Moody's Investors Service yesterday put $547.4 million of bonds issued to build the New York Mets' Citi Field stadium on review for possible downgrade to junk status due to the recent downgrade of the bonds' surety provider.
Moody's last month dropped Ambac Assurance Corp., the surety provider on the bonds, to Ba3 from Baa1. The review only affects bonds issued by the New York City Industrial Development Agency in 2006 on behalf of Queens Ballpark Co. LLC and not the $82.3 million of bonds issued earlier this year to complete the ballpark because the latter issue has a surety provided by Assured Guaranty Corp., which Moody's rates Aa2. Moody's currently rates both series of stadium bonds Baa3.
"Our action was based on a structural part of the deal that we considered when we originally provided the rating," analyst Andrew Cleary said. "Now because of the credit quality of Ambac deteriorating there's no protective liquidity relative to comparable deals."
Moody's does not anticipate a default by the Mets, Cleary said. The surety bond provides liquidity in lieu of a debt-service reserve fund in case of an event such as a strike that could potentially interrupt cash flow over life of the bonds, which have maturities out to 2046.
Cleary said a major consideration in the rating is what happens if there's a strike. "Is there some sort of reserve or liquidity waiting in the wings?" he said.
The $1.2 billion of payment in lieu of taxes bonds sold for the new New York Yankees stadium have debt service reserve funds that are mostly funded with cash and sureties in case of a strike.
"The Mets stadium does not have that liquidity as compared to the Yankee stadium deal," Cleary said.
Both stadiums opened this year.
Under the terms of the Mets stadium bonds' indenture, the downgrade of Ambac does not trigger a technical default but does require that excess scheduled PILOTs be transferred to a debt-service reserve fund that currently has a zero balance, Moody's said in press release.
Although current projections assume PILOTs will exceed debt service by $2.5 million in 2010 and $5.7 million annually thereafter, the bonds' indenture requires a debt service reserve fund of 150% of maximum annual debt service. That would mean funding a $50.3 million reserve.
Standard & Poor's rates Ambac A with negative outlook. If that rating fell below the stadium bonds' BBB rating, it could prompt the agency to take its own rating action. In a January credit report, Standard & Poor's said that "if the current insurers' ratings fall below the project rating, then we likely would downgrade the project to the insurer's rating if the reserve account funding was not enhanced to the project rating level."
Mets spokeswoman Danielle Sessa Parillo did not respond to requests for comment by press time.
