At the LCCCA Finance Committee meeting held on Monday, January 26, 2009, it was announced that the authority during 2008 paid about $334,000 in interest above estimates due to market conditions and Wachovia’s financial troubles. Now that Wells Fargo has taken over Wachovia, the creditworthiness of the bond guarantees will no longer be as much of an issue.
(On the completed facility, all other things being equal, the added financial cost could approach a million dollars annually!)
The LCCCA’s 40 year construction bonds (with over 38 years remaining) are vulnerable to market uncertainties because the current interest rate is determined every seven days, paid monthly. The “interest rate swap” agreement with Wachovia/Wells Fargo only limits a portion of the risk to the LCCCA.
The Finance Committee heard a lengthy presentation by Tom Beckett of G.K. Baum & Company, the authority’s bond counselor, covering ways that the LCCCA could modify its bond agreements to limit the cost of interest to the authority under current conditions. Numerous pointed questions by LCCCA board members revealed that such alternatives would actually cost the authority more money when financial markets return to some semblance of normalcy. Mr. Beckett commented that interest rates on bond sales for other municipal projects are currently in the low double-digits, if money is available at all.
Mr. Beckett pointed out the LCCCA cannot receive a credit rating of its own until the convention center has been in operation for at least two years, with a proven track record of achieving its financial goals, and of the “hotel tax” meeting its income estimates. Once the LCCCA has been proven to be creditworthy, its board could consider refinancing its debt at more advantageous terms. When Mr. Beckett was reminded that the Wachovia/Wells Fargo guarantee expires in just over three years, he avoided a direct answer as to whether this would pressure the authority to refinance its construction bonds before that time.
The LCCCA Finance Committee was also informed that a “change order” procedure was being implemented in order to bring a degree of accountability for all “Fixtures, Furnishings, and Equipment” purchases, since quite a few of these items had to be modified due to availability issues.
