DALLAS – Four months after Denver voters approved redevelopment of the historic National Western Stock Show and Rodeo Complex, the Mile High City is preparing to price $425 million of bonds that include financing for the project.
With final approval from the City Council on Feb. 29, the deal is expected to price March 22, according to Michelle Wang, director of capital funding for the city. While $425 million is the maximum authorized by the council, the final amount could vary based on refunding opportunities, Wang said.
The deal includes tax-exempt and taxable bonds in two series along with refunding of 2005A and 2009A bonds for interest-rate savings.
Citi and Stifel Nicolaus are co-senior managers on the deal, led by Citi director Bill Corrado and Stifel managing director Josh Benninghoff.
New money bonds are expected to provide about $200 million for the National Western Complex while $6 million will be used to upgrade the convention center.
Rates on the refunded bonds are expected to land between 2.5% and 3.5% from the old rates of between 5.13% and 6%, Wang said.
Wang told the council that broker-dealers in Denver have been told to give priority in retail orders to Denver residents.
"While these are not mini-bonds, Colorado residents will be given priority over other institutional investors," Wang said. Denver's mini-bonds – sold in denominations of $10,000 for smaller local retail investors– have proven popular in the past.
The new bonds are backed by a 6.25% lodger's tax, a 5.5% auto rental tax rate, and a 0.5% prepared food and beverage tax, according to Standard & Poor's.
Pledged revenue also includes a first lien on a 1.75% lodger's tax and a 1.75% auto rental tax approved by voters in 1999. Originally set to expire in 2023, the tax gained a permanent extension with voter approval last November. The revenues were earmarked for the National Western Complex, the Colorado Convention Center and other tourism-related projects.
The additional pledged revenue allows the city to enhance the excise tax revenue bond credit for investors and ratings agencies and to ensure continued market access during economic downturns, according Wang, who acknowledged that the enhancement was "mostly optics."
The bonds are rated AA-minus by Standard & Poor's and Aa3 by Moody's Investors Service. Those ratings are three notches below the city's triple-A general obligation ratings. Outlooks are stable.
Based on 2015 figures, pledged revenue would cover maximum annual debt service more than three times, analysts said. Between 2011 and 2014, revenue dedicated to the bonds grew 34%, according to S&P.
"We view this combined revenue stream as being more volatile than that of broad sales taxes, but we consider Denver's status as a regional center for business and trade as well as a base for tourism as a positive factor," S&P analyst Misty Newland wrote in a Feb. 25 report.
Another positive indicator is the fact that the number of hotel rooms in the Denver Metro area has increased by 3,700, or 9%, since 2010 to about 44,900, according to Moody's. About 1,700 of the new rooms are in downtown Denver, a 24% increase since 2010.
Since the end of the recession in 2009, occupancy rates have increased from 59% to 76% in 2015. Downtown Denver hotel occupancy rates improved from 64% in 2009 to 78% in 2015, Moody's said.
The combined pledged revenues averaged 10.4% in annual increases through fiscal 2014 to reach $109.2 million, Moody's analyst John Nichols wrote.
"Although this growth is strong, tourism driven revenues remain highly susceptible to economic downturns as highlighted by the sizable 13.9% single year decline in 2009," Nichols wrote. "Historically, all three revenue streams are highly correlated and move in tandem."
The general economy in the Denver metro area has been booming in the past three years and is expected to continue growing despite a downturn in the oil and gas markets.
Moody's Economy.com reported in December that the recent energy slump has subdued Denver's rapid expansion, but that the high industrial diversity and well- educated workforce will continue to support long-term growth.
From 2015 to 2016 Denver's full value grew 23.9% to $100.2 billion, the third year of growth following two years of modest declines in fiscal 2012 and 2013, analysts wrote.
"An 18- to 30-month lag between property values and the collection year suggests that Denver's ongoing housing and commercial recovery will continue to support tax base growth through at least 2018," Moody's said.
The National Western expansion is part of much larger effort to improve the appeal of a timeworn industrial section of North Denver. Along with the Stock Show project, the Colorado Department of Transportation is working on a $1.8 billion redevelopment of about 12 miles of the Interstate 70 freeway that cuts through the National Western grounds. The Regional Transportation District is also building light rail stations in the area.
Along with the NWS complex, voters approved funding for expansion of the Colorado Convention Center downtown. City officials are also contemplating redevelopment of the Denver Center for the Performing Arts that adjoins the convention center.
To help finance the two projects, the city expects to raise $150 million to $200 million through land and asset sales, along with other measures.
The city will also seek $117 million under the state's Regional Tourism Act and is creating financial partnerships with Colorado State University and the National Western Stock Show.
The plan to create a year-round National Western Center on the 270-acre stock show grounds followed a tug-of-war with the suburb of Aurora to keep the stock show complex within the Denver city limits, where it has stood for more than a century.
The National Western Stock Show and its rodeo run for 16 days every January. The 2015 show drew more than 680,000 visitors.
The plan calls for cleaning up a mile of the South Platte River, restoring access to the riverfront and opening up 80 acres of parkland and open space.
Designers plan to build bridges and roads to connect the Globeville, Elyria and Swansea neighborhoods to the National Western Center and to new transit stations.