DALLAS — Standard & Poor’s has placed the AAA-rated Irving, Texas, on CreditWatch for a possible downgrade as the Dallas suburb struggles to raise $170 million for an entertainment center adjoining its new convention center.
The rating on a proposed hotel-tax bond issue for the entertainment center fell well below investment grade, to B with a stable outlook. Issuing the bonds could require the city to raise its property tax rate by an additional 8.5 cents per $100 to cover its hotel tax-secured 2009 certificates of obligation, according to analyst Sarah Smaardyk.
“The CreditWatch placement reflects what we believe to be a change in the city’s financial and risk management practices, which could result in reduced financial and budgetary flexibility,” Smaardyk said. “Furthermore, we believe that the city’s financial decision-making process has become increasingly politicized, which, in our view, represents a departure from the city’s historically strong financial management practices and raises questions regarding how the city will handle debt issuance and capital expenditures moving forward.”
Irving’s proposed $213.7 million issue of Series 2012B bonds would include a refunding of 2011 hotel-tax bonds, along with the funds for the entertainment center.
Standard & Poor’s also placed the BBB-plus rating on Series 2011 bonds to be refunded on negative watch.
With the proposed rating on the entertainment center bonds falling below investment grade, Irving faces an Aug. 6 deadline to work out financing with a private investment firm known as Las Colinas Group. The company has proposed changes to the financing plan to reduce the city’s investment to $100 million.
Irving has already paid Las Colinas Group $23.5 million to begin developing the project.
“We listened to those in the community who are concerned that a $170 million bond issue is too large of a commitment for the city,” said David S. Margulies, a spokesperson for LCG.
Opponents have criticized LCG for missing previous deadlines to prove to the city that it had raised its planned contributions. The issue has become a hot political issue in recent City Council races and was a factor in last year’s defeat of then-incumbent Mayor Herbert Gears by current Mayor Beth Van Duyne.
William Beuck 2d, chairman of LCG, has accused Van Duyne of undermining the company’s ability to raise its $80 million for the project. In the May 11 city elections, opponents of the project gained a majority with three additional seats.
The city sought a rating on proposed entertainment center bonds to guide officials’ decision-making.
