Bonds issued for MASM expansion

The Hot Springs Board of Directors authorized the private placement Tuesday of a $1,575,000 bond issue that will finance the construction of an exhibition hall at Mid-America Science Museum.

Voters empowered the board to issue the bonds, approving a ballot proposal during a Sept. 11 special election by a 1,003-520 margin. The ballot question asked city voters to allow the board to issue up to $2 million in bonds and repay the debt with collections of the 3-percent sales tax the Hot Springs Advertising and Promotion Commission levies on prepared food and lodging inside the city.

Turnout was 6.3 percent of the 24,235 voters who were eligible to cast ballots, the Garland County Election Commission said.

The bonds were placed with Malvern National Bank as opposed to an underwriter selling them at a public offering, Bob Wright, senior managing director for Crews & Associates, the city’s financial adviser, said. Wright said the bank will hold the debt in its investment portfolio and receive the 3.4-percent semiannual interest payment.

Wright said the sale will close Dec. 13, giving the museum $1.5 million to build the

7,000-square-foot expansion. It will cost the ad commission $1,876,832 to service the debt over its 10-year life, according to information Wright presented the board. Annual debt service will range from $184,100 to $189,170. The ad commission said earlier this year that it’s projecting $8.59 million in annual revenue, most of which is derived from the roughly $6 million the 3-percent hospitality tax generates.

The annual debt service payment will be the only financial support the museum receives from the ad commission after the final installment of a $760,000 contribution to the match for the

$7.8 million Donald W. Reynolds Foundation grant the museum received in 2014 is paid in June.

The museum is owned by the ad commission and operated by an independent board of directors, but the ad commission plans on transferring the property to the museum’s board after the debt is retired.

The $75,000 in issuing costs had to be spread over two maturities for the bonds to retain their tax-exempt status for the investor, Wright said, explaining that costs for a debt issue such as the one the museum is floating cannot exceed 2 percent of the total issue.

The $45,000 that exceeded the 2-percent cap will mature next November, and income from the 3.5-percent semiannual interest payment will not be tax exempt. Issuing costs included Stephens Inc.’s $31,500 placement fee.

“Stephens did a good job on getting the rate they did,” Wright told the board. “Rates have been taking pretty violent movements up and down. (Stephens) talked to a number of different spots on placing this debt. They did get a very good rate on this with Malvern National Bank.”

Wright said the issue was small enough to avoid scrutiny from a rating agency, but he is confident it would have received high marks. The city’s tourism economy instills investor confidence akin to debt secured by revenue from an essential service, such as water or sewer, he said.

“It would’ve been favorable because of the history of Hot Springs being a tourist destination,” he said of the bond rating. “The economy in Hot Springs has a long history of tourists and travelers coming to the area. The (hospitality tax) is strong.”

Wright said the stability of the tax allowed the bonds to be issued without a debt service reserve that guards against a decline in tax receipts that would prevent the ad commission from paying its pledged obligation to the investor.

The ballot question committee formed to advocate for the passage of the bond issue reported expenses of $23,417, according to the report it filed Sept. 28 with the Arkansas Ethics Commission. The committee reported $25,000 in contributions, including $10,000 each from the Hot Springs Fifty for the Future Political Action Committee and The Greater Hot Springs Chamber of Commerce.

Cranford Johnson Robinson Woods Inc., the Little Rock advertising firm the ad commission contracts for marketing services, contributed $5,000.

The committee’s notice of dissolution reported $1,582 in remaining funds.