The city of San Antonio expects to pay $13.4 million of debt service on convention center hotel bonds after revenues from the Grand Hyatt fell short.
“The economic impacts of the COVID-19 pandemic are unprecedented, and for the first time, the city will use previously pledged Hotel Occupancy Tax revenues to cover the debt service payments on the Grand Hyatt convention center hotel,” San Antonio Chief Financial Officer Ben Gorzell told The Bond Buyer via email.
“We are able to do that as a result of the budget cuts and other financial actions taken last spring to balance HOT-funded programs, and the city will eventually be reimbursed.”
On Aug. 25, S&P Global Ratings downgraded the Series 2005 A and B bonds to BBB-plus from A. The outlook remained negative. That followed use of the HOT taxes to make up for a shortfall of hotel revenues in July.
The city issued $208 million of taxable revenue bonds through the San Antonio Convention Center Hotel Finance Corp. to build the hotel on the downtown Riverwalk with a connection to the convention center.
About $173 million remains outstanding on the bonds that reach final maturity in 2039. The hotel, one of the largest in the city, opened in 2008.
The hotel is owned by Hotel Investments L.P. (HILP), which hired the Hyatt Corp. to manage and operate the hotel. Hyatt Corp. bought out Marathon Asset Management’s interest in the hotel in 2013 for about $70 million. The bond covenant calls for the city to use its HOT revenue to pay debt service if hotel revenues prove insufficient.
In 2016, Moody’s Investors Service upgraded the bonds to A3 from Baa2 based on stronger citywide hotel occupancy tax revenues. Moody’s has not changed the rating since then.
In the city’s previous fiscal year, which ended Sept. 30, the visitors' tax brought in an estimated $53 million, down $40.1 million from the year before.
Across San Antonio, hotels’ average occupancy rate was 41.6% in the third quarter, according to Source Strategies, a consulting firm cited by The San Antonio Express-News.
That was down more than half from the same period in 2019.
Under the financial structure, the city pledged its 2% HOT collected from all hotels within the city and its 7% HOT collected solely from the Convention Center Hotel.
If the city’s pledged HOT revenues are used toward debt service, that amount becomes an obligation to be paid back to the city. Any amount owed would be repaid over time based on the process outlined in the bond documents, or at one time in conjunction with a sale of the hotel.
Before the pandemic, debt service obligations were met by the hotel and no city pledged HOT revenues had been used for debt service.
With the impact of COVID-19, a portion of the city’s pledged HOT revenues were used to make up a shortfall on the debt service payment for the first time on July 15. About $338,000 of HOT revenue were applied toward the hotel’s $8.9 million July 2020 debt service payment.
“In our projections for the city’s HOT fund, it has been assumed that city’s HOT pledged revenues will be used toward the hotel’s debt service payments on Jan.15, 2021, and July 15, 2021, in the amounts of $4,355,196 and $9,100,196 respectively,” the city said. “The actual amount of the city’s HOT pledged revenues will be based on conditions present at that time."
"Projecting the impact of COVID-19 is difficult and we continue to monitor and refine our projections based on the latest information.”
