DALLAS - Standard & Poor's lowered its long-term rating and underlying rating on Glendale, Ariz.’s general obligation bonds to A-minus from A-plus and maintained a negative outlook as the Phoenix suburb refunded $239.9 million of debt issued for professional sports facilities.
The two-notch downgrade “reflects our view of the city’s continued general fund deficits and estimated negative 19.5% general fund balance for fiscal 2012,” said Standard & Poor’s credit analyst Alda Mostofi.
The negative fund balance follows $50 million of payments, for management fees related to the $220 million Jobing.com hockey arena built with bonds backed by city sales tax revenue, Mostofi said. The payments, designed to cover losses for keeping the National Hockey League Phoenix Coyotes playing at the city-financed arena, represent nearly 20% of city general fund expenditures in the past two years, Mostofi said.
To balance its budget for the 2013 fiscal year, Glendale is raising its sales tax and cutting spending to cover an anticipated $32 million shortfall.
The city’s S&P general obligation rating has fallen from AA with a stable outlook in 2009. The outlook shifted to negative in 2010, nearly two years after the collapse of the financial markets and Arizona’s worsening housing market.
Last week, S&P adjusted ratings on sales-tax debt used to finance the hockey arena, revising its outlook to stable from negative on Glendale Municipal Property Corp.’s senior-lien debt rated AA-plus. The MPC is a conduit issuer for the city. S&P ratings on the MPC’s second-lien certificates of participation fell to AA from AA-plus.
Moody’s Investors Service downgraded Glendale’s GO rating to A2 from Aa3 on Nov. 30 in advance of this week’s sale of revenue bonds. Moody's also downgraded to A2 from A1 the rating on the city's senior lien general excise tax bonds.
In a negotiated deal Wednesday through Wells Fargo Securities, Glendale priced $39.6 million of senior-lien tax-exempt bonds. The 2012 Series B bonds with 5% coupons and 30-year maturities drew a yield of 3.39%.
A Series C issue of $183.4 million of subordinate-lien bonds reaching final maturity in 2038 bearing 4% coupons drew yields of 4.2% on the long end.
A $16.9 million issue of taxable Series D bonds carried coupons of 3.125% on maturities in 2020.
The deal was structured to ease debt-service pressures on the city’s sales tax revenue in the near term.
Proceeds of the Series 2012B bonds will refund debt for the Jobing.com Arena that the city built for the Coytotes at a construction cost of $220 million in 2003. The arena investment was part of the city’s effort to make itself a major venue for professional sports.
Proceeds of the Series 2012C and 2012D bonds are expected to refund all of the city's outstanding third-lien general excise debt for the Camelback Ranch spring training facility for Major League Baseball’s Los Angeles Dodgers and Chicago White Sox franchises.
