Hotel Online 
News for the Hospitality Executive



 

Owners of the St Louis Downtown Renaissance Hotel Must Convince
 the Bondholders of  $98 million of Debt not to Foreclose

By David Nicklaus, St. Louis Post-DispatchMcClatchy-Tribune Regional News

Oct. 31, 2008 - Almost from the day it opened, the downtown Renaissance Hotel has been a financial train wreck waiting to happen. Now, with the economy softening and credit hard to come by, the collision is near.

Historic Restoration Inc., the New Orleans company that has an ownership stake in the hotel, notified bondholders this week that it will miss an interest payment on Dec. 15. If that happens, the owners will be in default on $98 million of debt and bondholders will have the right to foreclose on the property.

Bondholders are scheduled to meet next month with officials of Marriott, which runs the hotel, and HRI to discuss "a forbearance option," according to a letter from HRI President Tom Leonhard Jr. That usually means the owners will hold out some sort of carrot -- a new investor, a turnaround plan or a restructuring -- to persuade bondholders not to foreclose.

The hotel owes $3.5 million in interest on Dec. 15, and Leonhard said in June that the payment shouldn't be a problem. Since then, the hotel's results have taken a turn for the worse.

"The rapidly declining economic environment has contributed to this previously unforeseen deterioration in the project's performance," Leonhard's letter says. "Based on Marriott's projections, the project is expected to have a Series A debt service shortfall of approximately $1.4 million. Neither the project owner nor any of (its) respective affiliates are prepared to fund such shortfall."

The hotel, which opened in late 2002, has been struggling with its debt burden ever since. It quickly exhausted the reserves that were set up to protect bondholders, and it tapped original owner Kimberly-Clark several times for extra cash. In June, HRI chipped in $2.2 million to avoid a default.

Dan Boyer, the hotel's marketing director, said business has been down across "all facets of the industry." Convention attendance is down, high gasoline prices cut into tourism last summer and companies are reducing travel budgets.

"When hard times hit corporate America, one of the first things they cut back is travel and meetings," Boyer said. He said the Renaissance's convention bookings essentially are flat for next year, but that industrywide forecasts show a revenue decline of 3 percent to 5 percent.

Against such a backdrop, the Renaissance may have an even harder time meeting future debt payments. Bond traders realize that: They marked down the Renaissance bonds to as little as 53 cents on the dollar this week, compared with more than 80 cents last summer.

That's bad news if you're a bondholder, but it creates room for a financial solution. If somebody offered to buy the bonds for more than the market price, but less than par value, bondholders would have to listen.

Boyer said emphatically that the Renaissance will stay open while the debt is sorted out. Marriott has a long-term management contract, he noted.

Gary Andreas, a hotel consultant at H&H Financial in Chesterfield, agrees that the hotel is unlikely to close. "I don't see where anybody wins from it not staying open," he said. "It's just a question of under what terms and under what ownership. If it closes, there's no value to any of the bondholders for quite a while."

That's comforting. Having an important downtown property go into default certainly will hurt St. Louis' image. If that's the only damage the city suffers, we can count ourselves lucky.

-----

To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.

Copyright (c) 2008, St. Louis Post-Dispatch

Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. NYSE:MAR, NYSE:KMB,




To search Hotel Online data base of News and Trends Go to Hotel.OnlineSearch
Home | Welcome| Hospitality News | Classifieds| One-on-One |
Viewpoint Forum | Industry Resources | Press Releases
Please contact Hotel.Onlinewith your comments and suggestions.