CHICAGO — The St. Louis convention center hotel complex will continue to struggle financially for the first half of the year, according to the hotels’ general manager — raising questions over the project’s ability to generate enough revenue to cover debt service payments owed on $98 million of senior-lien revenue bonds.

The hotels are expected to generate cash flow of about $5.6 million for the full year, according to Robert Bray, general manager of the hotels run by Marriott Corp., who participated on a conference call hosted by the bond trustee for bondholders last week.

The next interest-only debt service payment is for $3.5 million, due June 15. Another one is due in December. Just $100 remains in reserve accounts to help cover payments. The hotels finished off the year with an occupancy rate of 64.8% compared to 65.4% in 2006 and projections last spring of 66%. An occupancy rate of 64.6% is expected this year.

Hotel revenues fell about $829,000 short of covering the $3.5 million payment owed last December, but the obligated group covered the shortfall. Bondholders have been warned, however, not to come to expect the obligated group to make up future shortages, UMB Bank NA reports on the Web site it has set up for bondholders.

Local businessman Steve Stogel, who has been working to attract private financing to restructure the bonds, reported on the call that he hoped to “deliver” a plan to bondholders within the next 30 days that would address the hotels’ short and long-term cash flow needs.

The latest consultants’ report has offered a gloomy prediction for the hotels’ future ability to cover debt service, warning that if various upgrades, such as increased ballroom space, are not made to the 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. A city official on the call said no plans are currently being considered to provide funding for additional ballroom space.

Housing Horizons LLC, a majority member of the obligated group, has covered — with loans to the obligated group — shortfalls in the revenues on hand to make debt service payments in recent years, with the exception of a 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.

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 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 this year.

Moody’s has noted that absent the obligated group’s assistance, the hotels need an equity investment or a bondholder approved debt restructuring. Without one or the other, a bankruptcy filing could be inevitable.


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