Dallas Council OKs $514M Deal for Hotel

DALLAS - The Dallas City Council on Friday voted to authorize the sale of $514.1 million of tax-exempt hotel revenue bonds whenever market conditions allow the city to obtain an interest rate of 5.5% or less.

Proceeds will finance construction of a 1,016-room, city-owned hotel adjacent to the convention center in downtown Dallas. The bonds will be supported by operating revenues from the hotel, and if necessary, by revenues from city and state sales and hotel taxes generated at the facility.

The council met in special session to affirm approval of the bond parameter ordinance by the economic development committee earlier in the week.

No further action is required by the council for the hotel revenue bonds to be issued by the Dallas Convention Center Hotel Development Corp., which was created by the council in August 2008.

The ordinance authorizes city officials to negotiate and sign financial documents, enter into construction contracts, and sell the bonds.

The parameter ordinance sets a maximum interest rate of 5.5% before the bonds can be issued. It also establishes several reserve funds designed to protect Dallas taxpayers from having to support the debt if hotel revenues are not sufficient.

Proceeds of the $514.1 million sale will finance $347 million of construction and land costs, a capitalized interest account of $69 million, a debt service reserve fund of $42.7 million, $6 million of working capital, and insurance and issuance costs of $18.1 million.

The offering may include a tranche of taxable Build America Bonds, but no amount has been determined.

Dallas Mayor Tom Leppert said he expects the bonds to go to market within two months.

"I'm very hopeful that within the next couple of months we'll be able to sell these bonds at below 5.5%, perhaps by several basis points," he said.

"We're giving authority to the city staff to determine the best time to sell the bonds," Leppert said. "There really is never an optimal day to take bonds to market, because you don't know how much lower interest rates might go the next day after you sell."

Dallas chief financial officer David Cook said the current market is at a favorable level.

"I don't know if at this point we are actually waiting on the market," he said. "Unless something goes wrong, I think this deal has a chance of happening real soon. That's why we asked for a special session, because we didn't want to wait until next week's council meeting."

Cook said the bonds will not be sold this week "but it could be within a couple of weeks."

A Dallas investment banker who declined to be identified said the city should be able to meet its targeted interest rate of 5.5% or less.

"This is a big deal to be doing right now, but they are a great credit and I'm sure the deal will be structured properly," she said. "It is reasonable for the city to expect to get a 5.5% rate, and it could be lower."

The hotel bonds are not yet rated, but the city's general obligation debt is rated Aa1 by Moody's Investors Service and AA-plus by Standard & Poor's.

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

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

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