Conroe to use debt service reserve funds to pay $625K in hotel debt payments

• Use part of the remaining $5.1 million the city allocated to help run the hotel’s operations
• Move money from the city’s general fund
• Dip into the city’s two bond debt service reserve funds, in which there is about $2.8 million in the first lien reserve and about $2.1 million in the second lien reserve

“Those amounts were set aside in case there was not enough money in the accounts to pay for those debt service payments,” Boothe said about the debt service reserve funds.

City Council ultimately decided to use the two bond debt service reserve funds to pay for the nearly $625,000 in debt service payments due April 1.

The city’s bond counsel, Marcus Deitz, said city officials will have to make a notice to the market and file that with the U.S. Securities and Exchange Commission when they dip into those reserve funds.

“It’s an indication of financial difficulty,” Deitz said. “The S&P report’s already out there, so I’m not sure how much worse it could get.”

The S&P report Deitz referred to during the March 19 meeting, released Feb. 28, downgraded the Conroe Local Government Corp.’s first and second liens to BB- and CCC+, respectively, and put its ratings on CreditWatch with negative implications.

• The report cited lower-than-expected performance since the hotel opened in May, and the S&P expects the city to use all of its $2.1 million in second lien reserves as early as October 2025.

The Conroe Local Government Corp.—a political subdivision of the city composed of all City Council members—oversees the hotel and is the issuer of the two liens.

What else?

Jeff Binford, senior vice president of Garfield Public/Private—which serves as the hotel and convention center’s asset manager—presented at the March 19 meeting that in the current fiscal year through Jan. 31, the hotel has seen:

• $2.94 million in revenues
• $2.65 million in expenses
• A gross operating project of $297,331

Binford’s presentation also included a summary of the hotel’s performance, which found:

• Year-to-date, the hotel is $604,638 ahead of its budgeted gross operating profit.
• Business on the books is trending well.
• Lead volume is increasing.
• The hotel ranks highest in guest satisfaction of all domestic Hyatt Regencies.

What they’re saying

• “If we use option three, we’re drawing down on our [debt service] reserves, albeit extremely early, but it’s a reserve,” council member Harry Hardman said.
• “To me, this seems like a no-brainer that we need to take it out of the debt reserves,” council member Marsha Porter said.
• “I’d like to agree with [Porter] as well,” Mayor Jody Czajkoski said. “That’s why we have a reserve.”

Stay tuned

Following the April 1 payments, the city will have another shortfall of $1.18 million for its first and second lien payments—$542,050 and $642,850, respectively—that are due Oct. 1, according to the March 19 agenda packet. Council did not discuss how to cover those Oct. 1 payments at the March 19 meeting.