DALLAS — With its rating under review and revenue weakening, the Harris County-Houston Sports Authority is considering refinancing nearly $1 billion of bonds used to build its three professional sports stadiums.

Refinancing all outstanding debt is one option to ease cash-flow problems caused by accelerated payments on $114 million of MBIA Insurance Corp.-insured variable-rate debt and to unravel a swap agreement.

Three series of 2001 variable-rate bonds totaling $114 million became bank bonds earlier this year held by JPMorgan Chase & Co. With the collapse of MBIA's ratings and the lack of investor interest last year, the bonds issued to finance Reliant Stadium became payable in five years instead of the original 30.

In addition to wholesale refinancing of all debt with longer maturities, the authority is also considering staying with the accelerated payment schedule, or "terming out" the bonds.

"All options are being considered," said Janice Schmees, executive director of the authority.

The authority has already made its first payment on the accelerated schedule for the bank bonds, Schmees said. A settlement with UBS AG to terminate a swap agreement may cost $25 million. Unless the authority can reach a new agreement with JPMorgan, it will be required to make 10 semi-annual payments of about $12 million, raising total annual debt-service costs by about $20 million. Revenue was sufficient to make the first payment in November, but continuing on the schedule would limit cash flow and curtail rebates to the Houston Texans of the National Football League and would require dipping into a reserve fund.

"The flow of funds were never built for that," Schmees said, explaining that cash flow is the key issue.

In considering what course of action to take, the authority held a meeting last week with its financial adviser, First Southwest Co. The authority's board is also meeting with representatives of JPMorgan Chase and MBIA. Officials from the city of Houston and Harris County, which both appoint board members, are also involved in discussions, Schmees said.

Authorized by Harris County voters in November 1996 and by the Texas Legislature in 1997, the sports authority took on the role of building three professional stadiums, starting with a Major League Baseball stadium for the Houston Astros that opened in 2000 and is now known as Minute Maid Park. Voters authorized a $250 million issue for that stadium.

Reliant Stadium, home to the new Houston Texans NFL, team opened in August 2002 at a cost of $350 million. The $230 million Toyota Center that hosts the Houston Rockets of the National Basketball Association was completed in 2003.

Reliant Stadium is the anchor for an area known as Reliant Park that includes the landmark Astrodome, which is largely unused. The authority manages the Astrodome facility that was built in 1965 as the world's first domed stadium. Despite its historical significance, the Astrodome has become a costly relic to maintain, with an ongoing search for ways to develop it.

The board that governs the sports authority is made up of 13 appointees, six each from the city and the county, with one approved by both governments.

Through the state, the authority receives a 5% tax on car rentals in Harris County and also collects a 2% tax on the price of all hotel stays in the county. The tax base is made up of more than 400 hotels and 55,000 rooms in the area.

Unlike the Astrodome, which was built with bonds backed by a general obligation pledge, Reliant Stadium is not backed by property or sales taxes, said Edwin Harrison, chief financial officer for Harris County.

"This is a great deal for the taxpayers of Harris County because they get a new stadium and are not responsible for the tax revenues," Harrison said. When the bonds became bank bonds, he said, "It didn't leave the taxpayers any more responsible."

The ratings of the bonds are still of concern to the authority, however.

Hanging over the sports authority is a possible downgrade from Moody's Investors Service, which rates the senior-lien debt Baa2 and the junior- and third-lien debt Baa3. The $114 million of bank bonds are junior lien debt.

"The review for possible downgrade reflects the authority's weaker than expected tax revenue performance, significantly weaker-than-expected debt-service coverage, and an increase in debt-service requirements due to a trigger event that accelerates $114 million of junior-lien debt," analysts wrote last month.

The analysts called the authority's pledged revenues "highly leveraged, with consolidated debt-service coverage expected to be at or slightly above the sum sufficient for 2009, highlighting revenue volatility in the current weak environment."

While Standard & Poor's does not have the authority on its watch list, the agency ranked its junior-lien debt at the lowest investment-grade threshold of BBB-minus in a report this month. The senior-lien bonds are one notch higher at BBB. Fitch Ratings does not rate the debt.

Standard & Poor's analysts James Breeding and Horacio Aldrete-Sanchez calculate the senior-lien pledged revenues at 1.9 times debt-service requirements. However, they note that pledged revenues were down 7.5% in 2009 through August compared to the same time period last year.

"The debt-service schedule calls for a steadily increasing debt-service requirement," the analysts noted. "In 2009, debt service totals $56.2 million, with $23.3 million related to senior-lien debt. Total debt service climbs to $112.7 million in 2039, with senior-lien debt service growing to $39.5 million. Given the current leverage of the revenue streams and the coverage requirements of 1.20x for senior-lien bonds and 1.15x for junior-lien bonds, additional bonds are unlikely."

Schmees said that Moody's has not spelled out any timetable for a possible downgrade, though "you never like to be on the watch list."

And as the board sorts out its financing plans for the three new stadiums, the authority is not even considering building a professional soccer stadium near downtown Houston that had the backing of former Mayor Bill White. To take on another stadium would represent a breach of contract with the three professional teams, Schmees said.

"Our revenues are pretty stretched right now," she said. "The three stadiums we have now are enough to deal with."

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