CHICAGO -- Moody's Investors Service downgraded the Omaha Convention Hotel Corp. to A1 from Aa3 and revised its outlook to negative, warning that the city may need to step in to cover rising debt payments.

The downgrade affects $144 million of outstanding bonds.

Debt service on the bonds is covered by the Hilton hotel's revenues, according to Moody's. But the city ultimately secures the bonds with a pledge to annually appropriate revenue to cover payments if hotel revenue falls short.

The downgrade reflects the hotel's "historically narrow net revenues" that have led to weak coverage on the bonds, Moody's said. The Hilton is located in downtown Omaha. It opened in 2004 next to the Qwest Center Omaha. The city owns the building and the Hilton manages it.

Moody's rates Omaha Aa1, but has a negative outlook on the city, in part due to a large unfunded pension liability. The newly revised negative outlook on the hotel debt reflects the city's outlook, analysts said in the downgrade report.

"The revision of the outlook to negative reflects the current outlook of the city of Omaha, which incorporates continued pressures posed by the magnitude of Omaha's unfunded pension liability, both nominally and as a percentage of operating revenues; the habitual underfunding of the pension plans' actuarially determined annual required contributions (ARC); and the limited ability or willingness to reduce pension costs or raise revenues to cover pension costs," analysts wrote. "The outlook also considers recent efforts undertaken by city management to moderate the liability over the long-term and the possibility that further changes could measurably reduce the pension burden."

The city lost its prized triple-A ratings from Standard & Poor's last September due to the pension obligation. The unfunded pension liability totaled $799 million in fiscal 2012, up from $742 million in 2011.

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