Bonds supporting the Jacob K. Javits Convention Center in New York received a downgrade Thursday from Moody’s Investors Service, which cited the severe disruption of travel and tourism — and by extension, pledged revenue receipts — from COVID-19.
Moody's lowered to A2 from A1 the rating on the New York Convention Center Development Corp. senior lien bonds and to Baa2 from A3 the rating on the NYCCDC's subordinate lien bonds, related to the convention center.
Baa2 marks the second-lowest investment grade rating by Moody’s.
Its outlook is negative on the roughly $770 million of senior lien bonds and $220 million of subordinate lien bonds outstanding.
Moody's previously downgraded the debt one notch in October 2020.
The corporation, a subsidiary of Empire State Development Corp., is dedicated to the renovation and/or expansion of the Javits Center on Manhattan’s West Side. The center opened in 1986.
Moody’s cited “an expectation of slow recovery of pledged hotel unit fees that would result in insufficient coverage of debt service by pledged revenue alone for up to the next several years.”
Several structural enhancements support the rating, including a $1.50 per-night fee on occupied hotel rooms in the city, a credit support agreement with the State of New York Mortgage Agency, available funds in two pledged reserves and a flow of funds that prioritizes the replenishment of the pledged reserve funds over the payment of subordinate lien bonds.
The rating, Moody’s said, also reflects the nature of the revenue base, which consists of fees levied on hotel stays in the city’s five boroughs.
The downgrade to Baa2 on the subordinated lien revenue bonds, Moody’s said, reflects the more severe impacts on coverage of subordinate lien debt service arising from the sharp decline and slow recovery of pledged revenue.
Like the senior lien bonds, the subordinated bonds are also supported by two pledged reserve funds.
“However, the priority claim on pledged revenue of senior bond reserve funds means recovery of resources pledged to and available for payment of subordinate lien bonds will be even slower than that in the overall revenue base,” Moody’s said.
“The multiple priority claims of senior bonds on pledged revenue results in high likelihood that subordinate bond reserve funds will be drawn upon even after the New York City hotel unit fees recover, raising much more elevated risk of debt service payment insufficiencies relative to the senior lien bonds over the next several years.”
The Delta coronavirus variant has further slowed the tourism recovery. The Javits Center recently postponed its New York International Automobile Show until April. During the pandemic, the city used the center as a makeshift hospital and later, a mass-vaccination site.
Faster than expected return of hotel unit fee revenue to levels that would quickly replenish reserves and cover debt service payments could lead to an upgrade, Moody’s said.
By contrast, significant depletion of revenue and reserve funds that would jeopardize timely replenishment could lead to a downgrade.
