Mets ballpark bonds downgraded to junk over coronavirus

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The Queens Ballpark Co. LLC bonds issued to build Citi Field, the home of baseball’s New York Mets, received a downgrade to BB-plus from BBB Thursday from S&P Global Ratings, which cited operational disruptions from COVID-19.

Major League Baseball, which traditionally opens in late March-early April, has yet to begin play this season. Baseball executives and the players union are stalled over an agreement. Any agreement that does emerge to play amid the coronavirus would likely limit fans in the stands, and their associated ticket and concessions revenue.

Citi Field has been home to the New York Mets since 2009.

Affected are New York City Industrial Development Agency's Series 2006 $547.4 million payment-in-lieu-of-taxes, or PILOT, bonds; $58.4 million installment purchase bonds; $7.1 million lease revenue bonds, and Series 2009 $82.28 million PILOT bonds issued for Queens Ballpark.

S&P also assigned a recovery rating of 1, reflecting its expectation for “very high” recovery in the event of a default, it said in a statement. It defines very high as 90% to 100%, with a rounded estimate of 95%.

The ratings remain on credit watch with negative implications, which S&P assigned on March 23.

“It is unclear when the baseball season will resume or what level of social distancing will be required when it does,” S&P said. “An agreement on whether 2020 games will be played between the MLB and players is still in process, and the 2021 season's shape and form are also in question.”

“Until we have more clarity, it is difficult to accurately forecast 2020 and 2021 debt service coverage ratios for bonds issued for Queens Ballpark Co. LLC, but we expect them to be substantially weaker.”

With the 2020 season delayed, Queens Ballpark may need to tap its debt service reserve to make a December bond payment, S&P said, unless it receives team support. QBC has cash on hand to make its June 2020 payment of roughly $22 million.

“But absent favorable pre-payments from vendors and/or premium seat holders, a capital call or other sponsor support, the debt service reserve of $66 million could be required to support the $22 million December payment,” S&P said.

The Major League Baseball Players Association and team owners have been negotiating the past month over how to play the season. Owners on Wednesday rejected a union proposal for a 114-game schedule and a regular season that would have run through October. The league’s plan called for an 82-game season, with players taking large salary cuts.

"We don't expect fans to return to the stands until at least September and stadiums will almost certainly be subject to some form of social distancing requirements," S&P analysts wrote.

The pandemic highlights the risks of a tourism based economy, said municipal bond analyst Joseph Krist. "Until the economy is restored to support good levels of disposable incomes, economies which rely on those incomes will be hurt."

While sports can resume some operational levels through television-rights money, museums and other cultural institutions by definition cannot, Krist added. "This puts them in a unique orbit in the universe of cultural facility debt," he said. The Metropolitan Opera, for example, canceled the first few months of its 2020 season.

Citi Field, a 42,000-seat, open-air stadium in Flushing, Queens, opened in 2009 as did the latest iteration of Yankee Stadium in the Bronx, home to the New York Yankees. S&P also placed the Yankee Stadium LLC bonds on credit watch negative on March 23.

The financing for the two stadiums received The Bond Buyer's national Deal of the Year award in 2006.

The Industrial Development Agency owns the ballpark and leases it under a long-term agreement to QBC. The initial lease expires alongside the final debt maturity. QBC's stadium-use agreement with the Mets requires the team to play “substantially all” its home games in the stadium.

Queens Ballpark is a wholly owned subsidiary of Sterling Mets LP, which owns the Mets. An agreement between the controlling Wilpon family, Fred and Jeff, and minority owner Steve Cohen fell apart in early February, but the Mets are still on the market.

“Sterling intends now to pursue a new transaction,” the Wilpons said at the time. They have hired boutique investment firm Allen & Co. to manage the sale.

The Mets finished 86-76 playing in the National League East, but missed the playoffs. It was their first winning season since 2015, when they went to the World Series.

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