Still smarting from last year's controversial $503.87 million issue of lease revenue refunding bonds, officials with the Los Angeles Convention & Exhibition Center Authority said they have no plans to issue additional long-term obligations until the turn of the century.
The bonds were issued to refund certificates of participation whose proceeds financed a three-year-long expansion and upgrade of the Los Angeles convention center.
The composition of the financing team that handled the transaction became a hot issue, culminating with the Los Angeles city council's 11-to-4 decision to assign the lead manager position to minority-owned Grigsby Brandford & Co.
Grigsby was recommended for the key bookrunner role by the 15-member board that runs the convention and exhibition center authority. The authority's decision overruled a city staff member who said Goldman, Sachs & Co. was the best choice.
To douse the flaring debate, a city council committee suggested that the bonds be sold via competitive bidding. Ultimately, Grigsby was assigned to handle the deal and the triple-A credit-enhanced bonds were sold to investors.
Now, slightly more than a year later, all that remains are memories of the brouhaha -- and the need to pay debt service totaling roughly $40 million a year.
The debt service is derived from convention center revenues, the city's general fund, and a transient occupancy tax. The combined city and state sales tax and Los Angeles hotel tax is 14%.
Paying debt service "is going to be a struggle, but you won't really face the problem for a few more years," Dick Walsh, management representative to the authority, said in an interview last week.
The convention center authority is legally defined as a joint powers authority, consisting of 10 representatives from the city and five representatives from Los Angeles County.
Walsh said there is a reserve account that contains proceeds earmarked for construction-related contingencies. The account will assure a steady flow of revenues toward debt service payments even if hotel occupancy receipts and trade show revenues fall short of debt service requirements.
While no new debt sales are scheduled in the foreseeable future, Walsh said another convention center expansion plan is in the works, only a year after the most recent expansion was finished.
The convention center is now 830,000 square feet, up from 373,000. The total includes meeting rooms and exhibit halls.
The newest expansion plan calls for a "convertible hall" -- a floor in the south hall now used for automobile parking that would be convertible to 162,000 square feet of exhibition space.
The tentative plans are to complete the expansion in July 1996, raising the convention center's square footage to nearly 1 million square feet.
The cost of the expansion is estimated at $12.7 million, and funds are already on hand for the project, Walsh said.
The city council is expected to vote on the proposal next Tuesday, and the plan comes before the convention center authority board at its Dec. 14 meeting.
Walsh said $9.1 million of the funding would come from interest earnings on a construction account, while the remaining $3.6 million would come from the sale of socalled density rights to developers. The rights allow developers to build high-rise buildings in commercial sections of the city where building codes would otherwise prohibit it.
The convertible hall was envisioned when the expansion of the center was first proposed in the mid-1980s, Walsh said.
"What we are doing with this project is finishing a space that can be used either as a garage or as an exhibit hall depending on the demands of the clientele," Walsh said. "This is not an afterthought."
Walsh hopes that the extra square footage envisioned in the proposed expansion will help with convention center bookings.
For the city's fiscal year that ended June 30, there were 12 major bookings. For the current fiscal year, 23 bookings are expected. For fiscal 1996, 15 bookings are confirmed, and in fiscal 1997, 27 are expected.
Some bookings were withdrawn because of the city's tarnished image following the riots in April and May of 1992, and the Jan. 17 Northridge earthquake, Walsh said.
However, in a 12-month period that ended yesterday, the convention center posted a 62% occupancy rate, Walsh said.
"It's great," he said, adding that before the expansion, the center averaged a 70% occupancy rate, but "dropped down to 55% during the expansion."
By comparison, the average occupancy rate for U.S. convention centers in 1993 was 41%, according to a recent report by John Nuveen & Co.
"Even convention capitals like Chicago and Las Vegas operate at only 70% of capacity, booking conventions years in advance," the Nuveen report said. "This raises some doubts that the meeting-convention business is active enough to absorb an ever-increasing amount of additional floor space."
The Nuveen report said convention center growth is taking place on two fronts -- new construction and expansion. New construction between August 1993 and July 1994 contributed more than 1.3 million square feet nationally, with an additional 750,000 square feet expected by next July.
The convention centers in Los Angeles and Dallas are tied for ninth place on the list of the 10 largest exhibit halls in the country, according to the Nuveen report.
However, the report placed Dallas in the top tier of convention centers, ranking it with New York; Chicago; Atlanta; San Francisco; Las Vegas; Washington, D.C; Orlando; and Boston as the country's most popular convention sites.
Los Angeles, by contrast, was placed in the second tier, which consists of "non-major centers" including Charlotte, Cleveland, Denver, Detroit, Houston, Miami, New Orleans, Philadelphia, and Seattle.
The Los Angeles center is trying to move up to the first tier, but Walsh said that will be difficult unless bet ter hotels are built near the center, which is in a downtown area not considered attractive to tourists.
A local business group has suggested that a hotel-casino project be built across from the convention center, a proposal Walsh said he finds "fascinating," but problematic.
A casino could not open unless the state's voters changed the constitution and until the city's voters overturned an ordinance that forbids gambling -- with the exception of bingo games -- in Los Angeles.
"The gaming people in Vegas would battle it," Walsh said. "It would take away all the Southern Californians who go" to Las Vegas.
Meantime, Chris Simons, project manager for the authority, said that no long-term debt transactions are contemplated in the near future.
"Until the end of the decade, we see no need to consider any other project that would need new financing," Simons said. "We have a couple of projects in mind, but until the downtown area gets a little more stabilized, we're holding off" on those plans.
