AUSTIN, Texas--(BUSINESS WIRE)--As part of its ongoing surveillance efforts, Fitch Ratings affirms its ratings on the following San Antonio, TX bonds:
--$10.4 million hotel occupancy tax (HOT) subordinate lien revenue & refunding, series 2004A, at 'A+';
--$71.1 million HOT subordinate lien revenue refunding bonds, series 2006, at 'A+';
--$129.5 million HOT subordinate lien variable rate demand revenue and refunding bonds, series 2008, at 'A+'.
In addition, the rating on $18.1 million HOT revenue bonds (Henry B. Gonzalez Convention Center Expansion Project), series 1996, have been revised to 'AA-' from 'A+' in conjunction with the recalibration of local tax-supported credits effective April 30, 2010. These ratings are now also being affirmed, at 'AA-'.
Fitch initially announced plans for recalibration in the 'Recalibration of U.S. Public Finance Ratings' special report, which was published on March 25, 2010. That report, along with special reports outlining summary and detailed information on other U.S. local tax-supported recalibrated ratings, is available at 'www.fitchratings.com'."
The Rating Outlook is Stable.
RATING RATIONALE:
--The city's sizeable and growing HOTs provide ample debt service coverage of both senior and subordinate lien bonds.
--The city's HOT base has grown steadily to 43,300 hotel rooms although average daily room rates and occupancy levels remain depressed after declining notably in 2009. Accordingly, HOT revenues declined markedly during that period but year-to-date trends show moderate improvement.
--Local HOT revenues benefit from the city's large convention and visitor industry which markets to both regional and national audiences.
--In practice, 2% expansion HOT revenues are used for payment of both senior lien and subordinate lien debt service as the pledged 7% HOT revenues are used to support convention center and visitor bureau operations.
RATING DRIVERS:
--The stabilization of pledged revenues and continued solid debt service coverage is key to preserving credit quality.
--A sustained downturn in the city's 2% expansion HOT receipts may require utilization of the pledged 7% general HOT revenues, resulting in operating pressures for the city's convention center and visitor's bureau.
SECURITY:
The HOT bonds are payable from pledged revenues consisting of a senior lien on the 7% general HOT and a subordinate lien on the 2% expansion HOT. The subordinate lien HOT bonds are payable from a subordinate lien on the revenues of the 7% HOT, plus a subordinate lien on the earnings on the investment of the HOT fund, the debt service fund, and the debt service reserve fund. The subordinate lien HOT bonds have no legal claim on the 2% expansion HOT.
CREDIT SUMMARY:
San Antonio is a leading visitor destination in the Texas market and an active participant in the regional and national convention industry. The convention and visitor industry is the second largest employment sector in the local economy. With several tourist attractions, San Antonio was a destination for over 25 million visitors in 2009; about 5 million of the visitors were business travelers. In fiscal year (FY) 2010, the convention center booked 608 conventions for nearly 675,000 delegates, who are projected to generate direct spending of an estimated $801 million. Conventions held in other facilities, primarily hotels, add to these figures. Hotel occupancy rate and average daily room rate did decline notably to 56% and $95.51, respectively, in 2009 due to the economic slowdown. The occupancy rate increased modestly to 58% in 2010 for the city's inventory of over 43,300 rooms while the average daily room rate stayed flat. Hotel room inventory has risen notably, growing 7.3% annually on average from 2006-2010.
HOT revenue generation benefits from tourist attractions and the convention and visitors bureau's aggressive marketing program. However, the recessionary impact to HOT receipts was significant, resulting in a 14.1% decline in fiscal 2009. HOT growth in fiscal 2010 was modest although year-to-date results for the first three months of fiscal 2011 are up 4.9%, suggesting some stabilization. The city collects a 7% general HOT and a 2% expansion HOT, which is dedicated to the improvement of the convention center, including debt service payments.
Coverage of maximum annual debt service (MADS) on the closed senior lien HOT bonds by fiscal 2010 pledged revenues (7% general HOT and 2% expansion HOT) is high at 7.3 times (x). MADS coverage of both senior and subordinate lien HOT bonds also remains ample at 3.1x. Although the 2% expansion HOT is pledged only to the senior lien HOT bonds, it's the city's practice to support both liens entirely by this revenue stream. Despite the recent large HOT revenue drop, the 2% expansion HOT revenues remain sufficient to support both liens and are projected to provide at least sum sufficient coverage on both liens through 2020 based on flat growth. The remaining general 7% HOT revenues are resources for the city's Community and Visitor Facility Fund, which includes the operations of convention facilities, the convention and visitors' bureau, Alamodome, international affairs, cultural affairs, outside arts agencies, and other convention/tourist-related activities.
The convention center expansion and renovation completed in 2001 was the facility's third expansion. To provide the necessary rooms to serve the expanded convention center, the San Antonio Convention Center Hotel Finance Corporation issued $208 million in contract revenue bonds in 2005 to construct a 1,000-room convention center headquarters hotel adjacent to the facility. The corporation entered into a hotel management agreement with the Hyatt Corporation which operates the hotel as the Grand Hyatt Convention Center Hotel. As authorized by the 2004 amendment to the city's HOT ordinance, the city is providing credit support to the hotel financing in the form of a senior lien pledge (if needed) of the city's 2% expansion HOT. This lien on the 2% expansion HOT is senior to the lien pledged to the hotel occupancy bonds. Given its position at the end of four other revenue pledges, the 2% expansion HOT pledge is not expected to be utilized unless the Grand Hyatt's occupancy rate declines to 40%, about two-thirds of the hotel's recent occupancy rate trend.
San Antonio is the second largest city in the state and seventh largest in the U.S., according to census information, with an estimated population of 1.4 million for 2010. Prominent sectors in the local economy are military and government employment, domestic and international trade, convention and tourism, medical and health care, financial services, and telecommunications. The economic slowdown has impacted local employment levels as evidenced by a growing unemployment rate that totaled 6.9% in December 2010, up from the 6.6% level recorded in December 2009. Nevertheless, the city's unemployment rate still compares favorably to state and national averages of 8% and 9.1%, respectively, for the same period. Major near-term job growth is expected from projects totaling $3.1 billion at Fort Sam Houston and Lackland Air Force Base, which will bring 12,000 additional personnel to the city. As such, the demand for housing is expected to reduce the city's large inventory of existing homes for sale and fuel new construction as well.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., and IHS Global Insight.
Applicable Criteria and Related Research
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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