DALLAS — Glendale, Ariz., is taking a downgrade as it prepares to issue $116 million of revenue bonds to keep the National Hockey League’s Phoenix Coyotes playing in city-owned Jobing.com arena.
Moody’s Investors Service lowered Glendale’s general obligation rating to Aa2 from Aa1, while dropping its senior-lien excise tax rating to Aa3 from Aa2. The second-lien excise tax revenue bonds that will be issued for the arena fell to A1 from Aa3, and the third-lien bonds dropped to A2 from Aa3.
Moody’s outlook on the city’s ratings was returned to stable from negative.
“The current offering significantly increases the amount of the city’s total excise tax debt to approximately $592.6 million, which is a contributing factor in the rating assignment,” analyst Patrick Ford wrote. “Debt-service coverage of the city’s excise tax bonds is well below average when compared to the local peer group.”
Glendale will transfer proceeds of the bond sale to Chicago investor Matthew Hulsizer to help him buy the Coyotes from the NHL. In exchange, Hulsizer will allow the city to collect parking revenue from the arena to back debt service.
The city will pay Hulsizer another $97 million to assume management duties for the arena, which was built at a cost of $180 million in 2003.
With the money from the city, Hulsizer will buy the Coyotes from the league for $170 million. The city will also establish an $8.6 million stabilization fund for the team.
Glendale plans to issue the bonds via a negotiated sale next week. Series A will consist of $107 million of tax-exempt bonds backed by the excise tax. The $9 million Series B will be taxable.
The bonds will be issued under the name of Glendale Municipal Property Corp. under a lease agreement. The city’s obligation to make lease payments to the corporation is unconditional and not subject to appropriation. Excise tax revenue consists of unrestricted local sales and use taxes, state-shared revenue, and other fees and charges.
The GMCP will also begin charging for parking at the arena, but two studies differ on whether the resulting revenue will be sufficient to service the debt.
The venture with Hulsizer comes as all Arizona cities cope with downturns in revenue due to the effects of the recession and the housing bust.
Glendale’s excise tax collections declined 7.2% in fiscal 2009 and 8.7% in fiscal 2010. The city currently estimates that total fiscal 2011 excise-tax revenue will decline by 5.6%.
Another possible complication is a potential lawsuit from the Goldwater Institute, which opposes using public money to support private businesses.
The institute claims that the deal might violate the state constitution’s so-called gift clause.
Glendale says that the institute does not understand the structure of the deal and its obstruction would be harmful to the city’s taxpayers.
“The city has attempted to work with the Goldwater Institute to provide them information relevant to the analysis they claim to be undertaking,” the city responded in a written statement. “Notwithstanding these efforts, it is clear that the Goldwater Institute fails to comprehend the basic structure of the transaction, the benefits that it has to the taxpayers, and the very significant detriment that the taxpayers will incur if the institute continues to obstruct the transaction.”
