Banking on a return to normal, Denver will offer investors $274 million of revenue bonds for its National Western Stock Show complex and its downtown convention center.
The tax-exempt bonds, expected to price the last week of March, will be backed by hotel tax revenues that fell sharply during the pandemic.
“Issuing the remaining bond funds this spring will take advantage of favorable market conditions, minimize market and financial risks, and ultimately lock in a low, fixed cost of funds for the programs,” according to a city
With the downtown convention center and north Denver’s National Western Center on ice, the dedicated tax bonds took a one-notch downgrade to AA-minus from Fitch Ratings last week; the outlook at the lower rating is stable, up from negative.
A nearly 58% decline in dedicated tax collections in 2020 exceeded the stress test Fitch used to project the loss of tourism-based revenues due to the pandemic, Fitch analyst Jose Acosta wrote.
“The revision of the outlook to stable from negative reflects Fitch's expectation that pledged revenues will recover in the medium term to its historical pace above U.S. GDP,” Acosta said.
Fitch’s lowered rating matches that of S&P Global Ratings, which affirmed its AA-minus rating and negative outlook Friday.
"Although we don't view it as likely, we could also lower the rating if key economic metrics deteriorate, resulting in a change in our view of the local economy," said S&P analyst Jane Ridley.
Last year’s pledged tax collections are projected to have fallen to $69.5 million from $158.3 million in 2019, the first decline since 2009. Year-over-year revenue collections were down 80% in June 2020, and had been improving each month until falling again in December.
“Despite some signs of improvement, the city expects it could be 2024 before revenue and coverage improve to pre-pandemic levels,” S&P said.
Moody’s Investors Service affirmed its Aa3 rating on the bonds and stable outlook.
The bonds will provide $175.8 million for the National Western Center and $98 million for the Colorado Convention Center, Denver finance officials said.
As a result of the pandemic that shut down events one year ago, Denver has abandoned a public-private financial model for the National Western Center. The city had planned to find a private partner to design, build, finance, operate and maintain future phases of the National Western Center campus.
The city said it will look for alternatives to finish building out 60 acres at the National Western Center campus that is bisected by Interstate 70.
As work on the center progresses, the state is in the process of eliminating a viaduct that has overshadowed the campus for decades. The $1.3 billion public-private project known Central 70 will redevelop 10 miles of elevated freeway through neighborhoods that have historically served industrial businesses such as smelters and refineries.
Plans call for a ground-level overpass park that will allow pedestrians to cross from the south side of the National Western campus to the north without having to brave traffic on freeway access roads.
Amid all the construction in the Globeville, Elyria and Swansea neighborhoods, some residents are complaining about noise and dust, along with fears of incipient gentrification.
The arrival of the pandemic as the north Denver projects were underway added to the economic burdens for residents of the low-income neighborhoods.
To offset the complaints, Denver Mayor Michael Hancock has touted the economic development aspects of the National Western project.
“As we transition from rescue to recovery, it is critical that we maintain strong investments in public infrastructure and projects approved by Denver voters,” Hancock said in February. “These investments create good-paying jobs and economic opportunities for thousands of residents and businesses that have been burdened by the COVID-19 pandemic.”
President Biden’s $1.9 trillion stimulus program signed into law last week is expected to benefit the hotel and travel industries, particularly with a rapid acceleration of vaccinations against the COVID-19 virus that crippled live entertainment events such as the National Western Stock Show and Rodeo. The annual event is scheduled to return in January 2022 after the pandemic canceled this year's event.
In addition to the federal stimulus, the Colorado General Assembly is working on a $700 million state stimulus that would increase support for hotels and provide up to $10 million for the National Western Center.
The upcoming bond deal is the last in a series of three and will finance two phases of redevelopment, including the Stock Yards Event Center and the Livestock and Equestrian Centers, along with improvements to the city’s downtown convention center.
Through Proposition 2C on 2015 ballots, Denver voters approved the issuance of bonds or other obligations in an amount not to exceed $778 million, and an indefinite extension of a 1.75% tourism tax on hotel rooms and rental cars that was originally due to sunset in 2023. The revenues from these taxes, combined with other portions of the city’s lodgers, short term auto rental, and food and beverage taxes support the debt.
Denver has issued $589 million on par with the upcoming issue, per Moody’s.
With an overall price tag of $1 billion the National Western redevelopment includes private donations.
The state also contributed $132 million in the form of certificates of participation in 2018, three years after Denver voters approved the project.
Work on the Colorado Convention Center downtown is expected to begin in June with the addition of an 80,000 square-foot ballroom on top of the facility. Completion is expected in 2023.
Canceled conventions and related businesses in 2020 represented an $800 million economic blow, according to officials at Visit Denver. Before the pandemic, Visit Denver expected 450,000 people to arrive last year.
The bonds for the National Western Center and convention center will be priced through negotiation with Morgan Stanley as book runner. Hilltop Securities is financial advisor with Butler Snow as bond counsel.
