Tags: muni | bonds | convention business | collapses

Muni Bonds Face Reckoning After Convention Business Collapses

Muni Bonds Face Reckoning After Convention Business Collapses

Tuesday, 23 June 2020 12:19 PM

During any other summer, the 757-room Hilton Hotel in Baltimore’s Inner Harbor would be buzzing with visitors trickling in from the sprawling convention center nearby that draws hundreds of thousands of people each year.

But with that business shut down by the pandemic, the city-owned hotel has been closed since April as guests all but disappeared. With that also vanished a big chunk of revenue that is used to cover payments on $265 million of junk-rated debt that Baltimore took on to build the hotel more than a decade ago.

The coronavirus is creating unprecedented risks for local governments and the owners of more than $9 billion of bonds that were sold for convention centers as well as nearby hotels. The once-booming business is now associated with so-called superspreader events that Americans are largely being urged to avoid.

Since March, at least a half-dozen agencies that sold debt for such projects have drawn down savings to pay bondholders or have seen their credit ratings cut, sometimes by multiple levels. That marks an early sign of the financial distress that’s likely to build as a surge in Covid-19 cases in several states threatens to keep events on hold.

“We’re all experiencing a complete collapse of the convention and trade show and group event business,” said Don Brown, the executive director of the Franklin County Convention Facilities Authority in Columbus, Ohio, which had to draw on reserves to cover its debt payments as hotel-tax revenue tumbles.

The mounting financial strains bely the relative calm in the $3.9 trillion municipal market, where prices of state and city bonds have rallied back to where they were before the pandemic arrived in the U.S. amid optimism that the economy will recover as businesses reopen and workers return to the job.

But how soon -- and how strongly -- the convention industry will recover is far from certain, even as tourist centers like Las Vegas reopen.

The risks to bondholders and cities has been exaggerated by the broader collapse of the travel industry, since many convention center bonds are backed by hotel-tax collections. With businesses likely to cut back on corporate travel and the recession scuttling vacation plans, consulting firm HVS in April said revenue per available room -- a key measure of the hotel industry -- may not bounce back to 2019 levels until 2024, even under a best-case scenario.

“It’s a guessing game,” said Thomas Hazinski, a managing director at HVS.

At least 439 exhibitions and events have been canceled this year and 230 postponed until later this year, said Cathy Breden, chief operating officer of the International Association of Exhibitions and Events.

Among them was South by Southwest, the popular technology and entertainment industry event in Austin, Texas, that was supposed to be held in March. Austin Convention Enterprises Inc., which issued bonds for the city’s convention-center hotel, said in a regulatory filing last week that it had to make an unplanned draw of about $353,000 from a surplus revenue fund to cover a July payment on junk-rated subordinate bonds.

The Franklin County agency is expecting the lodging tax collections that it receives to fall to about $12 million this year from $25 million the prior year. That will leave the agency with about $7 million less than it needs to cover its convention debt payments, said Brown, the executive director.

While the city and county governments also guaranty the debt and Brown said the agency has enough money in reserve to cover the gap, investors appear skittish. The price of some of its convention-center bonds slipped to about 113 cents on the dollar when they last traded mid-June, down from as high as 119.6 cents on the dollar in February. Convention-center hotel bonds issued by the agency, rated just one notch above junk, have seen prices drop more significantly.

For conventions and large events, it may take until next spring for people to feel confident attending large group gatherings again, Brown said. “We’ll come out of this strong,” he said.

Several other convention centers are running through cash. A Vancouver, Washington, agency that issued bonds for a hotel and meeting center said this month in a filing that it would use reserves to cover part of a bond payment due in July because of the drop in lodging-tax revenue, even though there are signs that the industry is starting to revive.

Ratings companies have already downgraded some convention-center debt and warned that more cuts could come. Debt issued for a convention center in Seattle was downgraded four notches by S&P Global Ratings this month to BBB+, just two years after the state agency sold $1 billion in municipal bonds.

Even with Illinois moving toward its final stages of reopening, Chicago’s McCormick Place faces restrictions on large exhibitions under reopening plans. A manufacturing technology event set to attract over 129,000 attendees in September was canceled. The event website notes local reopening guidelines for conventions saying there must be a highly effective treatment or vaccine for Covid-19, “neither of which are expected to occur in the coming months.”

The revenue from those events, while not only luring tourists to hotels and restaurants, typically supports the complexes’ operating budgets. Convention center staff in San Antonio, Texas, and Jefferson County, Alabama, have faced furloughs as cities and local agencies try to cut costs.

In Baltimore, the trustee for the city’s hotel corporation’s bondholders has hired a law firm, according to a regulatory filing, indicating a potential legal fight ahead. Colin Tarbert, the chair of the corporation, declined to comment.

The hotel has been closed since April, when the pandemic left it nearly emptied of guests. Its website says it’s not taking reservations.

For now, the convention center is being used for a different purpose: a testing site for Covid-19.

© Copyright 2021 Bloomberg News. All rights reserved.

During any other summer, the 757-room Hilton Hotel in Baltimore's Inner Harbor would be buzzing with visitors trickling in from the sprawling convention center nearby that draws hundreds of thousands of people each year.
muni, bonds, convention business, collapses
Tuesday, 23 June 2020 12:19 PM
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