DALLAS – Bonds for the city of Glendale, Ariz.’s $230 million Jobing.com arena appear to be holding their value, despite the city’s latest failure to secure the future of the Phoenix Coyotes National Hockey League team that plays there.
Greg Jamison, former chief executive of the NHL San Jose Sharks and leader of an investment group seeking to buy the Coyotes, announced Thursday that it would not meet a July 31 deadline for signing a contract to buy the team, which is owned by the NHL after the previous owner put the Coyotes into bankruptcy.
That contract with the city of Glendale would have provided Jamison $15 million per year to manage the arena and defray losses from keeping the Coyotes playing there. Since Jamison entered negotiations to buy the team, an NHL owners’ lockout delayed the season, further hampering attendance at the arena.
“We still believe we can reach an agreement that satisfies everyone,” Jamison said in a prepared statement. “We hope negotiations with the city proceed as smoothly as possible, as everyone involved wants the Coyotes to remain in Arizona.”
Working against a deal is the fact that four of the seven council members who approved the lucrative contract with Jamison were replaced in the Nov. 6 election. In that election, voters rejected a proposal to overturn the temporary tax increase levied to cover a budget gap caused by the arena debt.
The financially strapped city refunded $240 million of senior and subordinate-lien sales tax bonds for the hockey arena and other sports facilities in December for interest-rate savings.
Subordinate-lien tax-exempts maturing in 2038 with 4% coupons recently yielded 3.97% with a spread of 120 basis points against the Municipal Market Data yield curve. The MMD recorded 28 trades of premium bonds maturing in 2038 worth $11.97 million on Thursday.
No material events have been reported since the refunding, despite the ongoing difficulty of finding an owner who will keep the Coyotes playing in Glendale.
Bonds issued to build the arena in 2003 are backed by city sales tax revenue that is only very indirectly affected by revenue from the city-owned Jobing.com arena. Even if the arena were vacant most of the year, bondholders would still have a higher claim on sales-tax revenues than those holding general obligation debt.
The city temporarily raised its sales tax to 2.9% from 2.2% to help cover the Coyotes’ losses from playing in the arena. Despite that move, the city is still expected to face deficits in coming years.
Despite the tax hike, Standard & Poor’s downgraded the second-lien arena certificates of participation to AA from AA-plus while restoring a stable outlook. The COPs were issued through the conduit Glendale Municipal Property Corp.
The city faced a 19.5% deficit for fiscal 2012, primarily due to management fees for the hockey arena, according to Standard & Poor's.
Moody’s Investors Service in November downgraded the senior arena debt to A2 from A1, citing the ongoing drag on city revenues from the hockey team.
The fiscal woes have had a larger impact on Glendale’s general obligation bond rating, which has fallen twice in the past year.
Standard & Poor's in December lowered its long-term GO rating two notches to A-minus from A-plus and maintained a negative outlook.
Moody’s downgraded Glendale’s GO rating in November to A2 from Aa3 while maintaining a negative outlook. Both downgrades were the agencies’ second for 2012.