Lombard's credit rating lowered to 'B' due to unpaid Westin bond debt
LOMBARD – For the second time in 24 months, the Village of Lombard has had its credit rating lowered.
The most recent downgrade was prompted by the village's unwillingness to pay bond debt related to an affiliate agency established to finance the Westin Hotel and Conference Center.
Standard & Poor's on Wednesday lowered Lombard's issuer credit rating from BBB to B, according to a release from the Wall Street credit rating agency.
The downgrade reflects a recent nonappropriation that triggered a payment default for revenue bonds issued by the Lombard Public Facilities Corp., Standard & Poor's credit analyst John Kenward said in an S&P news release.
The B rating reflects very weak management, stemming from a lack of willingness to support appropriation debt, Kenward said. With a lower credit score, the village will be required to borrow money for capital improvement projects at a higher interest rate.
In December 2013, the Lombard Village Board voted not to appropriate funds to pay debt service on the LPFC's series 2005B revenue bonds, pursuant to a tax rebate agreement, according to Standard & Poor's. The village's refusal to make a $1.9 million payment subsequently pushed most of the $195 million in bonds for the hotel to go into default.
The LPFC, a separate entity, was established in 2003 to issue bonds needed to finance the Westin construction project. The group is the legal owner of the hotel until the bonds are paid, at which time ownership will be transferred to the village.
Bond payments were originally to be covered by facility revenues from the Westin Hotel and Conference Center, which opened in August 2007. But with a weak economy, the Westin has been unable to finance the bonds.
The current Village Board is tasked with the aftermath of the financial arrangement between LPFC and bond holders, Village Trustee Peter Breen said. Residents were assured at the time that they would not be on the hook financially, he said.
"When this arrangement was made, the taxpayers were told that the general obligation debt was not at risk," he said. "So the very savvy investors who structured this deal certainly cannot realistically assume taxpayers are going to cover the over $100 million shortfall in bonds."
Village officials were aware that their credit rating would likely be downgraded, confirmed Lombard's Director of Finance Tim Sexton. The downgrade will not impact any village services utilized by taxpayers, Sexton said.
Lombard still plans on working to restructure the bond debt, Sexton confirmed.
“We will continue to work with the bond issuer to seek a long-term solution,” he said.
The village's financial management is otherwise strong, but the credit agency will continue to assess Lombard's overall management as very weak until payment is made in a full and timely manner, according to Standard & Poor's.
Lombard's credit rating was lowered from AA to BBB in January 2012, a move made a week after the village board voted against appropriating about $1 million in village funds to make a payment on LPFC's bonds.
At the time, staff informed trustees that refusing to appropriate the funds would be considered in violation of a "moral obligation bond," and could result in a credit-rating downgrade.
The village's position has not changed, Breen said.
"We still have a great hotel, and we are willing to do whatever we can to help resolve the financial situation," he said. "We are certainly ready and willing to negotiate."