Dallas Council Clears Way for Issuing $514M of Hotel Bonds

DALLAS - Dallas officials are authorized to sell $514 million of tax-exempt hotel revenue bonds quickly under provisions of a bond parameter ordinance approved unanimously on Monday by the City Council's economic development committee.

The full council will consider the proposed ordinance at a special session on Friday. If it is adopted, no further council action would be required to sell the bonds.

A significant majority of the 14-member council favors the plan to finance a city-owned 1,000-room hotel adjacent to the downtown Dallas Convention Center with bond proceeds.

Assistant city manager A.C. Gonzalez told councilors that the bonds could be sold "on a moment's notice" once specific conditions in the ordinance can be obtained. Conditions include an interest rate of 5.5% or less and net proceeds of $514.1 million.

Officials had planned to sell the hotel bonds in December, but they could not obtain the required 5.5% interest rate. Gonzalez told the committee that the city believes now it can sell the debt at or below the desired rate due to recent improvements in the bond market.

When market conditions are favorable, he said, the bonds could be issued with no further action by the council if the ordinance is adopted Friday.

Committee chairman Ron Natinsky said city officials are closely watching the bond market for favorable conditions.

"There were a couple of days last week when we could have sold these bonds at 5.5% or less," he told the committee.

Voters in May narrowly rejected a change in the city charter that would have prevented Dallas from financing and operating a hotel. Since the election, 12 conventions totaling 205,000 room nights have been tentatively booked by the convention center, according to Gonzalez,

The bond ordinance authorizes the hotel corporation to negotiate financial agreements and documents, approve construction contracts, and issue the bonds.

With approval of the proposed ordinance from the council on Friday, Gonzalez said, the city can go ahead with meetings with rating agencies and efforts to obtain insurance for the bonds. If the bonds are sold soon, he said, the hotel could be operational by 2011.

The 30-year bonds will be supported by revenues generated at the Omni-operated hotel, with the city's room and sales taxes from the hotel also pledged to debt service.

Gonzalez said a portion of the debt could be issued as taxable Build America Bonds. BABs are being considered because the 35% interest subsidy on the bonds could result in the city paying an effective interest rate of 5.5% or less, he said.

The Dallas Convention Center Hotel Development Corp., a local government entity established by the council last August, will issue the debt.

The estimated cost of building the hotel has fallen to $346 million from the original estimate of $371.4 million in November as a result of lower construction costs and some design changes, Gonzalez said.

A $42.7 million senior debt reserve fund would be established with bond proceeds to pay debt service until hotel revenues are sufficient. A capitalized interest account of $69.8 million will also be funded with bond proceeds.

The financing plan includes $18.1 million for bond insurance and issuance costs.

Dallas has selected Citi as the book-running manager and co-senior manager. Other co-senior managers are Goldman, Sachs & Co. and Siebert Brandford Shank LLC. Co-managers include Jackson Securities LLC, RBC Capital Markets, and Southwest Securities Inc.

The financial plan allocates 30% of the debt to Citi, with the other senior co-managers receiving 20% each. The co-managers will each receive 10% of the debt.

Bond counsel for the city are McCall, Parkhurst & Horton LLC and Escamilla & Poneck Inc. Financial advisers are First Southwest Co. and Estrada Hinojosa & Co.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER