St. Louis Convention Center Revenues Fall Short of Owed Interest Payment

CHICAGO — Revenues generated by the St. Louis convention center hotel complex fell short of fully covering a $3.5 million interest payment owed Dec. 15 to holders of $98 million of senior-lien revenue bonds issued for the project, leaving the obligated group to cover $829,000. A revised consultants’ report also offers a gloomy prediction for the hotels’ future ability to cover debt service. The consultants now believe that if various upgrades are not made to the hotel complex, it won’t generate enough cash on its own to cover debt service until 2012. Consultants previously believed revenues were on pace to fully cover interest payments by next year and principal payments once they begin in 2010. The need for the obligated group to again subsidize some portion of the payment marked a reversal from earlier this year when for the first time hotel revenues fully covered a June 15 payment owed to investors. About $2.1 million of the December payment came from hotel revenues while reserves and the subsidy from the obligated group covered the remainder. The debt service reserve now holds just $100, according to a notice posted by bond trustee UMB Bank NA for bondholders. The notice notes that future help from the obligated group to cover payments is not assured. UMB expects to host a conference call next month to discuss the hotel complex’s finances, operations, and the updated management consultant’s report from C.H. Johnson Consulting Inc. released earlier this month. Housing Horizons LLC, a majority member of the obligated group, has covered in the form of loans to the obligated group shortfalls in the revenues on hand to make debt service payments in recent years with the exception of the payment owed last June. The St. Louis Industrial Development Authority issued the senior-lien revenue bonds in 2000 as part of a complex financing scheme to acquire and renovate the $266 million hotel complex to serve the city’s convention center. The 165-room Renaissance Suites opened in 2002 and the 918-room Renaissance Grand opened a year later. Marriott Corp. operates the hotels. The bonds initially garnered a low investment-grade rating from Moody’s Investors Service but have since fallen deep into junk-bond territory as hotel revenues failed to meet initial projections amid a convention slump following the 2001 terrorist attacks. Kimberly-Clark, an equity owner through its affiliate Housing Horizons, receives tax credits for its holdings that exceed its extra support for the project, but only through early next year. Hotel revenues had been on the upswing but the 65.1% occupancy rate for 2007 fell slightly below previous estimates, although the hotels are performing better than their competitors. The latest report stresses that the hotels’ larger problems are “structural” in nature. The hotel’s meeting and ballroom space are too small to attract larger convention business and it’s not undertaken upgrades like its competitors. “Despite the above-market performance, however, the hotels’ 2007 occupancy is almost 2% lower than the previous year. It is clear that this declining trend has to be reversed, by addressing the bigger issues,” the report reads. If no improvements are made, the report predicts the hotels won’t generate revenues sufficient to cover debt service until 2012. If additional ballroom and meeting space are added, revenues are projected to cover debt service by 2011 and if ballroom space is added and other renovations undertaken the hotel could generate sufficient revenues also in 2011. The projections don’t incorporate any additional debt to cover the cost of upgrades. Moody’s has noted that without the obligated group’s assistance, the options include either an equity investment or a bondholder approved debt restructuring. Without one or the other, a bankruptcy filing could be inevitable. Local businessman Steven Stogel has been working to attract private financing to restructure the outstanding bonds and local officials are working to increase convention center business and seeking funds to finance various improvements.