Reprinted from The Bond Buyer

That's because the district will rely on a healthy stream of tourist-related hotel and motel taxes to pay off its $146 million of revenue bonds instead of the net revenue from facilities it owns, such as the Louisiana Superdome or the arena being built next to it.

In 1996, when the district issued the new-money debt- which will be refunded this week or next- to build the arena, buyers "reacted primarily" to the hotel taxes instead of facility operations when analyzing the credit, said David "Buck" Landry, senior vice president of the deal's book-runner, Stephens Inc.

"The utilization of the facilities isn't the main thing" to investors, he explained.

So while local officials are still trying to land a professional sports tenant for the new arena, investors shouldn't fret because the bonds are secured by a very lucrative hotel trade, which continues to grow.

An estimated nine million tourists lodged at least one evening in New Orleans in 1997, according to the New Orleans Hotel-Motel Association. In addition, another 17 hotels are expected to open during the next two years, pushing the number of temporary lodgings to more than 350.

"There are 7,000 more (hotel) rooms on the drawing board, with a third phase of the convention center to come," Landry said, referring to expansion of the Ernest N. Moral convention center being built downtown. "Whenever they expand (it), hotel rooms fill up."

This type of development prompts steady growth in hotel tax collections, which, on average, increased 8% annually over the last decade. In fact, collections fell below a previous year's tally just three times in 30 years, according to the preliminary official statement.

Trends like these appeal to David Sivinski, vice president at BancOne Investment Advisors Corp. He is a fund manager for One Group's Louisiana municipal fund, which holds some of the district's previous debt.

"I feel comfortable with it," he said. "They've had good growth in (hotel) revenues over the years there. You're not just looking at two or three years, you're looking at 20 years of a good trend."

Yet, the debt's reliance on hotel taxes and bond insurance from Financial Guaranty Insurance Co., is not slowing arena operators' drive to regularly fill seats at the new facility.

Currently, arena management is negotiating with the New Orleans Brass minor-league hockey team and Tulane University's college basketball teams to become the initial permanent tenants.

But the arena is also looking to host "spillover" events- conventions and ball games that the Superdome can't handle because of scheduling conflicts or size, he said. This flexibility should be easy because the same management runs both the dome and the arena.

"I don't have a problem at all with the fact that the 'baby dome' will be well-utilized," Landry said. "Management…is doing a very professional, and excellent job."

The effort to maximize the arena's financial performance is having a spillover effect of its own on the agency's financing plans. The district will refund $7.8 million of the original debt on a taxable basis so management can dangle a carrot before vendors who operate food and merchandise stands at the new facility.

By switching to taxable financing, the district can offer incentive packages to concessionaires in which they can earn a portion of the net revenues taken down by the facility. IRS guidelines specifically prohibit tax-exempt bond issuers from entering into profit-sharing pacts with private operators of bond-financed facilities.

Though this program will throw taxable debt into the mix, the district still expects to lock in savings with the deal. As of Tuesday, Landry said the outlook for present-value savings was around $5 million- about 3.5% of the overall issue.

While underwriters would like to earn greater savings, a rally in the Treasury market is hobbling municipal refundings. "The thing that's hurting us is the Treasury market and the escrow" pricing, which can make it difficult to close an advance refunding, he said.

The issue is expected to be priced either today or next week, depending on how the market reacts to other deals and whether the underwriters can achieve a savings threshold that appeals to the district.