Houston sports authority downgraded as coronavirus pressures cash
The Harris County Houston Sports Authority may be forced to tap its reserves to make debt payments on Nov. 15, according to Moody’s Investors Service, which downgraded the authority’s senior-lien debt to A3 from A2.
Second lien bonds dropped to Baa1 from A3 in Monday's action. Ratings of Baa2 on the junior lien and Baa3 on the third lien were affirmed, but the stable outlook on all of the authority’s $606.2 million of debt shifted to negative.
“The downgrade on the senior and second lien reflects the negative impact of the coronavirus pandemic on current economic conditions which will likely continue to weaken pledged revenues and strain debt service coverage,” lead analyst Adebola Kushimo wrote.
The bonds are secured by hotel occupancy and car-rental taxes, which are highly impacted by the cessation of most travel amid the pandemic, as well as some rent payments by the Houston Astros baseball team.
The rating actions also consider the authority's very limited cash position, which provides little flexibility in a contracting economic environment.
“Under our baseline scenario, recovery in pledged revenues will not begin until the late summer to early fall at the earliest and will slowly improve over the ensuing months," she wrote. "However, the situation with the pandemic is fluid, casting uncertainty on the trajectory of pledged revenues for future payments.”
The authority expects to make its next interest payment May 15 in full and on time, Moody’s reported. However, the next principal and interest payment is scheduled for Nov. 15 and under a prolonged reduction in pledged revenue, the authority may be forced to use debt service reserves to meet its payment obligations, Moody’s said.
In February 2019, S&P Global Ratings raised its rating on the authority's second-lien series 2014C bonds to BBB-plus from BBB. S&P affirmed its A-minus rating on the authority's senior-lien series 2001A, 2001G, and 2014A bonds, its BB-plus rating on the junior-lien series 2001H bonds, and its BB rating on the third-lien series 2004A-3 bonds.
On April 1, S&P shifted its outlook on all convention centers and sports authorities to negative, declaring an end to the economic expansion that began in the second quarter of 2009.