BRADENTON, Fla. — With a dearth of municipal paper in the market, and interest in taxable bonds rising, gilt-edged Cobb County, Ga.'s Atlanta Braves stadium deal will be on investors' radar.
The Cobb-Marietta Coliseum & Exhibit Hall Authority expects to competitively issue $368 million of taxable revenue bonds backed by the full faith and credit and taxing power of county as early as September. Similarly structured Cobb County deals have earned triple-A ratings across the board.
Bond proceeds will finance the public's 45% share of the new $672 million Major League Baseball stadium to be owned by Cobb County and leased to the team for 30 years.
Increased demand for taxable municipal bonds was spurred by Build America Bonds in 2009 and 2010, a program created by the American Recovery and Reinvestment Act to allow traditional municipal bond issuers to sell taxable bonds and receive a federal interest subsidy. To place the bonds, underwriters created a broader market of investors that included traditional and non-traditional buyers.
The Build America Bonds program expired, but the investors remain.
"What used to be an overlooked portion of the municipal market is now held more broadly by a variety of investors," said Alfred Turello, senior director of municipal evaluations at Interactive Data. "These issues helped bring a new swath of investors to the municipal bond market, and resulted in a more diverse and efficient marketplace for taxable municipal securities."
Interactive Data evaluated about 510 muni bonds where proceeds were used for stadiums and/or sports complexes, and found that 194 were rated double-A by Standard & Poor's or Aa3 by Moody's Investors Service, or better.
"We have observed that there is less trading of stadium bonds than comparable-rated general obligation and other essential service taxable municipal bonds," Turello said. "In addition, many stadium bonds have extraordinary call options related to their use and potential destruction or condemnation.
"Both of these issues usually result in stadium bonds trading cheaper relative to comparably rated taxable municipal securities."
Due to the current generic tightening of spreads for taxable municipals relative to Treasuries, and the lower absolute levels of interest rates, Interactive Data saw improved interest generally in higher yielding securities, he said.
As an example, research examined one actively traded CUSIP of taxable Build America Bonds sold in 2010 by the Pasadena, Calif., Public Finance Authority for Rose Bowl renovations. The 7.148s of 2043 tightened from 220 basis points above the 30-year benchmark in November to 182 basis points in January, Interactive Data found. On Jan. 8, a customer bought $4.67 million of the Pasadena bonds at 18.7 cents above par to yield 5.8%.
With issuance below historical averages for most of the year, the market continues to see ample demand for bonds, Municipal Market Advisors said in Monday's Municipal Issuer Brief.
Though interest rates remain relatively low, $8.6 billion of taxable bonds were sold from January through April, compared to $17.9 billion sold in the same period during 2013, a drop of 52.1%, according to Thomson Reuters.
If the same conditions persist until Cobb County's authority issues bonds for the Atlanta Braves project, history suggests there will be demand from investors.
On Tuesday, the Cobb County Commission is scheduled to take a major step in finalizing documents for the stadium.
Along with construction, development, and operating agreements, the board will be asked to approve the intergovernmental agreement for the conduit sale with the coliseum authority and the trust agreement necessary for final work to begin on the bond offering, said Jim Pehrson, director of finance and economic development.
With $6.1 million annually coming from the Braves included in the revenue stream for payment of the debt, bond counsel Butler, Snow, O'Mara, Stevens & Cannada PLLC determined there was no way to structure the deal with tax-exempt financing, Pehrson said.
The team will also contribute toward the 30-year bonds a total of $92 million in revenue from rent, naming rights, parking, and marquee advertising, in addition to a cash payment of $280 million.
Cobb County also expects to secure the bonds from an existing hotel/motel tax, property taxes, a rental car tax, and other fees.
If the commission approves the agreements Tuesday, the county's legal team will begin the process of validating the bonds. Public Financial Management Inc. is the county's financial advisor.
All three major rating agencies will be asked to review the stadium deal, and Pehrson said he expects that it will earn their highest ratings. "We are triple, triple-A rated," he said, referring to Cobb County's rating of 18 years.
The agencies most recently assigned triple-A ratings to the Cobb-Marietta Coliseum and Exhibit Hall Authority's December $41.6 million refunding of 2004 bonds issued to build a performing arts center. Payment is secured through a contract between Cobb County and the authority, and the full faith and credit and taxing power of the county.
A similar structure will be used for the stadium bonds, Pehrson said. "Even though they will be taxable bonds, we anticipate triple, triple-A ratings," he said.
Raters have already mentioned the stadium deal in recent reports.
In March, while assigning an F1-plus to Cobb's tax anticipation notes, Fitch Ratings said the Braves stadium financing is not expected to pressure the county's credit worthiness.
"Fitch does not anticipate negative rating implications as a result of this borrowing despite its view that the project is outside of the scope of traditional general government capital endeavors," said analyst Michael Rinaldi. "Debt levels will subsequently double but still remain very low."
Debt service, estimated at $24 million annually, is "not insignificant but manageable at roughly 4% of governmental fund spending," he said.
All three firms said the county has healthy finances and a strong liquidity position bolstered by a stable and sizeable economy. The county is about 20 miles from downtown Atlanta, and has a population of 717,190 residents.
Cobb County and the Braves are on track to throw out the first pitch in 2017, the same year the National Football League's Atlanta Falcons plan to open a $1.2 billion stadium in downtown Atlanta. Both have yet to complete validation of their bonds through Georgia's courts.
The Braves are moving about 14 miles from Turner Field in the city, to the northwest corner of the Interstate 75 and I-285 intersection. Adjacent to the stadium, the team is privately financing a development of retail, restaurants, residential, hotel and office space to increase year-round profitability, according to its website.
Amid fanfare and fireworks, the Atlanta Falcons broke ground on their $1.2 billion football stadium on Monday.
The event included National Football League Commissioner Roger Goodell, Falcons owner Arthur Blank, and Major League Soccer Commissioner Dan Garber, who announced in April that an expansion franchise would be sold to Blank. The MLS soccer team will be the first to play in the Falcons' new facility.
The public financing of that stadium is still tied up in litigation.
Fulton County Judge Ural Glanville validated $278.3 million in revenue bonds on May 8, striking down 20 arguments filed by residents near the stadium who are opposed to the project. They have 30 days to ask a higher court for a review.
An appeal, which must be filed by June 9, is anticipated, according to counsel for Invest Atlanta, the development authority that will issue the bonds, and the Georgia World Congress Center Authority, a state agency contracting with the Falcons to build an eight-sided retractable-roof stadium with 71,000 seats.
A local hotel/motel tax will secure $200 million of the 30-year bonds, and another $78 million of hotel/motel tax revenue pay anticipated interest on the bonds, costs and fees. The Falcons will pay $1 billion of the new stadium from the NFL's G-4 loan program, team debt, equity, and personal seat licenses.