Louisville Agency Updates KFC Yum! Center Bondholders

BRADENTON, Fla. — The Louisville, Ky., Arena Authority will hold semiannual conference calls to discuss the status of its bonds sold in 2008 to build the 22,000-seat KFC Yum! Center, officials said Wednesday.

The arena opened on the city’s downtown waterfront in October 2010 to become the home for the University of Louisville athletic programs, including the Cardinals basketball team.

In May, Moody’s Investors Service dropped its rating on the arena’s $339 million of outstanding senior bonds to junk, citing the center’s lower than expected revenues and high operational costs.

There was no mention during the first conference call Wednesday about Moody’s action, though comments indicated there has been confusion about the project’s viability.

Kentucky Economic Development Secretary Larry Hayes, who was appointed chairman of the Arena Authority in early June, told those on the call that the authority may have been neglectful in communicating with investors.

Hayes provided an update about recent changes that have been made to shore up the arena’s finances, including the hiring of Los Angeles-based AEG Facilities.

On July 1, AEG signed a 10-year management contract providing an up-front $1.1 million fee and guaranteed annual payments of more than $1 million thereafter to the authority, Hayes said.

The guaranteed revenue from the management contract, and other funds such as sales taxes from a tax-increment finance district around the arena, will help the authority make its payments, he said.

“We think that, as we look forward with the new agreement in place, we certainly don’t anticipate any problems being able to continue our obligations to bondholders,” Hayes said. “There isn’t any risk that I can determine that should keep people worrying about those bonds that they are holding now.”

The purpose of the Arena Authority is to oversee the management and to see that bondholders are paid, he said.

Hayes also outlined some of the problems that led Moody’s to drop its rating to Ba2 from Baa3 on the bonds sold by the Kentucky Economic Development Finance Authority. Those problems included lower than anticipated TIF revenues and much higher operational expenses than expected.

The TIF revenues, diminished by the economic downturn, are expected to begin rebounding and come close to projections this year, Hayes said. The city of Louisville also maintains its pledge to pay up to $9.7 million if necessary to cover debt service.

In response to a question from a research analyst about cash-flow estimates for the remainder of the year, Gregory Carey, a managing director at Goldman, Sachs & Co., underwriter of the bonds, said budget information would be provided to bondholders.

On Friday, arena officials are meeting with the bond insurer, Assured Guaranty Municipal Corp., and analysts from Standard & Poor’s.

In January, S&P affirmed its BBB-minus rating on the arena bonds, and revised the outlook to stable from negative.

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