The Rhode Island Convention Center Authority is scheduled to sell competitively a $95 million new money issue tomorrow, as the specter of a yet unsold $225 million advance refunding looms on the horizon.
In May, the authority announced its intention to sell the refunding bonds through negotiated sale, but market conditions have stalled the deal's pricing since it was announced, according to both financial and legal officials involved with the sale.
The $225 million sale would mark the first negotiated sale the authority has undertaken. Authority officials said this was necessary because of the mercurial relationship between market conditions and federal escrow regulations with refundings.
In the meantime, the authority's need for the proceeds of this week's competitive issues has intensified, forcing the two deals into a clash for market attention.
Although the municipal market is strong and t e demand for bonds is high, some participants voiced concerns about the two sales coming close together.
One municipal analyst, for example, said he would be very careful if he were bidding on the competitive issue.
"You don't want to fatten tip on a deal when an authority has another right on the schedule for whenever they choose," the analyst said. "What if the next deal comes at five or 1 0 basis points lower?"
But James J. Skeffington, a partner at the law firm of Edwards & Angell, the authority's bond counsel, said the present value savings, restrictions on the refunding deal are a built-in safeguard against that happening.
"We will certainly want to wait until we are sure that the first sale is adequately digested before coming to market with another deal," Skeffington said.
Maureen Gurghigian, a senior vice president at Fleet Securities and financial adviser to the authority, said the state requires a 3% present value savings, but that the market has been uncooperative.
"The closest we have come to the 3% was the day we mailed out the preliminary official statements," Gurghigian said. "I'm convinced we'll get our levels; it's just a matter of when."
Ted Sobel, vice president of municipal banking at Kidder, Peabody & Co., the underwriter for the deal, said the disproportionate price gains made in the U.S. Treasury market recently have kept the Rhode Island deal and several other advance refundings out of the primary sector.
"What we need is the Treasury and municipal markets to improve together at the same levels," said Sobel. "We are 10 to 15 basis points off where we need to be to get the deal done."
Goldman, Sachs & Co. will be a co-senior manager on the deal with Kidder.
Construction of the convention center and adjoining hotels has so far proceeded as planned, but the authority needs to sell $95 million of new bonds now to continue on schedule.
The Rhode Island legislature voted in 1991 to allow the Convention Center Authority to sell bonds for hotel construction as well as for the 100,000 square foot convention facility.
Theodore Przybyla, acting executive director of the authority, said the proceeds from the competitive bond sale will be used to complete the hotel facilities.
"We are on schedule to open the facilities by the summer of 1995," Przybyla said. "This sale will keep us on track for that opening date."
When the legislature gave the go-ahead to build the convention center in 1988, state officials questioned whether the authority should use tax-exempt bonds for hotels that could be sold for private interests, and wondered how a convention center would be received in Providence.
Przybyla said the convention center has begun to win more support in the state after having a very rocky start.
A report from the independent accounting firm of Coopers & Lybrand predicted that with the revenues gleaned from the hotels and the center, the convention facility will bring in at least $525 million over the life of the bonds.
The last of the bonds mature in 2027.
Przybyla said Coopers & Lybrand estimated that over the life of the bonds, the state of Rhode Island will receive approximately $916 million in taxes from the facilities. As a result, it would make no economic sense to sell the hotels, he concluded.
Without the hotels, the firm estimated regular revenues would decrease by about $169 million over the life of the bonds.
"This is an extremely viable way to help the city and the outlying area," Przybyla said. "This will help Boston, Newport, and the whole region with the tourist and conventioneer dollars it will generate."
Przybyla said that although the facility will probably be insufficient to house a convention the size of a national Democratic or Republican presidential convention, it will allow smaller groups the opportunity to rent a major convention site at reasonable prices.
"Small groups can't afford a 300,000 to 400,000 square foot facility, and they don't need one," he said. "Our facility will be perfect for them."
Przybyla said the availability of hotel rooms attached to the convention center is also a big selling point.
The competitive sale will probably be a straightforward offering, Gurghigian said. The winning bidder will be able to decide for itself when any term bonds might mature, but no later than 2027.
Tomorrow's $95 million competitive sale will be insured by AMBAC Indemnity Corp. and therefore triple-A rated. Moody's affixed an underlying A rating for the authority in 1991.
The $225 million negotiated refunding sale may be a bit more complicated, said Sobel.
He said if market conditions allow, the authority will sell serial bonds maturing out to 2008 and "a few term bonds" maturing at or before 2023.
Presently, the authority is also planning on selling a $28.8 million portion of Resetting Municipal Securities, or Rims, and a $28.8 million portion of Municipal Variable Rate Inverse Class Securities, or Maverics. The two products are Kidder's version of inverse floaters.
Sobel said the use of the derivatives will depend on market conditions.
The refunding bonds will be insured by Municipal Bond Investors Assurance Corp.