With a major college basketball tournament canceled earlier this year and concerts postponed until 2021 at the KFC Yum! Center in Louisville, Kentucky, S&P Global Ratings downgraded the arena's debt by one notch due to the coronavirus pandemic's impact on revenues.
S&P on Friday lowered its ratings to BBB-plus from A-minus on the Louisville Arena Authority Inc., which issues debt for the 22,090-seat KFC Yum! Center. The ratings remain on CreditWatch with negative implications.
The action affects $202.13 million of tax-exempt refunding bonds maturing in 2047 and $175.64 million of taxable refunding bonds due 2038. The bonds were issued in 2017 to refinance the arena's obligations, including a fully funded cash balance for the debt service reserve and other accounts.
"The downgrade reflects the COVID-19-related arena operational difficulties expected over the next year or so, as well as the impact of the recession on the tax increment financial district, which we view will result in a significant negative impact on the arena's 2021 TIF revenues," said S&P analyst Benjamin Feder, who added that the outbreak has resulted in close to a complete shutdown of economic activity in the TIF district.
The arena's debt is primarily serviced with revenues from basketball games and other functions, Kentucky state sales and property tax TIF revenues, and guarantee payments from the Louisville and Jefferson County Metro Government.
The March 20-23 first and second rounds of the National Collegiate Athletic Association's Division I Women's Basketball games — scheduled to be played at the arena — were canceled, according to the center's schedule. The fall schedule of the University of Louisville's men's basketball season hasn't been set.
Major concerts scheduled in 2020 that have been reset for dates in 2021 include Michael Bublé and James Taylor. Elton John and Justin Bieber's concerts have been postponed to dates to be determined. Janet Jackson, Disney on Ice, and Cirque du Soleil's OVO events were canceled.
The Hot Wheels Monster Trucks that was to be held March 14, has been rescheduled for Aug. 22. World Wrestling Entertainment's WWE Raw professional wrestling program has been rescheduled to Oct. 26 from May 18.
"The CreditWatch placement reflects the uncertainty regarding the extent and length of the COVID-19-related disruptions on the TIF district and, in particular, the arena," Feder said. "The arena has already cancelled several events, and is likely to be closed through the rest of the summer."
In mid-March, Kentucky Gov. Andy Beshear ordered closure of some businesses that couldn't comply with restrictions on distancing, such as dining rooms at restaurants. He also asked businesses to allow employees to work from home and implemented social distancing guidelines. A month later, the state's economy started to reopen in phases.
On May 11, the arena's financial advisor, Chip Sutherland managing director at R.W. Baird, told the authority board that TIF revenues from the state sales tax depends on the hospitality industry, which includes hotels and restaurants and the convention center affected by closures, according to draft minutes of the meeting.
Sutherland said the arena authority would make debt service payments in June and December of this year.
Louisville Arena Authority Chairman Scott Cox told The Bond Buyer late Monday he is dismayed by S&P's rating downgrade. “While disappointing, we are still at investment grade," Cox said. S&P "will continue to monitor us closely until they can get greater clarity on the long-term effects of the pandemic on consumer patterns in our two-mile TIF.”
Moody's Investors Service assigns a Baa3 rating to the Louisville Arena Authority's bonds. The outlook is stable.
