ATLANTA - The Louisville Arena Authority in Kentucky late last week decided that the second financing for a new arena in the city would not move forward with the closing of bond deal because of the negative rating action Moody's Investors Service took against Assured Guaranty Ltd., the insurer of the debt.
Moody's put the rating of the insurer on watch for possible downgrade, causing officials working on both a $360 million deal for the arena and a separate $78.7 million transaction for the project to reevaluate moving forward with the closing.
The larger bond issue priced around the middle of the month and was set to close last week, said authority executive director Harold Workman. The Kentucky Economic Development Finance Authority is the issuer for both deals. The Louisville Arena Authority was formed to own and finance the construction of the arena, which was to open by 2010.
Moody's placed both Assured and Financial Security Assurance Inc. on watch for possible downgrade from their existing triple-A ratings because of "elevated risks with the financial guaranty market" and within each company's insured portfolio.
Last week, management for Assured sought to ease investor concerns about how Moody's action would affect deals that it is insuring. Officials working on the Louisville arena decided to study the issue before closing.
Arena authority officials will continue to evaluate the deal this week, Workman said, noting that the goal is to try to have the issue resolved by July 31, which is the date for the next authority meeting. Goldman, Sachs & Co. is the book-runner while Stoll Keenon Ogden PLLC is bond counsel.
"We still don't know what the date will be for the closing," Workman said. "We are weighing our options to finance the arena."
The options include shelving the deal by not closing on it, and possibly issuing short-term debt instead. That way, the project will get some bridge financing that could be fixed out once the volatility in the market is reduced.
The deal that is set to close includes the following: $100 million of subseries 2008A-1A bonds; $100 million of subseries 2008A-1B bonds and $80 million of subseries 2008A-1C bonds. They are all variable-rate demand bonds.
There are also about $27 million of subseries 2008A-2 bonds and $30 million of taxable Series 2008B bonds. Both are fixed rate.
Lastly, there are $21.5 million of subseries 2008A-3 bonds.
The arena will be an approximate 22,000-seat, multi-use facility the primary tenant for which will be the University of Louisville's men's and women's basketball teams.