The Spokane Public Facilities District will receive an additional $9.1 million to use for the Convention Center expansion following a complex financial transaction completed Monday.
The state Legislature this year gave public facilities districts the right to sell their ability to refinance bonds. After voters approved additional taxes in May 2002 to pay for the expansion of the Convention Center, the district sold $77 million worth of revenue bonds to build a 100,000-square-foot exhibit hall.
On Monday, the PFD sold the option to refinance those bonds to the Seattle office of Lehman Brothers for $9.1 million. The refinancing would take place in 2013 if interest rates drop below a locked-in rate of 5.46 percent. The board approved the transaction unanimously.
“It seems like a deal we should march forward with,” said PFD board President Rick LaFleur.
Board member Mick McDowell said the district would be able to provide a better convention center “for no more taxpayer money.”
If, in 2013, interest rates are above 5.46 percent, the option is likely to expire. However, under the agreement struck Monday, if interest rates drop below that level, the district would terminate the deal, refinance the bonds itself and pay Lehman Brothers the difference in interest rates, said Kevin Twohig, the PFD’s executive director. Every 0.5 percent of difference in interest rates would equate to about $2 million that the district would need to pay Lehman Brothers, he said. What the district loses in the deal is flexibility to refinance the bonds itself.
The district is essentially gambling that interest rates will stay where they are or rise over the next eight years, Twohig said. The district is likely to build a fund over the next eight years to pay off Lehman Brothers if interest rates drop, he said.
“Right now, we’re getting $9 million, so it feels like a pretty good deal,” Twohig said.
The district’s bond attorney and two financial advisers, including one with 20 years of experience dealing with this type of transaction, said during the Monday meeting that they saw no serious risk to the district.
“It was an excellent effort in explaining this to us,” said board member Nate Greene. “It took about two months.”
The $9.1 million is much more than the district originally expected to receive through the transaction. Less than a week ago, Twohig was estimating the deal would reap $6 million. And when initiated two months ago, estimates brought the proceeds closer to $4 million. However, shifting interest rates and the structuring of the deal increased the amount, Twohig said.
The district plans to use the money to pay off $3 million worth of cost overruns, to spend more on renovations to the existing convention center and to build food and beverage facilities in the new exhibit hall. The district was able to strike a better revenue-sharing deal with its food service contractor by building the kitchens and concession stands itself, Twohig said.
The $9.1 million also will allow the district to restart negotiations to use land to the south of the Convention Center for future expansion. That land, bounded by Spokane Falls Boulevard, Washington, Main and Bernard, is owned by several different parties. The original plan called for the district to buy or cut deals on development of that land (called the “south site”) for future exhibit hall space and parking. But when project costs escalated, those plans were abandoned.
“We haven’t been able to do anything over there because we haven’t had any money,” Twohig said.