The Harris County-Houston Sports Authority heads to market Tuesday with roughly $330 million in a refinancing that will flatten its debt service schedule, shed its most subordinate lien and lay the groundwork for a new-money borrowing in the future.
The authority has also offered to tender $585 million of capital appreciation bonds and plans to defease a chunk of junior-lien bonds with roughly $20 million in cash.
The deal comes amid sudden upheaval in the authority's leadership that prompted the finance team to twice "sticker" its preliminary official statement with updates late last week.
Created in 1997, the authority finances and oversees the city's sports and entertainment venues, including Minute Maid Park, where Major League Baseball's Houston Astros play.
The authority does not own NRG Stadium, where National Football League's Houston Texans play, but financed its construction and continues to carry that debt.
It also owns the bond-financed Toyota Center, home of the NBA Houston Rockets, and owns Shell Energy Stadium, the 22,000-seat home of the Houston Dynamo men's soccer team and Houston Dash women's soccer team, which was constructed without bond finance, according to the POS for this week's deal.
It has roughly $874 million of outstanding bonds, according to bond documents, that feature four separate liens. The most subordinate lien will be eliminated after this week's transaction. The debt is backed by hotel and rental car revenues with a pledge of a piece of Astros lease payments backing some of the bonds.
The refinancing will pave the way for a new-money deal in 2026 or 2027 to fund stadium renovations, then-board Chair J. Kent Friedman told the Houston City Council on Oct. 2, according to local reports.
The authority will head into a
"Next week is going to be a busy, full week," said Patrick Luby, senior municipal strategist at CreditSights, followed by a quiet election week.
The transaction features $207.5 million of senior lien bonds and $122.1 million of second-lien debt. The bonds will carry a wrap from Assured Guaranty, Inc., like almost all of its debt since a
Buyers eyeing the Houston deal will have plenty of historical revenue data linked to the authority's "marquee facilities" to help decide whether to participate, Luby said. The Assured wrap "will certainly help calm some nerves about turnover at the authority," he added.
On the other hand, "the longer it takes a salesperson to explain a new issue, the wider the spreads need to be for keeping a portfolio manager on the phone longer," Luby said. "So a double-stickered POS is going to require a little bit lengthier explanation and that will be reflected in the yields and the spreads."
As of Oct. 7, the deal was expected to generate around $27 million of present-value savings, according to an authority spokesperson.
Since then, yields have
S&P Global Ratings awarded the authority with multi-notch upgrades that lifted all the authority's remaining three liens into investment-grade territory. S&P raised its underlying rating on the authority's senior-lien bonds by two notches to A-minus from BBB, and also raised the second-lien bonds by two notches, to BBB-plus from BBB-minus.
It gave a one-notch upgrade, to BBB-minus from BB-plus, to a chunk of junior-lien bonds and upgraded the third-lien bonds — which are expected to be eliminated by the cash defeasance — to BB-plus from BB.
The upgrades reflect higher post-pandemic revenues and an expected improvement in debt coverage after the tender, S&P said. The refinancing will eliminate a spike in debt payments scheduled for 2041 from the capital appreciation bonds.
"Houston being the fourth largest MSA in the United States, they attract a large number of revenues and conferences that go beyond just the regional Texas or Houston area," said S&P analyst Alex Louie, naming the Super Bowl, college football and World Cup as examples. "We think Houston has a very competitive position in attracting these kinds of events."
Also ahead of the deal, Moody's Investors Service revised its outlook to positive from stable in light of the post-refinancing debt coverage levels. Moody's affirmed its current underlying ratings on the debt: A3 rating on the senior lien, Baa1 rating on the second lien, Baa2 rating on the junior lien and Baa3 rating on the third lien.
The positive outlook comes from the authority's plan to eliminate its third-lien bonds and defease some junior-lien bonds, which will allow the authority to "well exceed sum sufficient coverage during the debt service period," Moody's said in its report.
The city's need to prepare for the World Cup games is one driver of the recent leadership shakeup, said Mayor John Whitmire during an
"Each of the stadiums in town are great facilities, but they need major improvement if we're going to continue to attract major events," said Whitmire, who as a state senator carried the legislation that created the authority in the 1990s.
"We want the sports authority's single focus [to be] getting ready for the World Cup," he said. "We want to show our people and our energy, our diversity and how great a city we are, but we can only do that if we get the sports authority's single focus on working with these organizations and FIFA."
Hours after the press conference, the board ousted longtime CEO Janis Burke, who had been at the authority for 18 years. It tapped Chris Canetti, the president of the FIFA World Cup 26 Houston Host Committee, as interim CEO.
Then, last Thursday, the county and city released agenda items on meetings scheduled for this week that indicated they would vote to fire board chair Friedman, a board member since 2003, and name attorney Juan Garcia as new chair. The Harris County commissioners are set to take up the issue Tuesday, the same day the authority comes to market. The city is expected to consider the same agenda item Wednesday.
Wells Fargo is senior manager on the financing and Morgan Stanley is co-senior. Cabrera Capital Markets LLC, JP Morgan, Loop Capital Markets, Ramirez & Co., Inc., Raymond James and Siebert, Williams Shank & Co., Inc. round out the syndicate.
Masterson Advisors LLC is financial advisor. Hunton Andrews Kurth LLP and West & Associates LLP are co-bond counsel.
