DALLAS — The Harris County-Houston Sports Authority plans to make its final payment next month on $125 million of variable rate bonds that wrecked the stadium builder's credit.
JPMorgan Chase has held the bonds since 2009 when downgrades to insurance provider MBIA Inc. and declining tax receipts triggered an accelerated payment schedule. The 30-year debt-service schedule was reduced to five years as the bank became the buyer of last resort.
To make the payments, the sports authority had to dip into its reserves to reimburse the insurance company, now doing business as National Public Finance Guarantee Corp.
The first draft from the reserves came in November, 2010, for a $5 million payment on the bonds for the $352 million Houston Texans stadium, then known as Reliant Stadium and now named NRG Stadium.
With shortened payment schedule, the sports authority's credit ratings fell to junk. Standard & Poor's dropped the authority's junior-lien and third-lien bonds five notches to B from BBB-minus in 2010. Moody's lowered the authority's senior-lien credit to Ba3 from Baa2.
"These are the bonds that everyone has been worried about," HCHSA chief executive Janis Schmees Burke told the Houston Business Journal. "We might have to dip into our reserves to pay them, but they'll finally be paid off on May 10."
In addition to NRG Stadium, the authority financed Minute Maid Park, where the Major League Baseball Houston Astros play, and the Toyota Center, home of the Houston Rockets of the National Basketball Association.
With the variable-rate bonds about to be paid off, Schmees Burke said the sports authority is negotiating with the Texans, the Rockets, the Astros and the Houston Livestock Show and Rodeo to restructure about $1 billion in long-term bonds that mature in 2042.
MBIA-National was so concerned about the authority's ability to pay the remaining $1 billion of debt that it filed suit last year in Houston, seeking a court order that would have required the authority to raise ticket and parking fees to boost reserves.
The insurance company was unsuccessful in court and later failed to win passage of state legislation mandating higher reserves. The court matter is currently the subject of an appeal. Oral argument was heard by the appeals court in February and a decision is currently pending.
The outstanding debt includes capital appreciation bonds, for which interest is payable at maturity.
While the troublesome variable-rate bonds will be gone in May, the authority remains unable to refinance its bonds under its current credit ratings. Moody's issued its most recent opinion on the debt in May 2013.
"At some point in the future the additional required reserve may be depleted if revenues do not grow faster than the junior lien debt service amortization schedule and National may have to pay on the junior lien bonds," Moody's analyst John Medina at the time. "This could result in a cross default to the senior lien bonds, but neither the senior lien nor the junior lien fixed rate bonds can be accelerated as a remedy for the default."
