DALLAS — Standard & Poor's put Glendale, Ariz.'s certificates of participation on negative watch as the city prepares to issue $100 million of debt to help a private investor buy the Phoenix Coyotes National Hockey League team.
Glendale's COPs remain at AA-plus, but the negative watch indicates a possible downgrade in the not-too-distant future.
"The CreditWatch negative placements reflect our view of the city's plan to issue more than $100 million of additional debt on parity with the second lien on excise taxes," said analyst Sussan Corson. "The CreditWatch is also based on our view of declining trends in pledged revenue that we believe could contribute to declines in second-lien maximum annual debt service coverage from current levels of 4.7 times by fiscal 2010 pledged revenues, which we view as very strong."
Standard & Poor's action follows a downgrade by Moody's Investors Service to Aa2 from Aa1 on Glendale's general obligation rating. Second-lien excise tax revenue bonds that will be issued for the arena fell to A1 from Aa3, and the third-lien bonds dropped to A2 from Aa3.
The revenue bonds Glendale plans to issue will be backed by the city's excise tax under the name of a conduit issuer, the Glendale Municipal Property Corp. The purpose of the debt is to keep the Coyotes playing in the city's Jobing.com arena, which was financed in 2003 with $180 million of bonds.
Chicago investor Matthew Hulsizer will receive $197 million from the city to allow him to buy the team from the NHL for $170 million. In addition to $100 million in bond proceeds, Glendale will pay Hulsizer $97 million to manage the arena. The NHL bought the Coyotes out of bankruptcy in 2010 in order to prevent the team's move to Canada.
The city has not said when it plans to issue the new bonds or how they will be structured. With the muni market moving against issuers since November, officials had considered a private placement of the debt.
Another possible snag is a potential lawsuit from the Goldwater Institute, which opposes using public money to support private businesses. The conservative think tank claims that the deal might violate the state constitution's so-called gift clause.
Standard & Poor's negative watch also applies to Glendale's Western Loop 101 Public Facilities Corp., which issued $138 million of sales-tax backed bonds in 2008 to build a Major League Baseball spring training facility for the Chicago White Sox and the Los Angeles Dodgers.
Since the launch of the Coyotes arena, Glendale has participated in a new National Football League stadium for the Arizona Cardinals and the new spring training facilities for baseball. Major financing for the football stadium came from the Arizona Sports and Tourism Authority. The hockey arena is surrounded by commercial and retail development, including a theater, restaurants, and a Cabela's outdoor retail store.
Glendale's excise tax collections declined 7.2% in fiscal 2009 and 8.7% in fiscal 2010. The city currently estimates that total excise tax revenue will decline by 5.6% in fiscal 2011.