Convention center’s closure for expansion could trigger bond default

The city may not move forward with the next steps in the Austin Convention Center expansion until an agreement is reached with current holders to rework some terms of roughly $163 million in hotel bonds.

A memo discussed at Monday’s meeting of the Tourism Commission outlines why the request for qualifications for vendors on the expansion has been put on hold – because staff and the Austin Convention Center Enterprises public facilities corporation are working to “pursue a resolution to an ‘event of default’ clause contained in ACE’s Hilton Austin Hotel bond indentures that is anticipated to be triggered by the temporary closure of the convention center during construction.”

The clause is triggered if the convention center is closed or repurposed. However, it is possible that redevelopment plans will include an option to be built in phases, which would allow the convention center to remain open.

The bond terms, which were amended in 2017, outline 19 events that would constitute a default, including “if the city closes the facilities currently constituting the Austin Convention Center or changes the use of such facilities to a use other than as the city’s convention center and a hotel consultant forecasts that such closure or change will have a material adverse effect on the gross operating revenues.”

No staffers were on hand to answer questions from the commission, but there should be discussion and a possible recommendation for action related to the expansion at today’s meeting of the Downtown Commission.

Jimmy Flannigan, ACE president, told the Austin Monitor that representatives from bond trustee U.S. Bank are in talks with city staffers and convention center stakeholders to work out the financial forecast for the expected four-year closure while the facility undergoes more than $1 billion in reconstruction.

“The bondholders are looking at what it would take to waive that provision and what considerations there would need to be, since there would be more risk involved,” he said. “It’s not a simple process, but it is moving.”

Flannigan met individually with City Council members in December to update them on the issue.

The Tourism Commission approved a resolution asking city staff to attend its March 21 meeting to provide a full update on the expansion progress, including the latest details on budgets and financing plans.

During discussion on the expansion, Downtown Commissioner Laura Templeton gave an update on her working group’s stance on the project, which she said needs to be reconsidered based on slowing convention business trends prior to the Covid-19 pandemic as well as the potential for a long, slow recovery after the pandemic.

“We all agree that the convention center probably needs updating, but their proposed expansion is going to cost $1.3 billion, and that doesn’t include operational costs and interest. I just don’t see where that’s a good idea,” she said. “We will probably have a resolution at our meeting that asks the city convention center staff to go back to the drawing board and maybe study for two more years how the convention center is going to be reconstructed.”

Tourism Commissioner Kenneth Smith said financial models for the local hotel industry and hotel tax revenues should treat this year and next as highly unpredictable and make no assumptions on how many room nights take place until 2024.

Nobody knows what’s going on over the next two years … everyone has a lot of conjecture and 2024 is kind of the goal that they’re looking at. But whether it happens or not, no one knows what is going to happen with Covid next month, so who knows what’s going to happen by 2024?”’

Also at issue was whether the Tourism Commission will continue or be dissolved, a possibility that arose since it hadn’t achieved quorum since last May. While discussing meeting dates going forward – including trying to amend the rules to switch to meeting every other month – John Riedie noted that Council’s Audit and Finance Committee has an item on its Feb. 23 agenda regarding whether to dissolve the commission.

Awaiting that decision, commissioners opted to schedule a March 21 meeting.

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This story has been changed since publication. The $163 million debt is for the hotel, not the convention center, as was originally reported. That hotel debt is paid for with hotel revenue. 

Posted In: Austin, District 9