DALLAS — Surrounded by construction cranes and rising retail activity, the American Airlines Center in Dallas is getting a lift from Fitch Ratings.
The professional sports arena, which serves as home to the National Basketball Association’s Dallas Mavericks and the National Hockey League’s Dallas Stars, goes to A-plus from A, despite signs of a weakening economy in the North Texas region.
The rating affects $81 million of special tax bonds backed by a 2% hotel occupancy tax and a 5% rental car tax within Dallas city limits. The arena’s debt also includes $30.6 million of tax and lease bonds that are supported by the same revenues.
Both taxes were approved by Dallas voters in January 1998. The Series 1998B bond ordinance also includes annual lease payments by the Stars and Mavericks. No more bonds are authorized, except for refundings.
Debt for the AA Center’s Series 1998A and B bonds were issued under the name of the Dallas Sports Arena Project. As full owner of the center, Dallas leases it to the sports teams and a venue operator. The debt carries ratings of A from Standard & Poor’s and Aa1 from Moody’s Investors Service.
When the arena was built in 2001, it was surrounded by rail lines and cleared industrial sites on the northern fringe of downtown Dallas. The arena’s design, by David M. Schwarz/Architectural Services Inc. and HKS Inc., featured red brick and sweeping exterior arches framing large expanses of glass that gave the building the look of a massive 19th century train station.
In exchange for tax increment financing from the city, developers promised to develop the 75-acre Victory Park around the AA Center, bringing retail and residential projects to the area. Caught in the undertow of the Sept. 11, 2001, terrorist attacks and the first recession under newly inaugurated President Bush, plans to develop the site were put on hold. In 2004, however, ground was broken for the 33-story W Hotel that has since opened at the front porch of the arena.
Other towers have also been completed or are under construction as part of the $3 billion Victory Park project. At full build-out, it will contain more than 4,000 residences and four million square feet of office and retail space. The park is on the western edge of the city’s increasingly fashionable Uptown neighborhood, near two Ritz-Carlton residential towers that are nearing completion.
Although Fitch analysts Andy Kaaz and Steve Murray did not consider the related development in awarding the upgrade, Kaaz acknowledged that increasing revenue from the W hotel and higher hotel rates in the city generally contributed to the improved status.
“Car rental tax collections declined from 2001 through 2003, due to the events of Sept. 11, 2001, but have since increased annually through 2007, rebounding to pre-recession levels,” the analysts noted. “Hotel occupancy taxes, meanwhile, performed in the same manner.”
The economic recovery since 2001 has also boosted the AA Center’s surplus debt redemption account to $50 million, which represents nearly half of the outstanding debt. The account, which is made up of excess tax revenues on the hotels and car rentals, can only be used to retire debt on the arena.
Since the opening in 2001, the American Airlines Center has also been served by the Trinity Railway Express, a commuter rail line that connects Dallas and Fort Worth. The line provides special runs for events at the arena. Dallas Area Rapid Transit, which shares financing and operation of the TRE with the Fort Worth Transit Authority, is also building a light-rail line that will serve the area.
Although the economy appears to be weakening again in 2008, Kaaz said the AA Center is well protected in a downturn by the surplus debt redemption account.
“If we do go into a recession, that’s an additional cushion,” he said.