Arena closing adds to pressure on Barclays Center's junk bonds
The credit risk to Barclays Center in New York’s Brooklyn borough — closed due to the COVID-19 outbreak — is especially acute because its bonds were already junk, according to Moody’s Investors Service.
The arena opened in 2012. It hosts both National Basketball Association and National Hockey League games, although the NHL’s Islanders are moving back to their Nassau County roots in Uniondale, New York, full time as of this year's playoffs, if they are held and the team qualifies.
Professional sports leagues and the National Collegiate Athletic Association have suspended games due to the virus escalation. Also lost to Barclays Center was last week's Atlantic 10 men’s basketball championship tournament.
New York Gov. Andrew Cuomo announced last week the temporary ban on gatherings with more than 500 people, one of many actions aimed to contain the virus.
The suspension removes two critical revenue streams, according to Moody’s.
Moody’s in October downgraded the bonds to Ba1 from Baa3, affecting roughly $524.0 million of PILOT Revenue Bonds issued by the Brooklyn Arena Local Development Corp.
Moody’s cited the loss of the benefit derived from the reserve account established in May 2018 with a portion of the proceeds from the minority sale of the NBA’s Brooklyn Nets, the anchor tenant. In September 2019, Alibaba Group co-founder Joe Tsai purchased the remaining 51% stake in the Nets from Russian businessman Mikhail Prokhorov as well as full ownership in the arena.
According to Moody’s, under the new licensing agreement signed at the time, more of the shared revenues, including naming rights, sponsorships, luxury suites and concession revenues, will go to the arena, which will help mitigate the financial impact of any game cancellations.
Revenues from non-Nets events will lost, however, through event cancellations. The building also hosts other events such as concerts, family events and other professional sports such as boxing and e-sports.
Ticket sales, more vulnerable to cancellations, go to the team.
According to Moody’s, some rated issuers, notably those for the Mets and Yankees baseball stadiums, could be less affected unless the virus outbreak lengthens. Citi Field and the latest iteration of Yankee Stadium opened in 2009, backed by Yankee Stadium LLC (Baa1 stable) and Queens Ballpark Co. LLC (Baa2 stable) bonds, respectively.
Major League Baseball canceled the remainder of spring training and delayed the start of the season for at least two weeks, to mid-April.
“April also typically has low attendance figures for most baseball teams given the colder weather at the outdoor stadiums,” Moody’s said.
“If the coronavirus outbreak is prolonged, however, it will ultimately result in lower revenues from ticket sales, the sole source of pledged revenues for Yankee Stadium LLC bondholders and one of the key sources of pledged revenues for the Mets, but not all ticket sales are pledged to Queens Ballpark Company LLC bondholders.”
Yankee Stadium also hosts games for Major League Soccer's New York City Football Club. MLS announced a 30-day suspension Thursday. Its regular season is scheduled to run into October.