CHICAGO - Holders of $98 million of senior-lien revenue bonds issued for a St. Louis convention center hotel complex are considering a forbearance agreement proposed by the complex's obligated group that would prevent any move to foreclose on the property until the end of next year to give the operators more time to boost revenues.
Bondholders received the forbearance proposal at a meeting in St. Louis earlier this week set up by bond trustee UMB Bank. It was requested by the project developer Historic Restoration Inc., and the hotel operator Marriott Corp. after their disclosure of an expected $1.4 million shortfall in hotel revenues available for a December debt service payment of $3.5 million.
The trustee could move to foreclose on the property following the debt service default on the Dec. 14 payment.
"This forbearance is requested in recognition of the fact that pursuing post-default remedies at this time is not in the best interest of the operations of the project, the Series A bondholders or the obligated group given current hotel market conditions and the general lack of liquidity in the commercial real estate market," the forbearance term sheet reads.
The forbearance would expire Dec. 31, 2009. Bondholders are expected to decide before Dec. 15.
The hotel operators said they expect the local lodging market to continue its downward trend for at least two years. A net profit is expected of just $1.4 million this year, down from $3.8 million last year, and $5 million in 2007. Officials said they have polled potential investors about a restructuring, but have not received much interest.
News of the looming shortfall and the forbearance proposal marked the latest turn in the hotel complex's ongoing struggles, and a first in that the obligated group has in the past stepped up to cover previous deficits in debt service payments.
"Neither the project owner nor any of their respective affiliates are prepared to fund such a shortfall," said A. Thomas Leonhard Jr., president of Historic Restoration Inc.
HRI earlier agreed to cover a $2.2 million shortfall in the last payment due in June as part of a deal struck for HRI to purchase the majority ownership in the project owned by Kimberly-Clark Corp. The outright transfer of ownership, however, was blocked by Marriott. However, HRI still took over $18 million in subordinate notes, taking control of the ownership group.
HRI currently acts as a managing member of the group - known as Gateway Hotel Partners LLC and Gateway Tower Partners LLC - but it was Kimberly-Clark, through its subsidiary Housing Horizons LLC, that originally held a majority stake of 85%.
Housing Horizons had previously covered the debt service shortfalls. Kimberly-Clark had significant incentive to subsidize the shortfalls as it received tax credits that exceeded its extra support for the project. Those credits ended this year.
HRI's commitment to fund the June shortfall provided just temporary salve for bondholder concerns amid rating agency warnings that it might be difficult for the project to avoid bankruptcy unless the debt was restructured or an infusion of capital was received.
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 at 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 have failed to meet projections after a convention slump following the 2001 terrorist attacks.