CHICAGO - Plans for a hotel and convention center in Michigan financed by so-called 63-20 tax-exempt bonds advanced last week when the Grand Haven City Council approved design plans for the project.
Under the plan, Grand Haven will create a state-approved nonprofit that will issue roughly $20 million in tax-exempt bonds through the city to finance construction and operation of a six-story hotel and 24,000- square-foot convention center located on the Lake Michigan shore in the western Michigan town.
Bond proceeds will be used to hire a private company, Legacy Hospitality and Hawthorne Suites Golf Resorts, to build and manage the hotel and convention center. After the debt is paid off, ownership would revert to the city, which could then move to sell it to a private entity.
The unrated bonds are expected to be fixed rate and will be backed by hotel and convention center revenues, according to Jim Swan, managing director at New Jersey-based Bergen Capital, which is acting as underwriter.
Bondholders also will hold a first-lien mortgage pledge. The bonds - being marketed to high-yield institutional buyers - will go out at least 30 years and are tentatively scheduled to be sell during the second quarter of 2009, Swan said. Officials working on the deal are still awaiting a final financial feasibility study.
"I have done several deals like this - jails, civic centers, hotels, apartment complexes, parking garages," he said. "The [nonprofit] acts as an alter ego for the municipality."
An original plan to attach high-end condominiums to the top floors of the hotel is no longer under consideration, according to reports.
The bonds are being issued under the 63-20 structure, which refers to the 1963 IRS ruling that authorized that form of tax-exempt borrowing. Under 63-20 rules, the nonprofit corporation must be sponsored by a local or state government entity and the corporation must engage in activities which are essentially public in nature. Lawyers believe the hotel qualifies because it is aimed at promoting economic development.
By appointing 80% of the nonprofit's board members, Grand Haven would retain control over the asset, and would likely be in line to receive any surplus revenue once fees and debt service are paid, Swan said.
