Troubled Lexington convention center looks to refinance to pay for $275 million expansion
The board that oversees Rupp Arena and the convention center is considering refinancing its bonds to borrow an additional $8.5 million that will help it delay payments for three years on loans owed for a $275 million expansion.
If the new financing option is approved, the city of Lexington could have to pay more if the cash-strapped convention center defaults on its loans. On Thursday, Lexington Mayor Linda Gorton and some on council urged the group to exhaust all options before asking the city and taxpayers to back a refinancing of the convention center debt.
The Lexington Center Corporation oversees the newly-renamed Central Bank Center, which includes Rupp Arena and the convention center. The Lexington Center Corp. has seen revenues plummet after events in both Rupp Arena and the convention center have been canceled or postponed due to the coronavirus pandemic.
Because no money is coming in, Lexington Center has furloughed all but eight of its 122 staff.
But it also has a September payment of $8.4 million on two separate bonds or loans it used to pay for the currently underway $275 million expansion of the convention center and Rupp Arena. Revenues from operations were supposed to pay off a $110 million bond. Revenues from hotel taxes was supposed to pay for second bond or loan of $108 million.
Both revenue sources have been decimated due to coronavirus-related shutdowns or reductions in business at hotels.
On Thursday, financial advisers recommended the Lexington Center Corp. board refinance the bonds, which would include approximately $8.5 million in new borrowing. By refinancing the loans, Lexington Center will not have to make any principal payments on those loans until 2024.
Moreover, by delaying three years of payments to the end of loan, the cash-strapped Lexington Center will not have to turn to the city of Lexington and taxpayers to replenish $7.8 million in a reserve account. The city is obligated to restore the reserves if the Lexington Center doesn’t have the cash to do it after using the money to make debt payments.
“If no action is taken and there is a default, which would most likely happen in March 2021, then the city of Lexington would be obligated to repay those bond reserves,” said Bob Elliston, president of the Lexington Center Corp. board.
Under the refinancing proposal, the bond reserves, and the amount the city could be obligated to pay if Lexington Center defaults, grows from $7.8 million to $12.6 million.
At the earliest, the city would be legally obligated to replenish those reserves in 2024 but that’s only if the Lexington Center has to use the reserves to make the bond payments without the cash to replenish the reserves, Elliston said.
Elliston said the payments going forward for 30 years would be $1.6 million annually. That’s the amount that would be tapped from reserves to make payments if Lexington Center does not have operating income for those payments.
Elliston said the board won’t vote on the proposal before talking with Mayor Linda Gorton and the Lexington-Fayette Urban County Council. Elliston said they have spoken with the mayor and her senior staff.
Gorton, in a written statement, said she has asked Lexington Center to look again at its finances to determine if there were other options before the convention center possibly exposes taxpayers to additional risk from the refinanced loans.
“This is a time to tighten our belts and live within our means,” Gorton said. “That’s what the city is doing to handle the estimated $50 million shortfall in our budget that is the result of the economic downturn caused by COVID-19. I encourage the Lexington Board to do the same.”
Gorton said she has asked whether the convention center expansion could be scaled back at least temporarily.
“They need to examine every component of the project and get a second opinion on the financing proposal,” Gorton said “I have also asked that they scour their accounts to identify cuts they could make to divert funds to the project and to examine every other financial source possible.”
Gorton said the Lexington Center Corp. needs to do that first before “we consider approving an agreement that could mean additional financial risk to the city.”
Lexington-Fayette Urban County Councilman Bill Farmer Jr., who is also a member of the Lexington Center Corp. board, echoed Gorton’s concerns during Thursday’s board meeting, which was held via video conference. Information about Lexington Center’s financial woes and a solution that could mean more risk to the city and taxpayers should have been communicated earlier, he said.
“I think the mayor and the council have suffered a great disservice,” Farmer said. “They are vital partners to the future of Central Bank Center.”
Farmer and Vice Mayor Steve Kay, also a member of the Lexington Center board, said the city is facing its worst budget crisis in decades. The council is currently debating possible changes to Gorton’s $372 million budget proposal for the fiscal year that begins July 1. The first vote on the budget is scheduled for early June. That budget includes $12.5 million in cuts across city government and more than $6 million in cuts to outside agencies.
If the council needs to make a decision on the refinancing of the convention center debt, it needs to happen soon, Farmer said.
Kay asked if the convention center expansion could be scaled back to save money.
Bill Owen, the president and CEO of Lexington Center, said the expansion has already been scaled back several times.
When completed, the expansion will include a new addition, a ballroom, more exhibit hall space, meeting rooms, a new lobby and a new two-story building along Main Street.
Rupp Arena will get a new glass and metal exterior. The expansion is currently on track for a possible completion date in late 2021.
One option is to nix the two-story pavilion on Main Street that will include additional meeting rooms.
Mary Quinn Ramer, the president of VisitLex, which books conventions for the convention center, said if that pavilion is not built, available meeting space will be reduced. That means fewer conventions and less income when conventions are allowed to resume in the future, she said.
The expansion has long been planned because the current convention center is too small.
Ann Bakhaus, a board member, also questioned if Lexington Center could use $5 million in interest it has in an account to help with its financial woes. But Lexington Center staff said that $5 million is being used to pay for the construction of the convention center. If those funds are tapped to pay off debt, then the project will likely not be completed, Lexington Center staff said.
This story was originally published May 21, 2020 at 3:51 PM.
