• On 21 May 2013, Moody’s announced rating actions on MBIA Insurance Corp., National Public Finance Guarantee Corp., MBIA Inc. and other related entities. Because of the large number of credits across several asset classes affected by these rating actions, including Moody's-rated securities that are guaranteed or "wrapped" by these companies, ratings appearing on this website may not yet reflect current information. For current information on affected credits, please visit www.moodys.com/fig.
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Rating Action:

MOODY'S DOWNGRADES THE BALTIMORE HOTEL CORPORATION'S BONDS; OUTLOOK REMAINS NEGATIVE

Global Credit Research - 21 Sep 2011

THE CORPORATION HAS $300.9 MILLION RATED DEBT OUSTANDING

New York, September 21, 2011 -- Moody's Investors Service has downgraded the City of Baltimore (MD) Hotel Corporation's Convention Center Hotel Revenue Bonds, Senor Series 2006A to Ba1 from Baa3 and Subordinate Series 2006B to Ba2 from Ba1. The senior lien bonds are outstanding in the amount of $247.5 million and the subordinate lien bonds are outstanding in the amount of $53.4 million.

SUMMARY RATING RATIONALE

The downgrade is based on lower than expected revenues as senior lien debt service requirements increase from $12.7 million to $14.4 million and subordinate lien debt service increases from $3.1 million to $3.5 million in FY 2012 due to the beginning of principal repayment on the bonds. The Ba1 reflects the hotel's solid financial performance during the economic downturn and recovery of revenue over the past two years. Hotel performance in occupancy and average daily rate approximated Moody's financial stress scenarios when these bonds were initially rated; however, revenues continue to fall short of expected levels. The hotel is generally outperforming its competitive set in the Baltimore market and maintains solid reserve levels that have not been used during this period of stress.

These reserves include site specific hotel occupancy taxes (HOT) collected at the property and the ability to use up to $7 million of HOT collected city-wide that must be appropriated from the city's budget, if needed. In addition, 50% of the debt service reserve fund is supported by $8.5 million surety policy provided by Syncora Guarantee (rated Ca, developing outlook), which Moody's believes now provides a substantially lower level of credit protection.

LEGAL SECURITY: The bonds will be secured by loan payments from the corporation equal to debt service, which will in turn be secured by the net revenues of the hotel and a first lien mortgage on the facility, both of which will be pledged directly to bondholders. In addition, the city has covenanted to budget and appropriate annually for the purposes of paying debt service an amount equal to the hotel occupancy taxes generated by the hotel, the property taxes paid by the hotel to the city, and up to $7 million of city-wide hotel occupancy taxes(equal to 25% of maximum annual debt service on the Series 2006A and 2006B bonds combined). The bonds are additionally secured by various reserve funds.

INTEREST RATE DERIVATIVES: None.

STRENGTHS

* High level of ongoing municipal support. Tax revenue contributions could total up to 86% or more of senior lien debt service in the stabilized year

*Substantial reserves provide good protection from revenue shortfalls

*Well positioned in a historically strong hospitality market

*Hilton brings substantial expertise, resources, and brand-name recognition to the project, along with providing a substantial financial guarantee

CHALLENGES

*The project operates in a highly competitive market, with five other high quality hotels located nearby, along with a number of limited service hotels and several new properties expected to be constructed in the coming years

*Initial revenue performance has been well below expected levels due to the economic recession and lower demand for hotel space

*Reserves have weakened due to reduced credit strength of the surety policy providers for 50% of the senior lien debt service reserve fund and the lack of funding of the cash trap reserve

*The hotel is dependent in large part on the convention center's ability to compete successfully with convention centers in other cities along the Eastern seaboard, an increasingly crowded field.

Outlook

The negative rating outlook is based on Moody's expectation that economic conditions will make it difficult for the hotel to generate revenues that cover all expenses and debt service requirements. The outlook also considers the current level of reserves, which are lower than initially expected and are likely to decline in the coming years as they are used to cover shortfalls in operating performance.

What Could Change the Rating - UP

RevPAR increases to levels contemplated in the initial financing and full funding of the cash trap reserve could place upward pressure on the rating.

What Could Change the Rating - DOWN

If hotel financial performance continues at levels that do not allow annual revenues to cover debt service requirements and expenses and if any additional reserves or HOT collections are needed to meet all operating and debt service requirements.

The principal methodology used in this rating was Generic Project Finance Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Kurt Krummenacker
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Esra Akyol
Associate Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S DOWNGRADES THE BALTIMORE HOTEL CORPORATION'S BONDS; OUTLOOK REMAINS NEGATIVE
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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