The Louisiana Stadium and Exposition District heads to market Thursday with the biggest deal of the week, a $550 million issue of revenue bonds that will help fund continuing renovations to the Caesars Superdome.
BofA Securities and UBS are set to price the Series 2023A senior revenue bonds, which consist of $519.945 million of tax-exempts and $29.62 million of taxables.
New money proceeds of about $144 million will be used to fund ongoing renovations to the Superdome. The remainder will be used to terminate a portion of a 2022 hedge agreement with PNC Bank and fund an account in the reserve fund.
Some of the proceeds from the tax-exempts will refund outstanding Series 2013A senior revenue bonds, and Series 2019, Series 2020 and Series 2021 bond anticipation notes while some proceeds from the taxable sale will refund Series 2022A BANs.
The LSED entered into the swap agreement in an effort to hedge against rising interest rates. The swaps have an early termination date of July 3, when all series of BANs are due.
The tax-exempts, due July 1, are tentatively structured as serials running from 2021 to 2053. The taxables, due July 1, are tentatively structured as serials running from 2024 to 2031.
Co-managers include Ramirez, Raymond James and Siebert Williams Shank. PFM and CLB Porter are municipal advisors; Foley & Judell and Auzenne & Associates are bond counsel.
The deal is rated A2 by Moody's Investors Service and A by Fitch Ratings and carries stable outlooks from both agencies.
The city is clearly on the rebound, said John Hallacy, founder of John Hallacy Consulting LLC.
"New Orleans has continued to be a top destination for conferences and for sporting events," Hallacy told The Bond Buyer.
"Although there may be some lingering concerns about the HOT (hotel occupancy tax) volatility, room nights are on a clear upswing," he said. "Future upgrades may be possible as momentum is built on a re-established baseline of activity."
The Superdome is scheduled to host Super Bowl LIX in 2025. Its primary tenant is the National Football League's New Orleans Saints, while the Smoothie King Center is primarily used by the National Basketball Association's New Orleans Pelicans.
The dome hosts college football and basketball games and in the past has held concerts, boxing and soccer matches. In 2011, Mercedes-Benz bought the naming rights to the stadium, but didn't renew the contract and in 2021 Caesars Entertainment bought the rights.
The LSED was created in 1966 as a political subdivision of the state to own or build any type of sports or recreation buildings, including those hosting sporting events and conventions. It has since expanded and now owns the Smoothie King Center, Champions Square, Shrine on Airline, the Alario Center, TPC Louisiana and the Ochsner Sports Performance Center, which is the Saints' and Pelicans' training facility.
The facilities are managed by ASM Global, which also exercises authority over the operating revenues. Events at these venues increase tourism throughout the region.
The bonds are backed by a first lien on available revenues of the district — primarily the proceeds of a 4% hotel occupancy tax collected in the Orleans and Jefferson parishes — and other available revenues, but excludes any district revenue dedicated for other purposes or that's legally restricted.
The bonds are also backed by a debt service reserve. The outstanding BANs are backed by a subordinate lien on these revenues; the BANs are not backed by a debt service reserve.
Following the issuance, the district will have approximately $553.7 million in outstanding special revenue debt.
The LSED hasn't issued senior revenue bonds since 2013, instead they've issued BANs for short-term financing during the past decade, according to a report issued last week by CreditSights.
CreditSights cited three recent deals that serve as a comparison to the upcoming sale:
- The Maryland Stadium Authority's revenue bonds, football stadium issue, secured by lottery revenues, (NR/AA/AA/) sold during the week of June 5 with the 10-year maturity (5% 3/01/33) priced at +43 basis points over the comparable Refinitiv MMD scale.
- The Ernest N. Morial — New Orleans Exhibition Hall Authority's special tax revenue bonds (Aa3/NR/AA+/) sold during the week of May 8 with the 10-year maturity (5% 7/15/33) priced at +45 bps and evaluated by BVAL at +41 as of last Thursday.
- The Las Vegas Convention and Visitors Authority, Convention Center expansion and renovation revenue bonds (Aa3/A/NR/) is secured primarily by hotel occupancy tax revenues and sold in August 2022 with the 10-year maturity (5% 7/01/32) priced at +52 bps and evaluated by BVAL at +58 as of last Thursday.
Fitch said its A senior lien bond rating is based on solid revenue growth prospects and a satisfactory resilience cushion.
The rating reflects "a healthy rebound of the New Orleans' tourism industry (and a corresponding rebound in pledged tourism-related taxes), and positive near-term prospects for the city's tourism industry," Fitch said.
The return of large tourism events, beginning in spring 2022, such as the Mardi Gras, French Quarter Festival and New Orleans Jazz & Heritage Festival, signaled the recovery of visitor traffic to the city, Fitch said.
In 2022, Fitch revised the outlook on the LSED to stable from negative.
"The outlook revision to stable from negative for both the senior lien bond [A] and subordinate lien BAN [BBB-plus] ratings reflects a healthy rebound of the New Orleans tourism industry (and a corresponding rebound in pledged tourism-related taxes), and positive near-term prospects for the city's tourism industry," Fitch said at the time.
"The two-notch distinction between the senior lien and subordinate BAN ratings reflects the weaker security structure and lack of reserve fund afforded by the BAN security," Fitch said.
The HOT revenues are expected to grow at a solid long-term rate, Fitch said, above the rate of inflation, as the city's tourism industry continues its post-pandemic recovery. Historically, pledged HOT revenues have shown steady growth — excluding after extreme events, such as the COVID-19 pandemic in 2020-2021 and Hurricane Katrina in 2005.
"The recent recovery in pledged tax revenues provides a satisfactory debt service coverage cushion, when including projected additional debt service from the current borrowing," Fitch said. "Restoration of a resilience cushion more consistent with the pre-pandemic level will depend on continued growth in the local tourism sector and pledged revenue stream."
Moody's said its A2 rating "reflects the post-pandemic recovery of pledged revenues that has contributed to improved debt service coverage levels, despite the significant increase in outstanding debt. The rating also incorporates strong legal covenants including an additional bonds test of 1.5 times maximum annual debt service and a debt service reserve cash funded at MADS of the Series 2023 bonds."
Moody's noted the rating further considered the narrow nature of the pledged revenues that have historically been subject to volatility due to extreme weather events as well as the pandemic.
"The stable outlook reflects the expectation of consistent debt service coverage over the next several years as growth in leisure travel drives improved pledged hotel occupancy tax collections," Moody's said.
New Orleans is highly ranked as a city for festivals, historical sites, antique shopping, nightlife and restaurants. In 2022, Travel & Leisure Magazine placed the city as number two on its list of top U.S. cities, the 10th year in a row the city was on the list.
Attractions in the area include the Audubon Aquarium of the Americas, Insectarium and Zoo, the Ogden Museum of Southern Art, the Louisiana Children's Museum, the New Orleans Museum of Art, City Park, the Saenger Theatre and the National World War II Museum.
The Louis Armstrong New Orleans International Airport, which was renovated in 2019, saw a post-pandemic rebound in 2022, as it hit 87% of its pre-COVID level of passenger volume. The airport saw more than 15.6 million passengers in 2019.
