S&P Global Ratings lowered the rating on a portion of the Conroe Local Government Corp.’s hotel debt to “D” after the CLGC was delinquent on an April 1 interest payment tied to its series 2021B second-lien hotel revenue bonds, according to an April 16 S&P report.
The gist
The rating action applies to CLGC’s series 2021B second-lien hotel revenue bonds, which were previously rated “CCC-,” according to S&P.
In simple terms, S&P considers that portion of the hotel debt to be in default because the full interest payment was not made, according to the report.
The city’s general obligation rating is separate from the hotel bond rating. S&P rates Conroe’s property tax-backed certificates of obligation at AA+.
What happened
The hotel project did not have enough operational cash flow or enough money left in its dedicated debt service reserve account to fully cover the about $463,319.11 April 1 interest payment, according to S&P Global Ratings.
The shortfall totaled $294,835.11, after paying part and transferring $21,591 from the third-lien bond service fund and $146,893 from the second-lien debt service reserve account, according to the report. According to S&P, the second-lien reserve account was depleted after the final April 1 withdrawal.
“The project has been draining its liquidity to pay second-lien debt service since the hotel opened in 2023,” S&P states in the report.
S&P also plans to withdraw the rating on the second-lien bonds in 30 days, according to the report.
Why it matters
The downgrade is the latest financial pressure point for the city-backed hotel and convention center, which opened in May 2023, according to S&P.
CLGC issued three sets of bonds for the project, including $28.71 million in series 2021A first-lien hotel revenue bonds, $27.16 million in series 2021B second-lien hotel revenue bonds and $21.21 million in series 2021C third-lien hotel revenue and subordinated contract revenue bonds, according to S&P.
Bond proceeds were used to help design, acquire, construct, equip, furnish and open the 250-room Hyatt Regency hotel, as previously reported by Community Impact. The hotel facilities include guestrooms, food and beverage spaces, back-of-house areas, a pool, fitness center and business center.
The city separately issued certificates of obligation and obtained a loan and cash contribution from the Conroe Industrial Development Corp. to fund the city facilities tied to the hotel, according to S&P. Those city facilities include the convention center space, the parking garage and certain public facilities, according to the report.
Although the hotel and city facilities were funded through different structures, S&P said it considers both facilities’ cash flows because the rated bonds are repaid with net revenues from both facilities and both are operated under one hotel service agreement with Hyatt.
Breaking it down
The default does not apply to all city debt. The rating action applies specifically to the series 2021B second-lien hotel revenue bonds, according to S&P.
The second-lien bonds are subordinate to the first-lien bonds, according to S&P. That means the second-lien bondholders are behind the first-lien bondholders in the repayment structure, according to the report.
S&P said recovery for the second-lien debt would depend on remaining cash after the first-lien debt is recovered. In its analysis, S&P assumed a simulated default of senior debt in 2028 with 40% recovery, leaving an assumed 0% recovery for the second-lien debt, according to the report.
The city’s general obligation credit rating is separate from the hotel bond rating. According to S&P, the city’s certificates of obligation tied to the city facilities are secured by the city’s property tax revenue and rated AA+, equivalent to S&P’s general obligation rating on the city of Conroe.
How we got here
The hotel has faced continued financial pressure as its operational and financial performance have not improved enough to cover the second-lien debt payment, according to S&P.
S&P previously lowered the second-lien debt bond rating in June and October 2025, according to related research listed in the April 16 report. The April 16 downgrade lowered the rating from “CCC-” to “D,” according to S&P.
Garfield Public/Private LLC is the project developer, and its fully owned subsidiary serves as the asset manager, according to S&P.
The city of Conroe did not respond to Community Impact’s request for comment prior to press time.