Anaheim Bonds Snapped Up at Lower Rates Than Forecast

The city’s bid to retain its place as a prime tourism center cleared a major hurdle Tuesday as it sold more than $510 million in bonds to expand its Convention Center and finance street improvements for a new Disneyland resort.

The bonds sold at a lower interest rate than city officials and their financial advisors had forecast, meaning construction to refurbish and beautify the city’s 1,100-acre resort area will cost Anaheim $8 million less than predicted.

“People have a lot of faith in the city of Anaheim and also in the Walt Disney Co., and that showed,” Anaheim Finance Director William G. Sweeney said from New York, where he supervised the bond offering.

The Anaheim offering was the biggest in the nation this week and second biggest so far this year. It completely sold off two hours after the bond market opened.

The taxable portion of the bonds sold at an interest rate of 6.09%, while the tax-exempt portion sold at 5.97%, both well below expectations.

“It means it’s full steam ahead,” Mayor Tom Daly said.

In a speech before several hundred Anaheim business people and city and county officials given shortly after the bond sale was over, Daly rejoiced at the news that the city would be less in debt than city financial analysts had predicted.

“This means that in Anaheim we really can accomplish whatever we focus on,” Daly said. “We can take these major challenges, these big deals, and we can do them.”

Under the unusual terms of the bond sale, the Walt Disney Co. is guaranteeing a portion of the bonds and will be on the hook to pay off all the debt if its much-anticipated new companion park to Disneyland, called Disney’s California Adventure, is not open by July 1, 2002.

Anaheim hopes to have related street, utility and landscaping improvements, as well as the expansion of the Convention Center, done by 2001. The construction project is expected to disrupt traffic in the city and severely affect tourism revenue while underway.

Anaheim is pledged to pay out more than $1.6 billion in principal and interest over 40 years to finance the projects.

“This is an innovative, creative, and also smart move for the city,” Assistant City Manager Tom Wood said. “It’s a lot of debt, and a lot of construction, yes. But if we don’t stay competitive in the tourist marketplace, we have a tremendous amount to lose. Our economy is dependent on it, and if Anaheim does not remain competitive, those dollars are going to go elsewhere.”

The debt consists of $510 million in bonds of varying maturities, the longest coming due in 2037. The bonds are to be repaid through a complicated financing arrangement in which Anaheim wold pay an amount equivalent to 3% of the city’s 15% hotel bed tax, plus some sales and property taxes generated within the Disneyland resort area.

Since the debt payments will come from revenue generated by the resort projects and not from the city’s general fund, city officials say the improvements will not burden Anaheim taxpayers.

In case increased revenue from hotel and sales taxes generated by the project falls short of the projected $75 million a year, Disney has guaranteed the bond debt, agreeing to step in and pay investors if the city can’t.

“Clearly, if the theme park doesn’t open, it’s going to be real, real difficult for Anaheim to come up with the debt service, so if they hadn’t insured the whole thing, obviously that would have made us a little nervous,” said Amy Laskey, associate director of Fitch Investors Service, a New York-based credit rating firm.