DALLAS — The triple-A rated Dallas suburb of Irving will spend $200,000 to obtain separate ratings on a potential bond issue for a $210 million entertainment center backed by public and private funds.
After a three-hour debate on Friday, the Irving City Council authorized financial advisor First Southwest Co. to negotiate for two ratings, even though the council has not committed to the project.
First Southwest indicated that the city would not be able to issue the $170 million of bonds it needs to build the project without support from the general fund.
The city plans to partner with private investors known as the Las Colinas Group to build the entertainment center as phase two of the $133 million convention center that opened in 2010.
When planning for the entertainment center began several years ago, bond insurance was readily available. Since then, investor appetite for more risky muni bonds has waned as cities have been forced to tighten their fiscal belts.
While Irving retains triple-A ratings on its general obligation debt, Moody’s Investors Service last year placed the city on negative outlook in advance of a $33 million sale.
“The outlook reflects a weakening of the fundamentals in the city’s economy, as well as an already limited financial position, given the city’s high rating,” Moody’s analyst Adebola Kushimo wrote on March 3, 2011.
“The inability to manage expenditures, and ultimately improve reserve levels, may result in downward rating action,” according to Kushimo.
On May 9, Standard & Poor’s lowered its long-term rating on the city’s miscellaneous tax debt to BBB-plus from A-minus in advance of a refunding of hotel occupancy tax bonds.
“The lowered rating reflects our view of the fundamental shift in legal requirements that eliminated the requirement for an additional bonds test at a historical 1.25x maximum additional debt service and a debt service reserve funded at 10% of the original principal amount of the bonds,” said Standard & Poor’s credit analyst Sarah Smaardyk.
“The rating would be further pressured if the city were to issue additional debt, weakening debt service coverage,” according to Smaardyk.
The proposed 300,000-square-foot entertainment center is expected to include a 6,000-person capacity arena with 50 suites overlooking the stage.
Ten themed restaurants are also anticipated, as well as numerous retail shopping options.
A privately developed headquarters hotel adjacent to the convention center would add 350 to 450 rooms and 15,000 square feet of meeting space.
Irving, which has a population of 213,700, is seeking to take advantage of its proximity to Dallas-Fort Worth International Airport and the Dallas Area Rapid Transit light-rail Orange Line that is currently under construction near the convention center.
The convention center anchors a mixed-use development known as Las Colinas that is home to several Fortune 500 companies.