By Catherine Dominguez STAFF WRITER
Jason Fochtman/Staff photographer The Conroe Local Government Corporation will use bond fund reserves to cover its first debt payment for the new $117 million Hyatt Regency Hotel and Convention Center.
*Originally posted on The Courier of Montgomery County. Read original article here.
The Conroe Local Government Corp. will use bond fund reserves to cover its first debt payment for the new $117 million Hyatt Regency Hotel and Convention Center.
The corporation, which the city created specifically to move forward with the hotel project, set aside part of its bond proceeds to help cover debt payment shortages. Originally, the council set aside $5.1 million in May to cover operating costs and potential debt payments. However, the corporation agreed Tuesday to use the bond reserves instead.
“It’s an indication of financial difficulties,” Deitz said. “The S&P report was pretty damming; this will just be adding to that.”
According to information provided by Collin Boothe, assistant city administrator and director of finance, the corporation’s first payment of $1.6 million is due April 1. The corporation will use $624,950 of its bond reserves to cover the shortage in funds.
Debt payments
With interest, the total debt on the $117 million hotel is about $142 million.
The action comes after S&P Global Ratings lowered the corporation’s credit rating on its first-lien and second-lien hotel revenue bonds to BB- and CCC+, citing concerns over the hotel’s low occupancy rates. Those ratings show the corporation depends on good business, financial and economic conditions if it is to repay the debt.
The third lien was not affected and will be repaid by the Conroe Industrial Development Corp.
According to the Feb. 28 report from S&P, the hotel has struggled to attract demand and its occupancy rate since opening in May has been much lower than forecasted. Its occupancy rate didn’t crack 30% from October to December. Analysts assumed the hotel would report around 54% occupancy and an average daily rate of $188.70 from May to September 2023. Instead, the Hyatt reported around 14% occupancy and $160.60 daily rate.
The report also states the corporation could default on the liens as early as October 2025.
Taxpayer-funded project
The hotel and convention center, which opened in May 2023, is the largest taxpayer-funded economic development project in the city. Due to missed economic projections, the project has been dogged by cost overruns and multimillion-dollar taxpayer bailouts.
The council continues to ask questions about what elected officials have called “wildly inaccurate” financial forecasts for the hotel.
“We are where we are,” said Councilman Harry Hardman. “I am very concerned.”
The city’s bond counsel, Marcus Deitz with Orrick, said while using the funds makes the payment, the action continues to be bad news for the city. Using those funds will require the corporation to make notice to the Securities and Exchange Commission.
“It’s an indication of financial difficulties,” Deitz said. “The S&P report was pretty damming; this will just be adding to that.”
