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Kalahari President and owner Todd Nelson said his company needs help to move ahead with the project here.
Kalahari President and owner Todd Nelson (standing) talks to the Fredericksburg Economic Development Authority. |
Rising borrowing expenses have increased the price of Kalahari Resorts' planned Fredericksburg water park hotel, and the company is asking the city to help bring down the costs.
Kalahari President Todd Nelson asked the city's Economic Development Authority yesterday to help him make the $260 million project financially feasible for his Wisconsin-based company. Nelson asked the EDA to either waive or reduce the fees it typically charges for bond issuances.
Kalahari previously negotiated an incentive agreement with the city that would allow the company to get back 47.5 percent of its annual local taxes.
Nelson was in front of the EDA yesterday to ask the group to approve up to $35 million in tax-exempt bonds that would help finance the 852-room hotel and indoor water park resort. The EDA, which would bear no responsibility for repaying the debt, unanimously voted to give preliminary approval.
The matter will now go before Fredericksburg City Council later this month, and be back before the EDA for final approval May 24. The EDA will then decide whether to waive or reduce the fee it usually charges for bond issuances--one-eighth of 1 percent of the outstanding loan balance.
Kalahari has access to $25 million in tax-exempt Recovery Zone Facility bonds, which it got as part of the American Recovery and Reinvestment Act. It's hoping to receive another $10 million. The EDA needs to approve the issuance to make the interest payments tax-exempt, which would lead to lower borrowing costs.
The EDA's standard fee on the $25 million issuance would cost Kalahari $31,250 for the first year, and progressively lower annual payments as the balance drops.
Kalahari revealed for the first time publicly yesterday that it also would like to do a taxable municipal bond issuance through the EDA for about $200 million. Those bonds, whose interest could be exempt from state taxes but not federal, would be issued after the RZF bonds. Kalahari would also put up about $30 million of its own money to complete the financing package.
While Nelson asked the EDA to waive or reduce its fee for both the tax-exempt and taxable issues, he was especially adamant about refusing to pay the fee on the $200 million taxable portion. That would cost the company about a quarter-million dollars a year, a fee Nelson called "unnecessary" and "ridiculous."
"We'd use the money for economic development in Fredericksburg, so we don't think it's ridiculous," responded EDA member Rick Pullen.
Kalahari needs to issue the RZF bonds by June 15, so it's important that the matter be resolved at the May EDA meeting. Kalahari plans to put the proceeds from the RZF bond sale into an escrow account while they work on the rest of the financing. The funds wouldn't be released from escrow until the taxable bonds were issued. If the rest of the financing didn't come through, the escrow account would be used to pay off the RZF bondholders.
Though the EDA has an annual cap for the amount of bonds it can issue each year, city officials say the taxable municipal bond issue wouldn't count toward it.
Kalahari's financial team --which includes Merrill Lynch and the Kaufman & Canoles law firm--said the taxable municipal structure wouldn't come with lower interest rates (the specifics of which they declined to reveal) compared with a corporate bond issue. But the municipal structure would help Kalahari avoid the time-consuming and expensive financial reporting requirements that come with corporate bonds, and it would also allow the company to refinance the debt sooner as credit costs decline.
Nelson said he hopes to have the taxable bonds sold by the end of the year. But he also said he needs to evaluate the costs to decide whether the project is affordable.
Nelson said occupancy levels at Kalahari's parks in Wisconsin and Ohio were 85 percent and 78 percent, respectively, in 2009. He said his parks have been "recession-resistant" and that the Fredericksburg resort would be an "economic boom" for the area and turn it into a "major tourist destination."
Nelson also said a number of "heavy-hitter" companies are looking at coming to Celebrate Virginia South, but that Kalahari is the development's anchor tenant. He said his company would get heavily involved in the community, and that two of his five children would move here to oversee the park.
Bill Freehling: 540/374-5405
Email: bfreehling@freelancestar.com
