Kicking off a new venture
Rock Hill, S.C., is financing an $11.2 million soccer complex with the help of certificates of participation (COP) and bond insurance to lower the total cost of the financing. When the complex is completed next February, it is expected to generate millions of dollars annually for the city.
With a population of more than 56,000, Rock Hill is situated just 25 miles from the Charlotte, N.C., metropolitan area and has grown at a moderate pace to become the fourth largest city in the state. For several years, the city has been focusing on diversifying its textile-based economy to include manufacturing, technology and health industries.
In the process, Rock Hill steadily has gained status as a destination for national softball tournaments. In fact, the 34-week softball season in 2003 generated approximately $7.5 million for the growing city. The visiting teams, along with their loyal fans, purchased a total of 15,000 nights in local hotel rooms. The 2003 National Softball Association Youth Girls World Series Tournament, which had approximately 430 teams participate, generated a sizeable $3.4 million in revenue for the city.
That success inspired city leaders to nurture the city’s sports tourism industry. They decided to build a 65-acre soccer complex and regional park and drew up a plan to become a premier location for local, regional and national soccer events. The city was faced with the question of how to finance the $11.2 million project at a reasonable cost without overreaching. Based on Rock Hill’s solid A-rated category general obligation bonds, city leaders decided to structure a COP issue. COPs are backed by annual appropriations from the general fund in contrast to a full faith and credit pledge of a general obligation bond.
Rock Hill’s COP is based on anticipated revenues from hospitality fees that are levied on meals outside residents’ homes. The city has seen a steadily rising stream of revenue over time from those fees, except for a brief period following Sept. 11, 2001. The top 10 restaurants (hospitality fee providers) in the city account for approximately 23 percent of the total revenue generated. Based on the revenues collected in 2003, the hospitality fees will provide more than two-and-a-half times coverage of the COP debt service. In the unlikely event that hospitality fees are insufficient to pay debt service, the city will make annual payments from the general fund.
The revenue stream provides further protection to bondholders because additional bonds cannot be sold unless the revenues provide one-and-a-half times coverage of annual debt service. In addition, a debt service reserve fund of no more than 10 percent of par also was funded at inception.
In return for those various bondholder protections, Armonk, N.Y.-based MBIA Insurance Corp. agreed to insure the bond issue. As a result of the insurance, Rock Hill’s bond rating for the transaction rose from an A rating to an AAA rating, saving the city an estimated minimum of $140,000 in interest, after the cost of insurance.
The city is applying the net proceeds of the transaction to developing the soccer complex and park, which features active and passive recreation areas for residents and visiting players and fans. Two of the eight soccer fields to be constructed will be fully outfitted for tournament regulation play. The complex also will include a soccer pavilion and a pedestrian trail around a lake, as well as parking for 650 vehicles. Locally based Leitner Construction began building the complex in February 2005.
Residents, players, fans and hospitality providers all will have something to cheer about when the facility opens next year. Conservatively, city leaders estimate the complex will generate between $2.5 million and $3.5 million in new revenue for the city when the project is completed.
