DALLAS — The El Paso, Texas City Council has created a downtown development district to issue $50.4 million of bonds for construction of a minor league baseball stadium downtown.
The 9,000-seat stadium will be built on the site currently occupied by El Paso City Hall.
A group of El Paso investors has purchased the Tucson Padres of the Class AAA Pacific Coast League and plans to move the team to the west Texas city after the 2013 season. The team is expected to occupy its new stadium in time for the 2014 season.
The bonds are expected to go to market in February. The council is scheduled to approve the issue in late January.
Tuesday's creation of the local government non-profit corporation will allow the stadium debt to be issued by the district as special obligation bonds supported by annual city appropriations from the available sources, said Carmen Arrieta-Candelaria, the city's chief financial officer.
Without the corporation, she said, El Paso would have to issue revenue bonds supported only by the hotel tax. The entity is a funding mechanism only, with the city building and owning the facility.
City officials said creation of the stadium corporation was recommended by the Texas Attorney General's Finance Division. Several other Texas cities, including Dallas, Arlington, and San Antonio, used a similar mechanism to issue bonds for sports venues.
El Paso voters approved an increase in the city's hotel tax rate to 17.5% from 15.5% in November to support the bonds, but limiting debt support to the additional tax revenue would be more expensive than support for the appropriations-backed debt, she said.
A $4.3 million reserve fund would be required if the debt was supported solely by the hotel tax, and the expected lower credit rating would add 50 basis points to the interest paid, Arrieta-Candelaria told the council.
Bonds backed by the city's appropriations pledge could be issued as 25-year debt, she said, rather than 40-year bonds that would be required with support only from the hotel tax revenue.
"The city would pay $82.7 million of interest over 40 years for a par value of $55.5 million of hotel tax debt at current market conditions, but $38.6 million in interest over 25 years on $50.4 million of appropriations-backed debt," she said.
In addition to the higher hotel tax, available revenues will include stadium rental and parking, and any of the city's non-property tax collections such as franchise fees and sales tax.
"We don't anticipate using those revenues, but they will be available," she said.
The pledge of additional revenues is necessary for the initial years of the project, but the need should eventually be eliminated, Arrieta-Candelaria said.
The increase in the hotel tax is expected to bring in $35 million over the next 25 years. It will go into effect Jan. 1.
Fulbright & Jaworski LLP is the city's bond counsel. First Southwest Co. is the financial advisor.
El Paso's general obligation credit is rated AA by Standard & Poor's and Fitch, and Aa2 by Moody's Investors Service. The city's outstanding debt includes approximately $600 million of GO debt and $217 million of certificates of obligation.