million shortfall in hotel revenue available for December debt service payments.
"The rapidly declining economic environment has contributed greatly to this previously unforeseen deterioration in the project's performance" leading to the $1.4 million shortfall in the $3.5 million interest payment owed Dec. 15, wrote A. Thomas Leonhard Jr., president of project developer Historic Restoration Inc., in a letter to bond trustee UMB Bank NA.
"Neither the project owner nor any of their respective affiliates are prepared to fund such a shortfall," he wrote in the letter posted on UMB's
HRI further says in the letter that it remains committed to working "cooperatively" with bondholders on a plan that would result in the "best outcome for the project."
At the Nov. 11 bondholder meeting, set up by the trustee at the request of HRI, hotel operator Marriott Corp. will present its financial forecast for the remainder of the year and a budget for next year, which is expected to show further deterioration in hotel operations. HRI also will present a forbearance option for bondholder consideration, according to the letter.
News of the looming shortfall and the forbearance proposal mark the latest turn in the hotel complex's ongoing struggles, and a first in that the obligated group has in the past stepped up to cover previous deficits in debt service payments.
HRI earlier agreed to cover a $2.2 million shortfall in the last payment due in June as part of a deal struck for HRI to purchase the majority ownership in the project owned by Kimberly-Clark Corp. The outright transfer of ownership, however, was blocked by Marriott. However, HRI still took over $18 million in subordinate notes, taking control of the ownership group.
HRI currently acts as a managing member of the group - known as Gateway Hotel Partners LLC and Gateway Tower Partners LLC - but it was Kimberly-Clark, through its subsidiary Housing Horizons LLC, that originally held a majority stake of 85%.
Housing Horizons had previously covered the debt service 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.
HRI's commitment to fund the June shortfall provided just temporary salve for bondholder concerns amid rating agency warnings that it might be difficult for the project to avoid bankruptcy unless the debt was restructured or an infusion of capital received.
At the time, HRI said it was hopeful the hotels could generate sufficient funds to cover the December payment. Consultants have warned that if various upgrades - such as increased ballroom space - are not made to the complex, it will not generate enough cash on its own to cover debt service until 2012.
The St. Louis Industrial Development Authority issued the senior-lien revenue bonds in 2000 as part of a complex financing scheme to acquire and renovate the $266 million hotel complex at the city's convention centers. The 165-room Renaissance Suites opened in 2002 and the 918-room Renaissance Grand opened a year later.
The bonds initially garnered a low investment-grade rating from Moody's Investors Service, but have since fallen deep into junk-bond territory as hotel revenues have failed to meet projections after a convention slump following the 2001 terrorist attacks.
