Bonds for Vegas Raiders stadium won't offer high yields

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Clark County expects its $647 million in stadium bonds to price like county general obligation bonds when they hit the market Wednesday.

Stadium debt is often considered riskier by investors than GO paper, usually junk bond or bottom-rung investment grade rated, while Clark County's bonds received an Aa1 rating from Moody’s Investors Service and AA-plus from S&P Global Ratings, said Mathian Vali, a credit research analyst at Bel Air Investment Advisors.

The county's financial backing changes the game.

“It’s not a typical stadium deal dependent on revenue from the stadium like ticket sales,” Vali said.

The debt will help pay the county’s $750 million share of the $1.8 billion, 65,000-seat stadium being built south of the Las Vegas Strip for the National Football League’s Raiders. The Raiders plan to remain in Oakland for the 2018 season, and move into the new stadium in 2020. The team hasn’t said where it will play in 2019.

It’s the first tax-exempt professional stadium deal since Congress flirted with the idea of removing the exemption for such projects in the federal tax bill in December.

The bonds are a general obligation of the county and are being repaid by a .88% hotel room tax on the strip and .50% hotel room tax in the remainder of the stadium district.

A more typical stadium bond would trade significantly cheaper to a GO credit, Vali said. For instance, Vali said, investors wanted a significant discount when bonds were sold for the Barclays Center, home to the Brooklyn Nets professional basketball team, compared to the extremely low yields on New York City general obligation bonds.

Clark County structured the bonds as GOs because the lower interest rates enabled the county to get the lowest cost of capital possible, said Guy Hobbs, managing partner, of Hobbs, Ong & Associates, co-financial advisor on the deal with PFM Financial Advisors.

“This is a GO with additionally pledged revenue,” Ong said. “So, it’s being rated on the county’s general obligation.”

The bonds will have a one and a half times reserve fund to protect the county’s general fund, Hobbs said.

“The first year of debt service reserves will come from the bond proceeds and the second year from the room tax, so we have these extremely well protected,” Ong said.

The hotel tax took effect March 2017 and the county expects to have collected $58 million by May 1, said Kathy Ong, co-founder and director of Hobbs, Ong & Associates.

County supervisors voted 6-1 Tuesday to sell the bonds and the preliminary offering documents posted a few hours later. The agreement with the team and the league was that they had to spend $100 million on construction of the stadium before the county would contribute funding, so the bond sale was tied to that trigger, she said.

Stadium construction began November 2017 and the team has set up a webcam, so fans can track progress online.

The financial advisors said they are expecting all-in interest rates of 3.9% when co-lead managers RBC Capital Markets and JPMorgan price the deal, based on how the county’s convention center debt sold.

Vali expects the bonds will receive a good reception given the lack of supply in the market.

He pointed to the $3.2 billion New Jersey tobacco bonds that were 10 times oversubscribed when they priced Wednesday.

“That was a single-A credit and this is double-A, but it shows there is a lot of appetite from the buy side,” Vali said.

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