LVCVA bond price tag jumps $10.1 million

David Strow

Wednesday, Nov. 24, 1999 | 10:51 a.m.

After more than six months of efforts the Las Vegas Convention and Visitors Authority has finally sold $150 million in bonds to finance the expansion of the Las Vegas Convention Center -- but delays have added more than $10.1 million to the final price tag.

The bonds, sold through Morgan Stanley Dean Witter, carry an annual interest rate of 5.98 percent. That's about six-tenths of a percentage point higher than the original interest rate contemplated for the bond issue, and will result in additional interest costs of $10.1 million over the 20-year life of the bonds.

"That's a very unfortunate thing for the authority and its cash flow, because it's $10 million that could have been put to alternative use, and they still would have done what they wanted to accomplish (with the convention center)," said Guy Hobbs of Hobbs Ong & Associates, the financial adviser to the LVCVA for the bond issue.

The LVCVA was slated to sell the bonds at a 5.4 percent interest rate in July through Morgan Stanley. But that offering was withdrawn following the filing of a lawsuit against the LVCVA by Las Vegas Sands Inc., and the threat of federal legislation that would restrict the use of tax-exempt bonds.

Still, the LVCVA came out better than expected; as recently as early November, the LVCVA was expecting to pay an interest rate of 6.2 percent on the bonds. The rate was negotiated directly by LVCVA President Manny Cortez, rather than through the traditional competitive bidding process.

"There was a bit of an improvement in the bond market in general," Hobbs said. "Another thing that made a big difference was the effort by the financing team and the underwriter in identifying the potential buyers, and making sure they were fully aware of and comfortable with the stories surrounding this transaction."

The lower interest rate was also facilitated by a "AAA" rating on the bonds, the highest available for a bond issue. LVCVA was able to upgrade its rating by purchasing bond insurance through Ambac Insurance Co. for an additional cost of $1.4 million.

LVCVA would have paid more than that in interest without the insurance, because it would have gotten a lower rating and, therefore, a higher interest rate, Hobbs said.

"It becomes a bit more important to have the insurance in the light of the issues," he said.

With the sale, the LVCVA will now proceed with finding a general contractor to handle the 1.3 million-square-foot expansion of the convention center -- a move it says it necessary to handle the rising demand for convention space in Las Vegas. The project will increase the center's space to 3 million square feet, and is scheduled for completion in late 2001.