WASHINGTON - The District of Columbia Council has approved a $537 million financing package, including $206 million of bonds, for the long-delayed convention center hotel.
The council's action on Tuesday is "a major victory for the district," because the convention center will get a 1,167-room Marriott Marquis Hotel across the street and the district will not violate its debt limit, Washington Convention Center Authority chief financial officer Henry Mosley said yesterday.
As proposed last month, the transaction would have put that debt limit in jeopardy. The authority had approved $750 million of bonds to finance construction costs as private investors struggled to contribute funding.
The size of the debt package drew criticism from the district's chief financial officer, Natwar M. Gandhi, because it would have pushed the district over its 12% debt-to-expenditures cap. Gandhi has said the cap is essential to preserving the district's credit ratings.
To solve the problem, private investors would have to contribute funds or other district projects would need to be delayed.
Under the new terms of the deal, the district will finance its portion of construction with about a quarter of the originally proposed $750 million of bonds.
Two companies, Quadrangle Development Corp. and Capstone Development LLC, will contribute $331 million to form a public-private partnership with the district. The two companies will use shareholder equity, rather than debt, to finance their portion of the deal, Mosley said.
He said Mayor Adrian Fenty, whose staff worked with Gandhi's office, the authority and investors to finalize the deal, is expected to soon sign the legislation. Construction is to begin this fall. Quadrangle will oversee construction and Marriott International Inc. will operate the hotel.
The transaction will involve $161 million of tax increment financing plus $45 million from the convention authority's reserves, Mosley said. The authority will consider obtaining bond insurance, he said.
The authority has $480 million of debt outstanding and is rated A2 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.
Not everyone is entirely satisfied with the proposed deal. Councilman Kwame R. Brown, chairman of the Economic Development Committee, issued a statement after the council's vote, saying it is "not the ideal result" because it still requires the district to issue debt, though he applauded the council for approving the shovel-ready project.
The hotel is considered crucial in keeping the district competitive with its regional neighbors for convention business.
The Convention Center Authority had planned to sell the bonds in 2007, but was forced to delay the sale following zoning concerns. It then said it would come to market in the summer of 2008. But that deal was postponed after one of one of its underwriters, UBS Securities LLC, pulled out of the municipal business.
A new underwriting team was selected in February to be led by Goldman, Sachs & Co., with Siebert Brandford Shank & Co., Morgan Stanley, Merrill Lynch & Co., and Loop Capital Markets LLC as co-managing underwriters.
