Muni Credit News Week of October 2, 2017

Joseph Krist




There are two major issues upcoming to finance arenas housing professional sports teams. The first is $140,000,000 Sales Tax Revenue Bonds (Quicken Loans Arena Project) to be issued by Cuyahoga County, Ohio. This current issue and the county’s outstanding sales tax revenue bonds are secured by a senior lien on revenue collected pursuant to the county’s current 1.25% sales tax. Although secured by the city’s sales taxes, debt service on the 2017 bonds is expected to paid with other county resources (1.5% hotel tax and arena event tax receipts), city resources (arena event admissions tax) and rent payments from the Cleveland Cavaliers.

The bonds are rated Aa2 by Moody’s. This special tax sales tax rating largely incorporates Cuyahoga County’s general obligation (GO) rating. While the county has favorably covenanted to direct the State of Ohio state Tax Commissioner to directly transfer receipts first to the bond trustee, this does not achieve complete legal divergence. The rating also considers the large economic base from which the tax is generated, a strong 3.0x additional bonds test, healthy coverage of maximum annual debt service, and positive sales tax trend.

Cuyahoga County is one the two largest counties in Ohio with a population of 1.3 million as of the 2010 Census. Approximately 30% of the county’s population resides within the City of Cleveland, the county seat. County operations include economic development, health and human services, public safety and general governmental functions.

The second is $137,460,000 City of Atlanta and Fulton County Recreation Authority Revenue Refunding and Improvement Bonds (Downtown Arena Project). The facility which will benefit is the Philips Arena, the home of the NBA Atlanta Hawks.



It is impossible to underestimate the scope of the damage that has been to the economic and financial prospects of the commonwealth of Puerto rico. The physical damage and hardship has  been obvious as has the obsequious response of the Commonwealth government at the gubernatorial level. When it became obvious that the deference being paid by the Governor to the President was not yielding results, the mantle of leadership naturally fell to officials at the mayoral level to step up and advance the island’s cause. One can have different views political and philosophical about  the style of those like the Mayor of San Juan but there can be no doubt that it had its effect.

We understand the need to get basic services like utilities up and running to the greatest number of people as soon as possible. At the same time, we cannot help but observe that all of the stakeholders in Puerto Rico have a real interest in seeing that the island’s infrastructure is not replaced as is. The totality of the destruction provides Puerto Rico with a real opportunity to move from a trailing position to a leading position in terms of how it provides basic services.

This refers to things like renewable energy that takes advantage of the solar and wind resources that are available in abundance. It provides for the installation of modern water and sewage treatment facilities. Through the use of diverse and alternative technologies, new employment and skills development opportunities can result. Especially in the area of energy, the storm provides a window to reduce dependence on oil (of which Puerto Rico has none) and move towards at least some level of self-sufficiency. This is not about policy or philosophy, it is about economics.

To the extent possible, aid should be directed towards modernization and automation of government systems. Utility lines should be placed underground to the greatest extent possible. Fiber optics should be installed along with new utility lines. The benefits in terms of both efficiency, economics, and reliability would make Puerto Rico a more attractive venue for the establishment of manufacturing and production facilities. it would increase the quality of the schools and thereby make it more likely that residents will stay long term.

Of course, the Commonwealth’s debt and financial management situations need to be addressed. And it is not totally incorrect to wish to address these in an overall context of a successful recovery plan. This will require serious federal support at both the executive and legislative levels. Unfortunately, we have grave concerns about whether the Federal government has the leadership ( and not just about the Tweeter in Chief) at the various federal agencies which would have to be involved in a comprehensive effort. Legislatively, it will require strong leadership from its legislative proxies in Congress given the Commonwealth’s lack of direct representation and inability to vote in US presidential elections.

There was at least one ray of hope from the Congress. Sens. John McCain (R-Ariz.) and Marco Rubio (R-Fla.) have introduced a bill to permanently exempt Puerto Rico from the ban on foreign-flagged ships traveling between U.S. ports. American Samoa, the Northern Mariana Islands and the Virgin Islands are already exempt. In a statement, McCain called the Jones Act “an antiquated, protectionist law that has driven up costs and crippled Puerto Rico’s economy.”


