DALLAS — The Harris County-Houston Sports Authority plans to refinance more than half of its outstanding debt after settling legal disputes with bond insurer National Public Finance Guarantee.
The authority's upcoming $493 million of senior-lien refunding bonds carry a new rating of A-minus from S&P while its existing senior-lien bonds still carry a rating of BBB, analyst Omar Tabani said.
If the restructuring is completed with approval from NPFG, Tabani expects S&P to apply the A-minus rating to previously issued senior-lien bonds.
The senior-lien issue will include $460 million of tax-exempt and $33.1 million of taxable bonds with pricing yet to be scheduled.
The authority also plans to issue $85 million of second-lien revenue refunding bonds that are rated BBB by S&P. Outlooks are stable.
The 2008 financial crisis hammered the authority's debt portfolio and sparked the legal dispute.
Downgrades to insurer MBIA Inc. and declining tax receipts triggered an accelerated payment schedule on $125 million of variable rate bonds.
The bonds came into NPFG's portfolio when MBIA restructured to create the U.S. public-finance only subsidiary.
The 30-year debt-service schedule was reduced to five years and the sports authority dipped into its reserves to make payments.
NPFG was so concerned about the authority's ability to pay that it filed suit in 2013 in Houston, seeking a court order that would have required the authority to raise ticket and parking fees to boost reserves. It also lobbied for state legislation mandating higher reserves, which was not passed.
The authority got a district court to dismiss NPFG's suit, but the insurer was successful in its appeal to have the action reinstated, though the litigation was ultimately stayed by mutual agreement as the parties engaged in discussions to resolve the matter. NPFG declined to comment for this story.
The variable rate debt in question was ultimately paid off in May.
The authority still has about $1 billion of debt outstanding. With the outstanding legal dispute and many ratings below investment grade, it was until now unable to take advantage of record-low interest rates for a refinancing and restructuring.
Moody's rates the new senior-lien bonds A2 and the second-lien bonds A3.
"There is execution risk associated with this restructuring given other actions must occur in order for the credit benefits to materialize," Moody's analyst John Medina wrote. "We will resolve the rating review after the current debt restructuring reaches financial close. The outstanding junior and third lien bonds continue to require long-term revenue growth to meet future debt service obligations, yet the required forecast growth post the restructuring is materially less than before."
First Southwest Co. senior vice president Trey Cash, financial advisor for the authority, said he could not discuss the deal until offering documents were prepared. That could be several weeks, he said.
The higher ratings "reflect the improved credit profile following this debt restructuring," Medina said. "These improvements include a level senior and second lien debt service schedule that does not require revenue growth to generate sound maximum annual debt service coverage ratios."
Other factors include the addition of standard debt service reserve fund requirements and modestly more restrictive additional bonds test thresholds.
The restructuring also removes cross-default provisions related to the subordinate junior-lien bonds, and the requirement to advance redeem future debt maturities with accumulated excess tax revenues.
The ratings incorporate the expected settlement of outstanding disputes between the authority and NPFG as a condition for closing the transaction, according to Moody's.
Authority revenues from hotel and rental car taxes secure about $446 million of senior-lien bonds, $417 million of junior-lien bonds, $58 million of third-lien series 2004A-3 bonds, and roughly $145 million of unrated subordinate-lien loans and notes, according to S&P.
Also on Wednesday, Standard & Poor's upgraded to BB-plus from BB the junior-lien series 1998-B, 1998-C, 2001-B, and 2001-H bonds, assigning a stable outlook. It also upgraded to BB-minus from B the authority's third-lien series 2004A-3 bonds, which were placed on CreditWatch with positive implications.
The authority issued debt to build NRG Stadium for the National Football League's Houston Texans, Minute Maid Park for Major League Baseball's Houston Astros, and the Toyota Center, home of the Houston Rockets of the National Basketball Association.
