The issue now faced by the LCCCA is if Wells Fargo/Wachovia will renew their Letter of Credit when it expires at the end of March 2012. The LCCCA’s current plan is to continue paying its existing low interest rate; the problem is, without an independent guarantee the financing costs of the variable-rate construction bonds could escalate significantly.
Lenders today view municipal bonds with much more skepticism than they did a few years ago, in light of lower tax revenues and the revelation that many bond ratings were inflated. Without the bond guarantee, the LCCCA would be subject to the whims of the markets; with barely three years’ credit history when the Letter of Credit expires, the LCCCA’s variable-rate bonds would not be able to maintain their current low interest rate based on the operations of the downtown Lancaster convention center on its own.
To add fuel to the fire, the LCCCA has yet to make a single payment on the principal of its construction bonds; so far, only interest has been paid. Will convention center revenue, combined with “hotel tax” proceeds, be enough to pay for the operational costs of the convention center (along with the hotel’s meeting rooms, kitchen, and much of its lobby) plus principal and interest on its construction bonds? If not, the custodian of these bonds (M&T) could simply take the share of the “hotel tax” currently earmarked for the Pennsylvania Dutch Convention and Visitors Bureau. This would not look good for the LCCCA’s credit rating.
If Wells Fargo/Wachovia declines to renew the LCCCA’s Letter of Credit, which is a real possibility in today’s uncertain economic climate, the LCCCA could be forced to refinance its bonds on the open market. The “Interest Rate Swap” approved by a previous LCCCA board would then need to be broken, which could (at current rates) cost the LCCCA between $14 million and $16 million in termination and remarketing fees. This means that the LCCCA would be looking to borrow $80 million in a difficult market.
All of these possibilities have been mentioned publicly at various LCCCA board and committee meetings.
EDITOR’S NOTE: Both the Marriott Hotel and the Convention Center have greatly benefited from the current record low interest rates on their bonds.
One coud have predicted this from the outset….give it another year or two and the whole thing will go belly up. Lancaster county was doing fine as a small farming community, we are not competitors with Philadelphia and never will be.
People are happy to live here, and we have generations of Lancaster famiies who have remained here. A convention center was never needed. I will use the tried and true phrase “If it ain’t broke, don’t ‘fix’ it”!