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Birmingham Bonds for Hotel Project

BRADENTON, Fla. — The Birmingham Commercial Development Authority is selling $72.02 million of revenue bonds Tuesday to finance a hotel and entertainment district in an effort by Alabama’s most populous city to attract larger conventions.

Proceeds will finance the construction of a 300-room, four-star hotel that will bring the existing stock of rooms near the Birmingham-Jefferson Convention Complex to around 1,000, an industry standard to support large events.

Proceeds also will be used to build 60,000 square feet of storefront for a restaurant, club, and shopping district called the Marketplace.

The deal is expected to be structured as $56.54 million of Series A tax-exempt bonds and $15.48 million of Series B taxable bonds. The Series A bonds will be sold with serial and term maturities between 2024 and 2041. Series B will be sold as one or more term bonds with final maturity in 2024.

Birmingham is paying the debt service, said Tom Barnett, the city’s finance director. The bonds will be secured by occupational and lodging tax revenues that have been dedicated to the convention center since 1989, and backed by the city’s full faith and credit.

“We’re hoping the stability that has finally materialized [in the market] will continue,” Barnett said, referring to the timing of the sale. The underwriters “are very confident that we’ll get good pricing.”

For this offering, Barnett said the city selected a syndicate it never used before. Goldman, Sachs & Co. is the book-runner and co-senior manager with M.R. Beal & Co. Securities Capital Corp., a local firm, also is underwriting the deal.

“We’re trying to diversify our underwriters, which should help with secondary market trading of our bonds,” he said. “They’ll be able to market to different investors in addition to those who participated before.”

Barnett said he hopes the strategy translates into better pricing.

The bonds are rated AA by Fitch Ratings and Standard & Poor’s, and Aa2 by Moody’s Investors Service. Fitch and Standard & Poor’s also assigned stable outlooks. All three agencies affirmed the same ratings on Birmingham’s general obligation bonds and warrants.

Analysts said their ratings reflect Birmingham’s large and diverse economy bolstered by expanding health care and higher education institutions, and significant reserves that offer flexibility against revenue shortfalls and capital needs.

The city has a formal general fund balance policy of maintaining 25% of annual operating expenses in reserve, and maintains reserves outside the general fund.

The total available reserves in fiscal 2010 equaled $209.15 million, or 58.22% of annual revenues, according to Moody’s.

“The city has substantial reserves and that does give bondholders extra comfort,” Barnett said. “The city manages its finances very conservatively.”

The new hotel is expected to carry a Westin flag and be operated by its parent company, Starwood Hotels & Resorts Worldwide Inc. The Marketplace will provide conference and event-goers entertainment within walking distance.

The project is designed to complement the convention center and serve as a major economic development project that will boost revenues supporting the city budget, said Barnett, who noted that other major projects are under way or planned in the city.

Birmingham is the seat of Jefferson County, which has experienced severe financial problems for more than two years, largely because of nearly $3.2 billion of hedged variable- and auction-rate debt that it has failed to restructure since the market meltdown in 2008.

Barnett said there have been no problems with Birmingham deals because of Jefferson County.

“We do have to explain to some people that we are not financially connected to the county, but most people certainly know that,” he said.

Since late 2008, 18 deals have been sold by various Alabama credits that had Birmingham and Jefferson County in their names, according to Thomson Municipal Market Monitor. Those include three previous Birmingham deals.

The city sold $39.1 million of taxable GO recovery zone economic development warrants in November. Those warrants sold with yields ranging from 4.2% in 2019, 6.35% in 2030, and 7% in 2040.

Haskell Slaughter Young & Rediker LLC and Walker LLC are co-bond counsel for Tuesday’s sale. Maynard, Cooper & Gale PC is underwriters’ counsel.

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