DALLAS - After a showdown with opponents over the wisdom of building a 1,000-room convention center hotel, Dallas plans to issue $496 million of bonds for the project on Monday, if market conditions permit.

Dallas chief financial officer Dave Cook said the City Council put several parameters on the sale, including a requirement that the interest rate be 5.5% or less.

"If we have the sense that the deal won't be able to obtain 5.5% or less, we won't proceed," he said. "We could wait for a couple of months. All the documents are ready, so all the preliminary work has been done and we could wait for the market."

The bonds will be issued in three tranches with a moral obligation from the city in addition to pledging revenues from hotel sales taxes.

The largest tranche of $459 million will be taxable Build America Bonds designated Series B. Series A will be $26 million of revenue bonds, with an $11 million Series C.

The bonds will carry ratings of A-plus from Standard & Poor's, A2 from Moody's Investors Service, and no Fitch Ratings rating. The city's general obligation ratings are AA-plus from Standard & Poor's and Aa1 from Moody's.

Citi will lead the underwriting team, with Goldman, Sachs & Co. and Siebert Brandford Shank & Co. as co-seniors. Co-managers are Jackson Securities, RBC Capital Markets, and Southwest Securities Inc. Estrada Hinojosa & Co. and First Southwest Co. are co-financial advisers.

The bonds are backed by the city's Grant Program Resolution, in which the council will consider making grants or loans from Dallas' general fund to the issuer should revenues from the 6% state hotel occupancy tax, 6.25% state sales and use tax, and 7% local hotel occupancy tax fall short of debt service requirements. The resolution is a revision to the Public/Private Partnership Program and Guidelines, which allow for a Local Government Grant Program and general fund appropriations of Chapter 380 grants to the authority.

Loans or grants are subject to annual appropriation by the city council.

Principal repayment on the Series 2009A bonds begins in 2015 and principal repayment of the Series 2009B bonds starts in 2021.

The debt service requirement steadily increases to roughly $38.9 million in 2042 from $29.8 million in 2010.

If hotel tax revenues fail to cover the annual debt service requirement, the trustee will be able to tap a debt service reserve fund containing the maximum annual debt service payment of about $41 million.

If the city needed to make the full debt service payment for the corporation, the city would increase the property tax rate by three cents per $100 of assessed value, resulting in an additional $27 million in revenue. That would cover the fiscal 2010 debt service payment.

Texas state law allows the city to capture the state's share of taxes for the hotel, but only for 10 years.

"Without that pledge, it would be difficult to market the hotel bonds," Cook said. "We are sure it is a strong project and it will succeed, but the rating agencies are not comfortable with an unproven revenue stream. That's why the pledge is there."

The 1,016-room hotel, with at least 80,000 square feet of meeting rooms and display space, and 720 structured parking spaces, is projected to open in 2012.

The city was able to proceed with the bond issue after a citizens initiative to stop the hotel fell short of approval last spring.

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