City considers bond issue for convention center
March 18, 2009
SOUTH LAKE TAHOE ” The developer of the stalled convention center project is asking the city to issue bonds to help pay off debt and avoid a Chapter 11 bankruptcy filing.
The City Council on Tuesday picked the bond proposal as its preferred alternative out of three options presented for dealing with the developer’s debt. The council voted 4-0 to work with Lake Tahoe Development Co. on the proposal.
Councilman Bruce Grego, who has jury duty this week, was absent.
Lake Tahoe Development is looking for a way to pay off debt from property acquisition and the first phase of construction of the state line project. That debt had an initial term of two to three years, and “was never intended to be long-term,” Randy Lane of Lake Tahoe Development Co. said in a letter last month.
The city-issued Mello-Roos bonds would raise about $22 million, which Lake Tahoe Development would use to pay off debt, according to a March 9 letter from Lane.
Neither the city or the redevelopment agency would be obligated to pay off the bonds in the event of a default, according to City Manager David Jinkens’ analysis of the proposal. A team of six consultants helped with the analysis. The bonds would be sold to “sophisticated investors” who understand the high risk, Jinkens said.
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After lien holders are paid off with proceeds from the bond sales, the number of parcels on the site would be reduced from 29 to five, and the city would obtain title to three of those, according to Lane’s letter.
If the bonds aren’t issued and lien holders are not paid, the developer would likely file for a Chapter 11 reorganization bankruptcy to prevent foreclosures on the property, Lane said.
“Should LTDC file for bankruptcy with the project site divided into 29 parcels, with 10 separate lien-holders, the bankruptcy process is likely to be long and complex,” the letter states.
Trying to reconsolidate the parcels so the project can move forward might be difficult, especially since the city’s power of eminent domain for the project area has expired, according to Jinkens’ analysis. Restoring eminent domain power would take nine to 12 months and City Council approval, said Redevelopment Director Gene Palazzo.
Avoiding or postponing bankruptcy would give Lake Tahoe Development more time to seek additional funding for the $420 million project, which would include hotel-condominiums and retail space in addition to the convention center.
Councilman Hal Cole, who made the motion to work with the developer on the bond proposal, said that consolidating ownership of the parcels would be at least a small step toward moving the project forward.
Consultants at the meeting acknowledged that if the developer defaults on repaying the bonds, the city’s credit rating could be tarnished, although by how much isn’t known. The city would issue the bonds under a Community Facilities District created for the project site.
Jinkens noted that unless the project’s hotel-condominium units are built and sold within two years, he does not know how Lake Tahoe Development would pay off the debt.
The parcels the city would gain ownership of include a strip of land encircling the site; a future greenbelt area through the site’s center; and the land where the convention center would sit.
Other options considered were not issuing the bonds, in which case it’s likely Lake Tahoe Development would file for Chapter 11 bankruptcy; or issuing the bonds after Chapter 11 is filed, as part of a court-monitored reorganization.
None of the alternatives is without risk, Jinkens noted.
The developers said they still do not have funding to continue construction of the approximately $420 million project.