DALLAS — In a strongly worded response to a lawsuit from MBIA Insurance Corp., the Harris County-Houston Sports Authority said in a court filing Monday that the insurer is not out “a single penny” for covering $1 billion of its stadium bonds, while the authority has spent $25 million on premiums and other payments.
“Now, in a political stunt masquerading as a lawsuit, MBIA hopes to avoid its insurance obligations and have the taxpayers of Harris County bear the brunt of its credit downgrade,” Andrews Kurth attorney Gene Locke wrote in a filing that sought dismissal of the suit.
In its lawsuit, filed last month in Houston, MBIA sought an order requiring HCHSA to increase revenues to replenish its declining reserve fund. MBIA is reimbursed from the reserve fund for payments it makes on debt service for the bonds.
National Public Finance Guarantee Corp., a subsidiary of the holding company MBIA Inc., also seeks damages from HCHSA for other alleged contract breaches.
“National has filed this suit after all other attempts to resolve the revenue issues out-of-court failed,” said National spokesman Kevin Brown. “National has met each and every one of its financial obligations and we will continue to do so even as we are forced to litigate,” he said. “It’s unfortunate that it has come to this, but the HCHSA has left us with no other option.”
The sports authority’s response notes that it was MBIA’s falling credit ratings that triggered accelerated payment requirements that brought warnings of default risk from ratings analysts. The terms of the bond payments were accelerated from 30 years to five years in 2009 after MBIA’s credit ratings began to collapse.
“MBIA, the insurer of the Sports Authority’s bonds, took a devastating gamble by branching from its traditional business of public bond insurance into the risky world of mortgage-backed securities,” the authority’s filing said. “Facing financial ruin, MBIA now wants to be rescued from its contractual insurance obligations by the taxpayers of Harris County and the City of Houston.”
The accelerated debt payments, along with falling revenues, triggered a Moody’s Investors ¬Service downgrade to junk status in August 2010 when the authority began tapping its reserves to meet debt service.
Moody’s dropped its senior-lien ratings on the authority to Ba3 from investment grade Baa2. Moody’s also lowered its rating on junior-lien debt to B2 from Baa3 and its grade on third-lien bonds to B3 from Baa3.
A month later, Standard & Poor’s downgraded $475 million of HCHSA bonds to junk. The authority’s junior and third-lien debt fell five levels to B from BBB-minus, the lowest investment grade.
The downgrade triggered provisions in a deal with JPMorgan Chase that calls for the agency pay off in five years debt that had been due by 2030.
The authority must pay $12 million twice a year on $115 million in variable-rate bonds issued in 2001 to build the roof for Reliant Stadium, home of the Houston Texans National Football League team.
The MBIA/National lawsuit also names Houston NFL Holdings, which owns the Texans team, and the Houston Livestock Show and Rodeo, both of which use Reliant Stadium for which the bonds were issued.
The reserve fund for the bond debt has fallen from about $56 million in 2009 to $25.5 million, less than 45% of the amount specified in the indenture, according to MBIA’s lawsuit.
“The authority should have addressed its revenue shortfalls when they began, but instead it has chosen to simply kick the can down the road, making claims on National’s policies,” the suit claimed.
Joe Stinebaker, spokesman for Harris County Judge Ed Emmett, said the authority faces no risk of default and has no plans to raise taxes or fees to meet MBIA’s demands. The bonds are backed by hotel occupancy tax and car rental revenues.
“This isn’t real high on the judge’s list of things to worry about,” Stinebaker said.
