DALLAS — Perhaps better-than-expected savings on $328 million of refunding bonds will help Glendale, Ariz. mitigate a slightly sour financial taste left from hosting Sunday's Super Bowl.
Glendale is in the midst of a series of bond refundings that began Jan. 21 with $55.6 million of transportation excise tax bonds. That produced net present value savings of 9% or $5.3 million, more than twice what was expected.
On Jan. 28 the city offered $119 million of water and sewer bonds through book-runner Morgan Stanley, producing $14.3 million of net present value savings or 11% of the refunded par value, nearly twice the highest amount expected.
Over the next two days, the city refunded more excise tax revenue bonds, earning present value savings of 19% or $25.66 million.
On Feb. 3, the city expects to complete its series of refundings with $37 million of general obligation bonds pricing through negotiation with Piper Jaffray and Wells Fargo Securities. RBC Capital Markets managing director Kurt Freund is the city's financial advisor.
Tom Duensing, director of finance and technology for the city, said the combined deals could be considered the largest round of refunding in the city's history, though a $239.9 million refunding of municipal and property corporation bonds in 2013 was the largest single refunding deal.
Bonds priced so far net present value savings past $45 million.
The refunding issues so far are exceeding expectations for savings, Duensing said.
"The market for these transactions was exceptional, and the best I have ever seen," Duensing told The Bond Buyer. "This, combined with outlook changes from negative to stable from both Moody's and Standard & Poor's, resulted in significant savings. We remain optimistic that this week's transaction will be more of the same."
Moody's Investors Service rates the general obligation bonds A3, while S&P rates the bonds BBB-plus.
Analysts note the city's struggle to ease the burden of its $380 million of debt for professional sports facilities, including $180 million for the Arizona Coyotes hockey arena and $200 million for the Camelback Ranch spring training camp for the Los Angeles Dodgers and Chicago White Sox.
To balance the budget, the Glendale City Council enacted a five-year sales tax increase of 0.7% in 2012. In 2014, the council voted to make the tax increase permanent.
The tax increase withstood a voter petition drive and cannot be challenged at the polls again until 2016, officials said.
Despite an operational surplus, the available fund balance was still negative in fiscal 2014 at $4.8 million or 2.8% of expenditures, according to S&P.
"This is an improvement from the 2013 and 2012 amounts of negative $14.4 million and negative $29.6 million, respectively," S&P analyst Kate Burroughs said. "However, we understand that due to the city's projected deficit in fiscal 2015, the city may draw down the fund balance again."
Burroughs described the city's debt and contingent liabilities profile as "very weak."
Net direct debt to total government funds revenue is 254%, she said.
A subsidy to the National Hockey League to keep the Coyotes playing in Glendale cost the city $50 million. After the sale of the hockey team in 2013, the city has only one more $5 million payment to the NHL due in fiscal 2017, S&P noted. However it will begin paying $15 million in annual fees starting in fiscal 2015, after it paid a slightly reduced fee in fiscal 2014.
"The stable outlook on the city reflects our expectation that Glendale will remain challenged over the medium term due to an elevated fixed costs driven by a high debt load as well as net operating costs associated with professional sports facilities," Moody's analyst Patrick Liberatore wrote.
The city that bet big on pro sports budgeted $2.1 million for this year's Super Bowl, with the largest component — about $1.2 million — going to public safety.
Glendale Mayor Jerry Weiers, who was not invited by the NFL to attend the game but later received a ticket offer from a Northeast sporting goods chain, has said the city is unlikely to support any future "mega-events" such as the Super Bowl without some help from the state with additional security costs.
"If I could have a Super Bowl every year and ask that the legislature step up and help with additional safety funds, I would," Weiers told The Bond Buyer.
"Whether we make money or lose money, we don't know yet," Weiers said. "I feel strongly that we're going to lose money. At the same time, I don't know how you could put a value on a game viewed by 100 million people that was just awesome where the name Glendale was mentioned so often."
Super Bowl XLIX was expected to bring an estimated $500 million in economic impact to Arizona, but how much of that will accrue to Glendale is yet to be seen.
National Football League held pre-game events 18 miles away in Phoenix as Arizona Cardinals owner Michael Bidwill made disparaging comments about his team's hometown and accused Glendale hotels of "gouging" fans.
"Glendale has been a poor partner in all of this," Bidwill told The New York Times. "They didn't live up to their obligations to the one shining star in their community."
Weiers said he did not want to respond to Bidwill's remarks.
"I have no ill will toward Mr. Bidwill and his organization the Cardinals," he said. "It's our hometown team. Maybe when the swelling goes down, maybe we can get past that."
Reflecting a completely new city council, new mayor and new budget officials, Moody's said that the "city's management team comprises experienced municipal leaders from the Phoenix area that we consider more prudent than prior management."
Duensing was hired in October 2013 after a controversy over the city's accounting practices that coincided with uproar over the city's subsidies to the NHL. Working previously for the cities of Tempe and Maricopa, Duensing has held a number to top financial management positions.
Duensing said that the city's taxpayers will see the benefits in the refundings, which he said reflect the city staff's diligence in seeking savings wherever they are available.
We were able to tell our financial story to the bond rating agencies and investors with a positive result," Duensing said. "Although we still have work to do, this further enhances the city's financial stability."
