DALLAS — The Harris County Houston Sports Authority moved closer to using insurance to cover bond payments after dipping into debt-service reserves for the first time this month.
As expected, the stadium-building authority drew $5 million from its $56 million reserve when revenues for accelerated debt payments fell short this month. The next payment is due in May, and bond insurer National Public Financial Guarantee Corp. has said it is committed to pay debt service in the event of default.
The accelerated debt payments along with falling revenues triggered a Moody’s Investors Service downgrade to junk status in August.
The authority remains on the watch list for another downgrade, as Moody’s analysts anticipate the possibility of default as early as May.
Moody’s dropped its senior-lien ratings on the authority to Ba3 from investment grade Baa2 in August. Moody’s also lowered its rating on junior-lien debt to B2 from Baa3 and its grade on third-lien bonds to B3 from Baa3.
A month later, Standard & Poor’s downgraded $475 million of HCHSA bonds to junk. The authority’s junior and third-lien debt fell five levels to B from BBB-minus, the lowest investment grade.
At the same time, however, Standard & Poor’s confirmed its BBB rating on $399 million of senior-lien debt.
The authority’s semiannual debt-service payments surged last year after the downgrade of bond insurer MBIA Inc., now operating its public finance insured portfolio under the name National Public Financial Guaranty Corp.
The downgrade triggered provisions in a deal with JPMorgan Chase that the agency pay off in five years debt that had been due by 2030.
The authority must pay $12 million twice a year on $115 million in variable-rate bonds issued in 2001 to build the roof for Reliant Stadium, home of the Houston Texans National Football League team.
This month’s installment is the third of 10 inflated payments and the first that required the authority to draw on its reserves.
Janis Schmees, executive director of the authority, said the board is considering alternatives to the five-year payment plan but said she could not discuss specifics.
“We’re hopeful we won’t have to tap the reserve fund for our next payment in May,” she said, explaining that timing of revenues is a factor in the agency’s ability to service the debt.
In spring, it expects a windfall from the Houston Rodeo that annually draws thousands of visitors.
JPMorgan had been the standby bond-purchase provider on the Series 2001 C, D, and E bonds. JPMorgan was able to accelerate the bonds because the standby bond-purchase agreement expired in May 2009.
In addition to Reliant Stadium, the authority financed Minute Maid Park, home of the Major League Baseball Houston Astros, and Toyota Arena, home court of the National Basketball Association Houston Rockets.
While the accelerated payments promise short-term misery, sports authority board chairman J. Kent Friedman has said that paying off the debt in five years could produce a windfall for the agency if it manages to pull off the feat.
The problem is compounded, however, by declines in revenue from the hotel-motel occupancy taxes and car rental taxes that back the bonds.
Weakness in pledged hotel and motor vehicle rental tax revenue resulted in lower debt-service coverage for the senior-lien bonds of around 1.8 times at the end of 2009 and matching for the junior-lien bonds, Moody’s analysts noted.
Friedman has promised that no property-tax dollars will be used to finance the stadiums.
The downgrades have eliminated the authority’s ability to refinance the variable-rate bonds or to issue new debt for redevelopment of the Houston Astrodome, the world’s first domed stadium that is vacant most of the year.