Council approves resolution to move variable rate bonds

Springfield City Council is switching the bank backing the variable rate revenue bonds issued through its Land Clearance Redevelopment Authority to Bank of Kansas City from Bank of America starting in fiscal 2012, which begins July 1.

The move will cost JQH Hotels Inc., which funded improvements to its University Plaza Hotel and Convention Center through the LCRA-issued bonds, approximately $85,000 per year, according to Mary Mannix Decker, director of the city’s finance department.

Decker said Bank of America notified city officials that it would not be in the running to purchase the bonds should bondholders want to sell. The bonds were issued to fund improvements made in 2003 to the downtown hotel and convention center, and Bank of America’s Standby Purchase Agreement ends July 1.

Decker equated the arrangement between the LCRA and JQH Hotels with a cosignment.

“We’re essentially lending our credit to back the bonds,” Decker said, adding that Hammons Hotels is responsible for all bond payments.

Decker said the Bank of Kansas City was the only entity to step forward with an offer after proposal requests were issued March 28.

“Bank of America said it would not be rebidding. There just aren’t as many banks willing to back these types of bonds as there were three or four years ago,” Decker said.

Council unanimously approved the resolution that cemented the terms of the agreement, which includes an upfront fee of .125 percent of the principle and a jump in its annual interest rate to 1.7 percent from .025 percent under the backing agreement. The Bank of Kansas City, a subsidiary of the Bank of Oklahoma, has agreed to back the $5.6 million worth of bonds for three years.

“We feel that is a competitive rate considering the market we’re in now,” Decker said of the interest rate. Decker and the city’s financial adviser, Oppenheimer & Co. Inc., reviewed the terms of the deal.

Before the vote, Councilman Doug Burlison asked Decker under what scenario the variable-rate revenue bonds could be moved to flat-rate bonds.  

Decker said flat-rate revenue bonds are currently selling for about 7 percent to 7.5 percent, and if the gap between the two continues to narrow, the city might consider making a switch in future arrangements.

Decker said the bonds are available for sale once a week and that it would be unusual to be able unable to find a buyer. However, without the backing of institutions such as Bank of Kansas City, the city would have to have the money upfront to purchase the bonds outright should bondholders decide to sell.

A call to JQH Hotel’s financing department for comment referred questions to its attorney, Justin Harris. Harris was unavailable for comment by deadline.

Read more about the April 18 Springfield City Council meeting in the April 25 Springfield Business Journal print edition.
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