Wachovia demise could cost Lancaster a LOT

In reply to the NewsLanc article: Viewer asks would Wachovia's demise halt Convention Center funding?

If Wachovia were to be taken over by another bank, it could cost the people of Lancaster County a LOT of money.

It is likely that any successor to Wachovia would terminate the LCCCA's interest rate "swap" agreement, which could result in a hefty fee for the LCCCA, and exposure to undesirable market conditions. In addition, the agreement between Wachovia and the LCCCA has provisions to convert the "seven-day demand notes" into conventional bonds, which any successor bank is likely to take advantage of, since the current bonds are so undesirable in today's market.

Conventional bonds taken out today would most likely carry a much higher interest rate, which would greatly increase the bonds' draw on the "hotel tax" - leaving even less money available to cover operational losses. And any successor to Wachovia is highly unlikely to renew its five year guarantee of the LCCCA construction bonds, which would result in yet another rate increase.

If Wachovia were to cease to exist in its current form, Lancaster County real estate tax increases are certain to follow. This is because the "hotel tax" would be unable to cover the convention center's operational losses plus increased interest rates, even if the "hotel tax" were to be increased by the County Commissioners to the highest rate allowed by State law.

Editor's response: Unless there were an economic benefit for Wachovia or its successor as guarantor of the bonds to alter the bond's status as 'low floaters' to conventional, we see no reason why they would want to increase the Convention Center's expenses, and thus further reduce the value of the bank's collateral.