How a Court Settlement Helped Myrtle Beach’s Debt Problems For The First Time, MyrtleBeachSC News
Myrtle Beach is by far the most liberal town on Grand Strand. The city is in debt. Moody’s ranks the city’s $ 62 million in hospitality fee bonds as A3 with a negative outlook.
The city’s convention center bonds are not officially rated by Moody’s, but the rating group assigns the city’s convention center bonds an Aa2 rating with a negative outlook.
The income gaps between those who live on Grand Dunes and those who live on Flagg Street are palpable. Income differences are another common feature of liberal cities. In these cities there are often the super rich or super poor. Market Common is perhaps the only mid-range neighborhood within the city limits.
Like most liberal cities in America, Myrtle Beach has significant debt problems that were exacerbated by the 2020 pandemic. Tourism fell by 42%.
With the city working at the ceiling of its debt limit, the downturn has also forced Myrtle Beach to lay off a large portion of its senior executives. This destroyed the morale of the city’s 955 workers.
Winning the 1.5% hospitality lawsuit with Horry County literally saved the skin of the Myrtle Beach town for the time being. However, this tax and spending city can’t seem to stop spending.
A South Carolina state judge on April 16 ratified a settlement of a lawsuit filed by Myrtle Beach and the other communities against Horry County in October 2020. The lawsuit alleged that the county overturned a hospitality tax ruling without the city’s approval.
The additional revenue is positive credit for Myrtle Beach and the other communities, Moody’s Investors Service said last week, and comes after the COVID-19 pandemic devastated the coastal tourism industry and caused a decline in several community revenue streams.
Of all the municipalities involved, Myrtle Beach is one of the biggest winners in this comparison, according to Moody’s analyst Frank Mamo.
“They will receive around $ 22 million in a one-time lump sum, and then city officials expect they will receive around $ 18 million in current income annually,” Mamo told The Bond Buyer. “This is a tourism-dependent economy and some of its revenues have been hit quite hard by the pandemic so this is certainly a good move for them.”
Municipal bond analyst Joseph Krist agreed.
“Horry County has historically used the statewide hospitality fee to service state infrastructure loans that were paid off in 2019“Said Krist in a report released last week. “The municipalities sued for an attempt to receive part of the income generated by the levy, since the previous use of the funds no longer existed. The settlement comes after Myrtle Beach looks at the impact of the pandemic on tourism and related businesses. “
The other plaintiff communities were North Myrtle Beach, Surfside Beach, Conway, Loris, Aynor, and Atlantic Beach.
Myrtle Beach is the largest city in Horry County, with a population of more than 34,000 and about 350,000 people.
Moody’s said the county’s loss of revenue will not have a material impact on the county’s budget, but Myrtle Beach’s profits will be significant.
Myrtle Beach expects to use the revenue from the hospitality fees to partially offset the loss of revenue incurred during the pandemic.
The proceeds are not legally pledged to repay the city’s $ 62 million in outstanding hospitality fee bonds, which Moody’s rates A3 with a negative outlook. However, city officials told the agency that the money could be used if the legally pledged revenues fail to reach annual debt servicing.
Based on actual recoveries of pledged revenue for the fiscal year ended January 31 and the stress test for recoveries through June, Moody’s said the annual debt service coverage for the city’s entertainment fees will remain above 1.5 times.
City officials plan to use a portion of the settlement money to raise a debt service reserve fund for the hotel income bonds of the Myrtle Beach Convention Center Hotel Corp. Refill series 2015. The DSRF was already tapped last October to cover debt servicing as the coronavirus pandemic decimated the tourism industry that makes the city thrive.
The $ 16.4 million bond was issued to repay 2001 debt to finance the convention center hotel, build a parking garage, and renovate facilities at the Myrtle Beach Convention Center. The 2015 Series Bonds are backed by the Sheraton Myrtle Beach Convention Center’s operating revenues, which slumped during the pandemic, and have a moral obligation to the city.
The bonds are rated A-plus by S&P Global Ratings with a stable outlook. The bond is not rated by Moody’s, which gives the city an Aa2 rating with a negative outlook.
“The DSRF has been used to cover debt servicing since the coronavirus outbreak.“Said Krist. “The city has a moral obligation to replenish the DSRF after a tap, a pledge it wants to keep in its upcoming budget cycle.”
Since 2010, the city has sold approximately $ 209 million worth of bonds, with most of the issuance occurring in 2014 and 2016, when it sold about $ 62 million in each of those years.
As of December 31, 2020, the city had approximately $ 192.22 million in debt and lease obligations outstanding compared to $ 200.94 million the previous year.
The court settlement comes after Myrtle Beach saw a sharp drop in several of its revenue streams in 2020, including its own local entertainment fees.
City officials now expect additional fees of about $ 18 million per year, which is about 11% of the city’s revenue. The city’s $ 22 million one-time payment under the settlement is its portion of the entertainment fees the county has accumulated since the lawsuit was filed in 2019.
“The impact on Horry County will be pretty insignificant. These were revenues that the county previously used to pay government infrastructure loans, and those loans were paid off in 2019, “Mamo said. “From the county’s point of view, the fact that they can continue to collect these and receive monies generated in unincorporated parts of the county is a win because they no longer have the debt servicing costs they have to pay.”
Horry County officials told Moody’s that they expect their share of current revenues, estimated at $ 13 million annually, to be used on various operating costs and infrastructure projects. Larger investment projects are now expected to be processed jointly by the district and its municipalities.
Mamo noted that the city’s outlook was negative.
“Myrtle Beach was hit particularly hard in the early stages of the pandemic.” he said. “Their hospitality fee income, which is a prepared food and drink tax, plummeted right after the pandemic broke out, and there were all kinds of closings and restrictions on gatherings. In May 2020, those sales were down 80% year-over-year, and throughout the summer, those sales were down about 50% on average.. “
He said this began to recover as the winter went on, but noted, “This is a summer tourism destination and therefore most of its income is generated during this summer period from May to September. So let’s see how they can keep this recovery going for the next four or five months. “
A total of 38,440 coronavirus cases have been reported in Horry County as of April 27, with 568 reported deaths. In the state of South Carolina, 576,000 cases with 9,435 deaths have been reported.
Myrtle Beach isn’t the only company hit hard by the coronavirus pandemic in the southeast. The tourism and hospitality sectors across the region have suffered financial losses from travel bans and security protocols that limited attendance.
In January, a payment was missed for a municipal loan issued on a project at Elvis Presley Graceland in Memphis, which were based on tourist taxes. The loss of revenue from fewer visitors during the coronavirus pandemic has been blamed as the reason the bonds were unable to generate enough revenue to service the debt.
In Florida, the Center for Disease Control’s “No Sail” orders continue to provide the entire cruise Industry. According to the Florida Ports Council, the state has lost an estimated 169,000 jobs and nearly $ 23 billion in economic activity by the end of 2020.