NEW YORK - Moody's Investors Service said it has downgraded to Ba2 from Baa3 Manchester Housing and Redevelopment Authority, N.H.'s revenue bonds series A & B of 2000.
Security for these bonds is solely derived from the city of Manchester's allocation of state meals and room's taxes received in excess of $454,927.
The downgrade reflects declining debt service coverage levels and the expectation that the portion of meals and rooms tax dedicated to the bonds will be insufficient to fully fund the July 1st interest payment.
The negative outlook reflects concerns that the dedicated portion of meals and room tax receipts may continue to fall short of debt service requirements.
In addition, dedicated net revenues may be insufficient to replenish a draw on the debt service reserve fund within the required timeframe, which would constitute an event of default. The City of Manchester (GO rated Aa2 with a stable outlook) is under no obligation to make up a debt service shortfall or replenish a draw on the debt service reserve fund.
The revenue bonds were originally issued in March of 2000 to fund the construction of the Verizon Wireless Arena (formerly the Manchester Civic Center).
The 11,000 seat arena opened in November of 2001 and primarily hosts sporting events and concerts. Appropriation risk exists as the transfer of meals and rooms taxes to the trustee is subject to annual appropriation by City Council.
While the city has never failed to appropriate these funds, bondholders do not have recourse to the facility in an event of non-appropriation.
The fiscal 2010 meals and rooms tax distribution to municipalities, from the state of New Hampshire (GO rated Aa2 with a stable outlook), was capped at the fiscal 2009 level of $58.8 million as part of the state's adopted biennial budget (fiscal 2010 and 2011).
For the city of Manchester this action froze its total meals and rooms tax allocation at $4.85 million and the amount due to bondholders at $4.399 million (net of $454,927 retained by the city).
Moody's anticipates the January 2010 principal and interest payment ($3.7 million) will be paid in full. However, a $66,325 shortfall is anticipated for the July 1, 2010 interest payment of $681,000. Coverage levels would drop further in fiscal 2011 to 0.92 times, representing a shortfall of approximately $396,000.
Current projections indicate excess meals and rooms tax receipts following the January 2011 principal and interest payment to be sufficient to replenish the $66,325 debt service reserve fund draw down from July although a subsequent withdrawal would be needed in July 2011.
Assuming there is no change in the funding formula or additional support, the city's next meals and room's tax receipt would be insufficient to replenish the debt service reserve fund to required levels.
In the event that the debt service reserve, which is currently funded at maximum annual debt service (MADs), is drawn upon the deficiency is to be restored to MADs from net revenues no later than the second succeeding interest payment date following the date of withdrawal. If the debt service reserve fund is not fully replenished within the required timeframe, an event of default would occur and all bonds outstanding would become immediately due and payable.
Of note, the debt service reserve was fully funded at closing with $525,000 cash and $4.61 million surety bond. As incremental meals and rooms tax revenues have annually exceeded debt service requirements, management has applied excess revenues to reduce the surety bond portion of the reserve.
Currently, the primary debt service reserve is funded with $3.52 million of cash and a $1.62 million surety policy with ACA Financial Guaranty to achieve MADS of $5.14 million.
The negative outlook reflects Moody's expectation that dedicated meals and room's tax receipts will continue to be challenged to meet debt service payments and/or replenish a draw on the debts service reserve fund, potentially triggering an event of default.
