Kentucky EDFA on Moody's Watchlist for Downgrade

NEW YORK - Moody's Investors Service said it has placed on watchlist for possible downgrade the underlying Baa3 rating of the Series 2008A and 2008B project revenue bonds for Kentucky Economic Development Finance Authority's (KEDFA) Louisville Arena Authority (LAA), affecting approximately $348.9 million of outstanding rated debt.

Both issues are insured by Assured Guaranty (Aa3; negative outlook). The Series C bonds are unrated and uninsured. KEDFA issued the Series 2008 Louisville Arena Project revenue bonds to construct a 22,000 seat multipurpose arena primarily intended for University of Louisville's men's and women's basketball teams.

The watchlist action reflects the declines in the state sales tax, a proxy for TIF sales tax revenues which is critical to pay the debt service payments for the senior bonds.

The TIF revenues were designed to support 35% of the annual senior lien debt service payments however declined drastically in 2009 and have not increased enough to materialize the projections.

Though the arena itself is doing considerably well with university and non-university related revenues, without the support of the TIF revenues, the debt service coverage is significantly lower than forecasted.

During the review period, Moody's will be analyzing the growth rate assumptions behind the TIF revenues and projecting the debt service coverage for the near to mid-term. Resolution of the watchlist could result in one or more notch downgrades.

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