Standard & Poor's downgraded the village of Lombard's issuer credit rating to BBB from AA after the village board last week voted not to pay almost $1 million to help the agency that owns the Westin Lombard hotel make a bond payment.
The credit rating agency downgraded Lombard's credit because the decision not to help fill a $911,747 gap in a hotel bond payment due Jan. 1 demonstrated a "lack of willingness to honor debt commitments," said John Kenward, the primary credit analyst on the report explaining the downgrade.
When village staff recommended denying the funding request from the Lombard Public Facilities Corporation, an agency created to finance construction and operation of the hotel, they knew the village's credit score likely would take a hit, Village Manager David Hulseberg said.
"It's our understanding that our credit rating will be downgraded, but we anticipated it," he said.
Hulseberg said the lower credit rating could increase the cost of borrowing by about $50,000 a year if Lombard borrows $6 million, an average figure for the village. But that increased cost still would be cheaper than paying almost $1 million to support the hotel bonds, he said.
The village also has $34 million in reserves and can use some of that money to fund construction projects instead of paying more to borrow funds, Hulseberg said.
Village President Bill Mueller said he disagrees with the credit score downgrade and said the village made the right financial decision. Services to residents won't suffer as a result of the drop in the village's credit score, he said.
Lombard's new credit rating of BBB means it has "adequate capacity to meet financial commitments, but (is) more subject to adverse economic conditions," according to Standard & Poor's.
The scores are based on an entity's ability and willingness to pay back debt, Kenward said.
"The ability, of course, is still there. Lombard is still relatively strong financially and economically," he said. "The willingness has still been compromised."
Hulseberg said the village has no intention of taking financial responsibility for the hotel's bonds and shouldn't be judged because of its bond payment troubles.
"The outlook on village responsibility for the hotel doesn't exist," he said.
The project's investors "still are getting payments that are due," through a reserve fund established by the Lombard Public Facilities Corporation, Hulseberg said.
Although the hotel is not generating as much revenue as projected before it opened in August 2007, Mueller defended the project.
"The project is very strong yet; it's a good project," he said, adding its struggles are a sign of the economic times. "But we still remain strong -- probably in DuPage County one of the strongest hotels."