Council will make a final decision at its Sept. 9 council meeting.
The 200-room Marietta Conference Center and Resort on Powder Springs Street opened in 1996 with an original bond debt of about $26 million. The facility, which currently has a bond indebtedness of about $30 million, is technically owned by the Downtown Marietta Development Authority, which issued the bonds and leases it to the city. In 2004, after struggling with myriad problems - including paying $4.3 million in '03 to buy out the contract and cover the losses of embattled former operator Sentry Hospitality - the city leased the facility to Dallas-based Remington, which has the contract through 2028. Remington subsequently brought in the Hilton hotel chain last year, and it was renamed the Hilton Atlanta/Marietta Conference Center.
The bond debt - which also included a $7 million renovation to secure the affiliation with Hilton - rose to $36.1 million but is now down to $29.4 million, according to Gordon Mortin of Morgan Keegan, the city's bond advisor.
If the council approves the recommendation from Morgan Keegan, it could raise the debt to a maximum of $35.5 million, Mortin said. The fixed-rate restructuring plan will include other capital improvements and save the city $300,000 through lower annual interest rates, Mortin said.
Mortin said the restructuring proposal was precipitated by the current banking crisis, which increased interest rates on the bonds.
The existing contract calls for Remington to make fixed lease payments to the city, which the city in turn uses to pay off the bond debt to spare any cost to the taxpayers. That arrangement with Remington worked fine until February when interest rates spiked. Remington's lease payments no longer covered the city's bond payments, resulting in an annual shortfall of $300,000, which had to come out of the city's general fund, Mortin said.
In response to the shortfall, the city's financial director, Sam Lady, apparently in secret and without a City Council vote, according to city attorney Doug Haynie, bought all $30 million of the bonds owed for the Conference Center, paying for them with the city's reserve - as well as the reserve of the city's Board of Lights and Water (BLW).
Mortin said the motive was to temporarily take the bonds off the market to circumvent the turmoil rocking the financial system, and then place them back on the market when Wall Street settled down. Since that hasn't happened, the city wants to pay off the bonds, but to do so would drain the city's and BLW's reserves, he said.
Since the city and BLW have a number of capital improvement projects over the next two years that will cost $35 million, Mortin is advising the city to have the DMDA issue $35.5 million in revenue bonds to pay for those construction projects through an "Intergovernmental Agreement" between the city, DMDA and BLW.
The city can then pay off the Conference Center bonds and use the lease payments from Remington to pay off the new DMDA bonds, he said.
Despite the gap in funding with the city not taking in enough money from Remington to pay off its bond, Mortin and Haynie said Remington has never missed a lease payment.
Unlike general obligation bonds, which are typically approved by voters through a referendum, the DMDA would issue revenue bonds using the intergovernmental agreement.
Serving as the bond attorney is Earle Taylor of Atlanta-based law firm McKenna Long & Aldridge. Taylor assisted in the controversial Kennesaw PILOT bond subsidy which Cobb Board of Commissioners Chairman Sam Olens has blasted as unconscionable.
Mortin, as bond underwriter, and Taylor, as bond counsel, are expected to receive a total fee of one percent or about $350,000 to reissue the new bonds, Mortin said.