‘Big day’ – Bayland project bonds sold
August 26, 2021
Mayor Brandon Capetillo said it took about 20 years, but the City of Baytown has arrived at the point where it is taking a considerable step on the progress of the Bayland Island ho-tel/convention center project.
“It is a big day,” Capetillo said. “Festivities will be scheduled in the near future. We thank everyone that participated in this effort.”
Director of Finance Victor Brownlees said they sold the bonds for the project Wednesday morning. The project entails building a 208-room luxury hotel on Bayland Island using Hyatt Regency as the brand. A convention center will be adjacent to the hotel. The city decided to use sales tax revenue bonds as a funding mechanism for investors to pay for the project, which is about $63 million in total. The city is providing $21.1 million of the cost, while the rest of the $42 million is supposed to come from institutional investors.
The Municipal Development District met first to accept the terms of the bonds sale, as ex-plained by City Manager Rick Davis.
“There are two factors – cost and demand for the bonds,” Davis said. “We are very sure, based on what I’ve been told, there is an appetite for this type of bond. Brownlees and I have been meeting with potential institutional buyers of these bonds. They represent large pools of money, and they invest in projects like this. All of the meetings went really well.”
Brownlees described the bonds sale as “incredibly successful.”
“When (the city) started the process in 2018, we anticipated the cost of borrowing would be around 6%,” Brownlees said. “After today, they are shared over 3%. In the current market, that is remarkable.”
Brownlees said they outperformed their original projections and did slightly better than the City of Conroe, who recently went to market with a similar hotel project.
“This was a win for the City of Baytown today,” Brownlees said.
Chris Janning, Hilltop Securities managing director, told the MDD board to remember the figure 3.39%, saying it was well below the rate from feasibility studies conducted on the project.
“It makes the debt absolutely affordable in the eyes of the rating agencies and investors,” Janning said. “(Rick Davis’) point was right on – investors would not have bought these bonds if they did not believe this was a quality market and a quality project and it was the right thing to do in Baytown.”
Standard & Poor’s rated the project’s bonds, which are in an A, B, and C series. The bonds C Series’ rating of AA- was already received in early June. Series A received a BBB- rating, while Series B received a BB rating. A bond rating is a grade given to a bond that indicates its credit quality. The rating considers a bond issuer’s financial strength or its ability to pay a bond’s principal and interest. Higher-rated bonds carry a lower interest rate.
Janning said 3.39% is the true interest costs.
“They sold three series of bonds, and they all had a different credit rating,” Janning said. “But when you look at all of the cost combined, the real cost of the total funds was 3.39% fixed rate.”
Janning said now that the bonds are sold, and the purchase contracts are now approved with the city, in three weeks on Sept. 9, the transaction will close, and the city will receive funding for the project.
“It is a very good sign these bonds sold the way they did,” Janning said. “It is definitely a sign that there is tremendous interest in the project.”
David Dawson, an attorney with Winstead PC in Austin, congratulated the city on the bond sales.
“This is a big day for the city and the district,” Dawson said.
The MDD had to approve several documents, which Dawson described as purchase agreements, which he said city afterward would inform its purchasers that they “have a deal” before moving into the closing mode.
Dawson added the other documents the MDD approved are part of the surety bonds package for the issuance of bonds.
After the MDD meeting, the Baytown Hospitality Public Facilities Corporation met to approve a technical service agreement amendment related to the hotel/convention center project.
City Attorney Karen Horner said the amendment meant the Hospitality Public Facilities Corporation is no longer involved in the transaction.
“So, this removes it from the transaction,” Horner said.
Capetillo said from a financial standpoint, the bond sales were a complete success.
“To get to that point and have such a favorable interest rate is great,” Capetillo said. “These bonds sold faster than George Strait tickets.”
Davis also reiterated that Sept. 15 is still the date for a groundbreaking ceremony for the project on Bayland Island.
“It looks like we picked a great date,” he said.