LOS ANGELES — Sparks, Nevada’s Tourism Improvement District No. 1 on Tuesday got a ratings boost to Ba3 from B1 from Moody’s Investors Service, which said its sales tax anticipation bonds are no longer expected to default on June 15, 2028.
The bond proceeds were used to construct the Outlets at Sparks, a shopping center in Washoe County, the second largest economic region in Nevada, after Las Vegas.
The bonds were authorized under Nevada's Tourism Improvement District Law of 2005 that enabled creation of the district by Sparks in 2007, Moody's wrote.
"Under statute, the preponderance of sales tax collections within the district must be attributable to tourism activity, subject only to a prior one-time certification," according to the ratings report.
Moody’s rates $70.1 million of outstanding Series A senior sales tax anticipation revenue bonds. The outlook remains stable.
"The pledged sales tax revenue has grown over time -- and debt service revenue money is sufficient to prevent a default," said Moody's analyst Pat Liberatore.
Kansas City-based RED development filed a notice of default in 2012 on a $141 million private loan taken out by RED to pay for a portion of the 148-acre Legends project. The so-called STAR bonds allowed the developer to keep 75% of the sales taxes generated to pay off development costs.
The project orignally was supposed to include a baseball stadium, hotel, casino, themed restaurants and an IMAX theater. It was scaled back after the developer experienced financial problems and filed a strategic default on the private loan.
Legends used a combination of private and public financing, including $116 million in STAR bonds that mature in 2028.
Moody’s gave the bonds a B2 rating with a negative outlook in 2012 anticipating that the TID would default in June 2020.
"The project did not come to fruition as planned," Liberatore said. "The ratings history reflects that, but it was challenged largely by the recession. It was developing in the late 2000s as the economy went into a deep recession."
Sparks TID has never been rated investment grade by Moody’s. The ratings agency started rating the bonds in 2008 at Ba2. In December 2009, the bonds were downgraded to Ba3, and in December 2011, the ratings fell to B2. In June 2014, the bonds were upgraded to B1 and given a stable outlook.
“The Ba3 rating reflects that the bonds are no longer expected to default on June 15, 2028, the final debt service payment date, even without future growth in pledged sales taxes,” according to the Moody’s report.
The below-investment grade rating reflects continued challenges such as escalating bond payments, Liberatore said.
Pledged revenues continue to demonstrate annual growth.
Full payment of escalating annual debt service is projected without draws on the debt service reserve fund through fiscal year 2027, while the cash-funded reserve fund is expected to be used to fund the final maturity in FY2028.
“The stable outlook reflects our expectation that the current level of pledged receipts will fully cover annual debt service with support from economic recovery and with the beneficial impact of continued in-fill growth in the project's tenant mix,” Moody’s analysts wrote. “No draws are expected on the debt service reserve in the near-term.”
A sustained trend of higher pledged receipts leading to improvement in peak debt service coverage could result in an upgrade, Moody's wrote. Or, additional commercial expansion within the project area.
A downgrade could result if the project area experiences diminished pledged sales tax receipts, especially within the next year; adverse changes in the project area's tenant mix; or depletion of the debt service reserve fund.
The bonds are secured by a senior lien pledge of 75% of sales tax revenues generated within the district through FY2028, net of an administration fee of 1.75%. Pledged sales taxes are subject to potential statutory impairment in 2028.
