DALLAS – Glendale, Ariz.’s decision to lease its Jobing.com Arena to a proposed new owner of the Phoenix Coyotes National Hockey League team adds a negative factor to the city’s tumbling bond rating, Moody’s Investors Service reported Monday.
With a negative outlook already in place on the city’s A2 rating, the Moody’s opinion demonstrated the risk involved in creating public debt for private sports franchises.
“The agreement is credit negative for the city because it will obligate it to pay $15 million annually for up to 15 years to the potential buyer of the National Hockey League’s Phoenix Coyotes,” wrote Moody’s analyst Pat Liberatore.
The financial stress of keeping the Coyotes playing in the arena built with 30-year sales-tax supported bonds prompted Moody’s to issue its third downgrade in two years last November.
Standard & Poor’s lowered Glendale’s rating on Dec. 12 to A-minus from A-plus while maintaining a negative outlook.
The downgrade was prompted by a negative fund balance due to payments representing nearly 20% of city general fund expenditures in the previous two years, for management fees related to the arena.
Of the $180 million issued in 2003 to build the arena specifically for the Coyotes, about $140 million is outstanding, according to Moody’s.
To cover the cost of paying the NHL $50 million over the past two seasons for keeping the Coyotes in Glendale, the city borrowed $45 million from various city enterprises.
“These borrowings constitute uncommon actions among local governments and indicate the significant effect that supporting the Coyotes has on the city’s operations,” Liberatore wrote.
Glendale’s city council last week approved a lease agreement designd to keep the Coyotes in the arena through 2028. The city will pay an investor group known as IceArizona $15 million a year for 15 years to manage arena while making annual debt service payments of $8.4 million.
IceArizona is the fourth group of investors who have sought to buy the team since it emerged from bankruptcy court in the hands of the NHL in 2009. Although the council had come to terms with three previous groups, those deals lapsed despite proposed city subsidies to cover losses.
The council gave IceArizona investors a deadline of Aug. 9 to buy the team from the NHL.
