Baltimore Convention Center Headquarters Hotel

$300,940,000
Mayor and City Council of Baltimore

$300,940,000
Mayor and City Council of Baltimore
Hotel Revenue Bonds
Senior Series 2006A & Series 2006 B

Led by Mr. Swerdling, Piper Jaffray was the lead-senior managing underwriter on the Mayor and City Council of Baltimore Convention Center Hotel Revenue Bonds Senior Series 2006A and the sole-managing underwriter on the Subordinate Series 2006B. Both financings closed in February 2006. The bonds funded construction of a 756-room full service, convention center hotel with 62,000 net square feet of meeting space and a parking garage with 570 spaces.

Mr. Swerdling worked closely with the City, its financial advisor and the rating agencies to develop a capital structure which sought to balance the City’s goals of attaining the lowest cost of capital by securing the ratings required for a “AAA” bond insurance policy while at the same time minimizing the impact of the City’s financial participation on its general fund. The final structure included $247.5 million in “AAA” insured senior lien bonds (insured by XL Capital Assurance Corporation) and $53.44 million in subordinate lien bonds.

The subordinate lien bonds were uninsured and rated “Ba1/BB” and were included in the capital structure to reduce the amount of senior debt per hotel room, one of the two major concerns of the ratings agencies. Because the subordinate bonds were not investment grade Bob Swerdling prepared and made an investor presentation to potential investors and fielded analyst questions prior to the bond sale. The subordinate lien bonds were so well received in the marketplace that the all-in-cost (which includes the cost of bond insurance on the senior lien bonds) was only 35 basis points (.35%) higher than that of the senior lien bonds.

Through negotiations led by Mr. Swerdling, Piper Jaffray was also able to further reduce the par amount of the senior debt with the bond insurer to provide a debt service reserve fund surety for one half of the debt service reserve fund requirement.

The rating agencies other major concern was the hotel’s ability to fund senior debt service obligations during the hotel’s initial operating years or during the “ramp-up” period in the unlikely event of a major market occurrence or shock. This concern was alleviated by negotiating with the hotel operator, Hilton Hotel’s Corporation, to provide a $25.0 million debt service guaranty (which, if required to be called upon, would fund more than one year of senior debt service).

Both series of current interest bonds were secured by the hotel’s net income, an annual pledge (subject to appropriation) of the Hotel’s property taxes, the prior year’s site specific Hotel Occupancy Tax and debt service guarantee from city-wide Hotel Occupancy Tax (up to $7 million annually).