LVCVA faces higher interest rate for expansion bonds

Thursday, Oct. 14, 1999 | 11:30 a.m.

The Las Vegas Convention and Visitors Authority's financial adviser will meet with agency executives to assess whether the bond market still has the appetite to support its $150 million expansion project.

LVCVA President Manny Cortez said Tuesday that he would consult with Guy Hobbs of Hobbs Ong & Associates to determine whether the market would favorably view bonds for the two-story South Hall expansion project.

Early indications are that the proposition would cost more than it would have three months ago when underwriters first negotiated a bond sale.

Hobbs said Wednesday he would begin gathering documents on the Venetian hotel-casino's litigation against the LVCVA and pending legislation that could have an impact on its plans to build a 1.3 million-square-foot expansion.

The LVCVA was on the verge of selling bonds July 8 when the Venetian filed a suit challenging the use of revenue bonds for the deal. At the same time, underwriters learned of legislation introduced by House Majority Whip Tom DeLay, R-Texas, that would tighten restrictions on tax-exempt bonds issued by state and local governments.

Hobbs said the DeLay bill and a similar measure introduced by Rep. Tony Hall, D-Ohio, were of greater concern to underwriters than the Venetian litigation.

In August, Cortez received assurances from the Nevada congressional delegation that DeLay's bill wouldn't advance in Congress. Hobbs said Hall also has stated that he no longer is interested in shepherding the bill through Congress.

The only other concern to the investment community was the Venetian litigation. That was resolved Monday when District Court Judge James Mahan ruled against the Venetian's complaint that the LVCVA was using special general obligation bonds requiring a public vote instead of revenue bonds to finance the expansion.

The Venetian says it will appeal the decision to the Nevada Supreme Court, a detail Hobbs said would be included in disclosure statements in any future bond sale.

"The court's decision on this matter adds some clarity to the litigation issue," Hobbs said. "At this point, we need to sit down and spend some time with (the LVCVA). We haven't had much conversation during the court proceeding."

The LVCVA, which nearly had reached an agreement with underwriters in July to offer the bonds at 5.45 percent, now has what Hobbs referred to as "story bonds." Those are bonds that require disclosures in addition to traditional financial statements about the agency and the project.

Hobbs said the Venetian's planned appeal must be weighed by the investment community to determine if there is any additional risk associated with the project. If so, underwriters could respond with a higher interest rate corresponding with the risk.

Hobbs said it was common to have statements about pending litigation as part its disclosure to investors.

How would a Venetian appeal affect investors' perceptions of the bond issue? Hobbs said it's difficult to say. In addition, the market itself has fluctuated in the three months since the initial sale.

"We had a very good sale in July," Hobbs said. "It's hard to compare November straight on the mark. We've got the added complications of the stories (the litigation and legislation), but it's hard to determine to what degree it would harm the sale.

"The market has moved away a little bit, then came back, but I'm not sure that it came back as much as it first moved. It's likely to cost some basis points, but that's something that has to be determined by investors."

Cortez said the fact the Venetian is planning to appeal a District Court judge's decision on a suit challenging the LVCVA's bond plan shouldn't affect the status of the bonds.

Cortez said he believes an appeal planned by the Venetian won't have the same impact on a prospective bond sale as the original suit because an appeal can only address issues from the court case. Cortez said Mahan's ruling clearly states the LVCVA was within its rights to issue revenue bonds and the Venetian's quarrel is with the Nevada Legislature for approving the bill.

A spokesman for the Venetian said the company currently has no plans to confront the state over the legislation.