Low revenue from a hotel occupancy rate of just 36% led the Myrtle Beach Convention Center Hotel Corp. in South Carolina to tap its debt service reserve fund to make an interest payment this month.
The city of Myrtle Beach will fulfill its backup pledge to replenish the reserve, a move that Moody’s Investors Service says in a comment piece is an “expected display of a parent government honoring the terms outlined in the bond documents.”
“The city has confirmed its intent to appropriate the funds in its fiscal year 2022 budget, scheduled to take effect on July 1, 2021,” said Moody’s analyst Frank Mamo.
The bonds, issued in 2015 by the South Carolina Jobs-Economic Development Authority, are secured by operating revenue of the Sheraton Myrtle Beach Convention Center and carry a pledge by the city to replenish the fund after a withdrawal, subject to annual appropriation.
The facility is now known as the Sheraton Myrtle Beach Hotel, although it is attached to the convention center, a spokeswoman for the convention center said.
“On Oct. 1, 2020, a total of $28,064.90 was drawn on the debt service reserve fund…in order to make the $276,756.25 debt service payment due on that date,” a material event notice posted on the Municipal Securities Rulemaking Board’s EMMA filing system says.
The $16.4 million of bonds were issued in 2015 to refund a portion of the debt issued in 2001 to finance the construction of a 402-room convention center hotel, build a parking garage and refurbish facilities in the Myrtle Beach Convention Center, according to bond documents on EMMA.
The bonds are rated A-plus with a stable outlook by S&P Global Ratings. The debt isn’t rated by Moody’s, which rates the city of Myrtle Beach Aa2 with a negative outlook and rates its hospitality fee revenue bonds A3 with a negative outlook.
Michael Shelton, Myrtle Beach’s chief financial officer, said the city will replenish the reserve fund.
“In keeping with its history concerning the convention center hotel, city leadership considers it to be an appropriate exercise of stewardship to honor its commitment to replenish the debt service reserve fund on the hotel bonds whenever a draw occurs,” Shelton said.
Moody’s said the reserve fund totaled $1.4 million when $28,065 was withdrawn to make the Oct. 1 payment.
“The draw by the hotel corporation, a component unit of the city, occurred in the wake of a 74% year-over-year drop in the Sheraton’s operating revenue from January through August,” Mamo said.
The next debt service payment of $657,000 is scheduled for April 1, 2021.
With the Sheraton’s August occupancy rate at just 36%, down 41% from August 2019, monthly net revenue still in the red and the city’s peak summer tourism over, hotel revenue is unlikely to cover the corporation’s April 1 payment and another its debt service reserve fund draw is likely, said Mamo.
Like most areas around the country, Myrtle Beach is under an emergency order due to infections from the coronavirus that causes COVID-19. Face masks have been required since July 2. Public beaches are open but subject to strict social distancing practices.
Through September, Myrtle Beach’s monthly visitor driven hospitality-fee collections have remained between 30% and 40% below their 2019 levels, according to Moody’s. Nonetheless, the rating agency wrote, “absent another shock in tourism activity, current trends show hospitality fee collections are on track to fully cover upcoming debt service payments on the bonds.”
The 250,000 square-foot Myrtle Beach Convention Center is open and follows cleaning and sanitation protocols required by the city and health officials, according to its website.