DALLAS -- Standard & Poor's downgraded Glendale, Ariz.'s, general obligation bond rating to BBB-plus from A-minus based on the agency's new criteria, and retained a negative outlook.
"The lowered rating reflects the application of our local GO criteria published Sept. 12, 2013," said Standard & Poor's analyst Kate Burroughs. "The rating is further depressed by the city's weak management practices and its history of ongoing budgetary imbalance."
S&P has updated ratings for local governments since changing its methodology and assumptions last year.
The suburb west of Phoenix, which will host the next Super Bowl, has struggled financially because of its pursuit of professional sports.
It suffered several downgrades in recent years as the city struggled to sustain revenues for its $180 million hockey arena. Under terms of last year's sale of the National Hockey League Phoenix Coyotes, Glendale will provide $15 million annual fees to team owners for 15 years to keep the team playing at the Jobing.com arena, which was financed with city sales tax-backed revenue bonds.
The team's owner, Renaissance Sports & Entertainment Inc. has an out-clause in the arena management agreement allowing for relocation of the team after five years if the Coyotes generate over $50 million of accumulated losses for the period. If exercised, the city would be paid $45 million less shared revenues received over the period.
The hockey arena is near the University of Phoenix Stadium that opened in 2006 as home to the Arizona Cardinals of the National Football League. Built by the Arizona Sports and Tourism Authority, the stadium has drawn the 2008 and 2015 NFL Super Bowls, and also hosts the annual college football Fiesta Bowl.
The city has nearly $1 billion of debt outstanding, including water and sewer bonds.
With a population of 250,000, Glendale has shown a gradual recovery from the recession, along with other cities in the Phoenix metro area.
Excise tax revenues pledged to debt service fell 23% from fiscal years 2008-12. As a result, debt service coverage levels fell but remained "satisfactory," according to Moody's, at 4.1 times for the senior-lien and 2.7 times for the combined senior and subordinate lien bonds.
For fiscal year 2013, pledged revenues rebounded by an estimated 23% mostly due to the temporary increase in the city's sales tax rate which bolstered peak debt service coverage to approximately 5.1 times for the first lien and 3.3 times for the combined liens, Moody's reported.
"Coverage levels are expected to remain above rate covenants and additional bonds tests that both require 3 times coverage of peak debt service for senior lien bonds and 2 times peak debt service for the subordinate lien," Moody's noted.
