The Lancaster County Convention Center Authority has announced that, as planned, it has refinanced its outstanding construction debt and paid off its interest rate swap liability.
In a statement Friday, the authority said the refinancing accomplishes three main goals: Ensuring its own financial stability going forward; adequately providing capital reserve funds for the convention center’s ongoing renovation and upkeep; and providing the best opportunity for Discover Lancaster, the county’s tourism marketing bureau, to receive its full 20% share of the county’s hotel room rental tax.
The authority’s debt now consists of $70 million in 35-year bonds with a fixed interest rate of 4.75%. Its annual debt service will be $3.995 million, a hair below the $4 million maximum that had been pre-approved by its board.
“This financing, long overdue, is a benefit of waiting for the right opportunity and having great stakeholders to help us accomplish it,” authority Executive Director Kevin Molloy said.
In a statement, Lancaster County Commissioner Ray D’Agostino called the refinancing a “transformational” win for the authority, Discover Lancaster, the tourism industry and taxpayers.
Up to now, the authority has had variable-rate debt with terms coming up for renewal every three to five years. The structure included future balloon payments that “could be problematic,” Molloy told the county commissioners earlier this year.
The authority has wanted to refinance the debt for more than 14 years, but was stymied by the state of the financial markets.
Specifically, the extended period of historically low interest rates that followed the Great Recession made it prohibitively expensive for the authority to terminate the interest rate swap it had had since 2007. The lower the prevailing rates, the higher the authority’s swap liability; it took this year’s interest rate increases to drive the liability to an affordable level.
Ultimately, the authority needed interest rates to reach a narrow “sweet spot”: High enough to make extinguishing the swap liability feasible, but low enough to keep its annual debt service affordable. In late November, the numbers aligned at last, Molloy said.
The swap liability ended up being $9.2 million, he said. The bonds cover that amount, along with the outstanding principal associated with the convention center’s construction.
To allow the refinancing to take place, the Lancaster County commissioners agreed to guarantee the new bonds, extending the 100% guarantee of the authority’s debt that has been in place since 2016. Meanwhile, Discover Lancaster agreed to an update of its agreement with the authority, extending it to 2057, when the bonds mature.
Under the arrangement, Discover Lancaster continues to give the authority first claim on all Hotel Room Rental Tax revenues. Each year, once the authority has covered its defined financial obligations, the tourism bureau can receive the remaining tax revenue, up to 20% of the total.
Except for 2020, when the Covid-19 pandemic upended tourism worldwide, Discover Lancaster has received the 20% each year. Molloy and Discover Lancaster Executive Director Ed Harris have said they’re confident the $4 million annual debt service resulting from the refinancing will leave plenty of margin to provide Discover Lancaster its share.