After a period of financial instability caused by debt management issues that led to a partial acceleration of the Authority’s debt, investors had hoped for financial stability going forward. Obviously, there was concern about the hotel based tax revenues which support debt issued for the various professional sports facilities around Houston in the aftermath of Hurricane Harvey. Some of that concern was ameliorated when Standard and Poor’s announced it had affirmed its outstanding ratings on the Authority’s debt. S&P said that while there may be some short-term budgetary pressures because Gov. Greg Abbott has suspended all laws authorizing or requiring the collection of HOT taxes, the authority has already collected enough pledged revenues to make its principal and interest payment in November 2017. It noted that none of its facilities were damaged. In addition, there were no additional personnel or operating expenditures incurred as a result of Hurricane Harvey.


Sarasota County, West Villages and the city of North Port and the Atlanta Braves have agreed on a plan to finance an $80 million spring training facility for the Braves. The move comes after the Braves complete their first season on Sun Trust Park in suburban Atlanta. That facility was the object of some controversy over the public role in financing that was controversial when it was undertaken.

The stadium would include 9,000 seats, a 360-degree concourse, luxury suites, 750 paved parking spaces, six fields and two half practice fields. The costs cited do not include the cost of the land. $20 million in funding had been conditionally approved by the Florida Department of Economic Opportunity. Sarasota County will commit $22 million of tourist taxes to support debt for the project. the West Villages Improvement District will issue debt for infrastructure support for the project which is designed to be the centerpiece of an overall 11,000 acre development. The District will use its special tax authority to secure debt it issues.

The deal marks another step in professional sports’ efforts to extend its record of obtaining public financing for stadia for its major league teams. Spring training has become a huge business in the last two decades and many long standing relationships between teams and communities have been left behind as teams seek to maximize revenues from even these “exhibition” games. In the case of the Braves, it would mark their second move of their spring training base in just over a decade. The Braves will retain all revenues generated by its use of the stadium but they will pay between $2 million to $2.5 million each year toward the debt to build the stadium. The team will be required to pay for routine maintenance.


$45 million in revenue is believed to have been lost when the state suspended highway toll collections to help speed evacuations and relief efforts for Hurricane Irma according to Florida’s Turnpike. Tolls were suspended on September 5 to facilitate evacuations ahead of the storm and were only reinstated in full on September 20. Tolls will remain suspended on the Homestead Extension of Florida’s Turnpike south of the interchange with the Don Shula Expressway, State Road 874 (Mile Post 0-17) to help Monroe County residents with recovery efforts.

The Turnpike System comprises much of the state’s storm evacuation routes so the suspension was not unexpected. With a total FY 2018 budget of $1.5 billion, Florida’s Turnpike operations and credit should be well positioned to absorb the impact.


On Aug. 2, 2017, S&P lowered its ratings on the South Carolina Public Service Authority to ‘A+’ from ‘AA-‘ and maintained a negative outlook following the decision by Santee Cooper to suspend the the V.C. Summer nuclear units 2 and 3 project construction. In lowering the rating, S&P cited its opinion that, without a generating asset to show for its issuance of $4.6 billion of debt, Santee Cooper had diminished debt issuance and rate-raising capacity, and hence weakened credit quality.

Since then Santee Cooper has reviewed its load forecasts and decided to lower them. A lower load forecast relieves the authority of the immediate need to add generating capacity, and alleviates the need to issue additional debt. For S&P, it believes Santee Cooper has clarified the impact of the suspension on financial metrics, rates, and power supply plans.

As a result, it has restored its outlook for Santee Cooper’s rating to stable. It does not anticipate raising the rating given the financial forecasts for coverage and liquidity, the overhang of legal and political fallout from the suspended project, diminished financial flexibility from future rate increases, and high debt levels that we do not expect to improve meaningfully over the next two years.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

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