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LOUISVILLE, Ky. (WDRB) – A state legislative panel is reviewing the lease agreements college basketball programs have at public arenas as part of an evaluation of the University of Louisville's revenue-sharing deal at the KFC Yum! Center.
The U of L lease was cited as one of the challenges facing the Louisville Arena Authority in paying back state-issued bonds and "limits the authority's profit upside from the successful anchor tenant," Moody's Investors Service analysts wrote in downgrading the arena debt in November.
The comparison of 18 other facilities is meant to highlight "red flags" with the U of L deal, such as whether the contract approved in 2008 is overly generous to the university, said Rep. Jim Wayne, the lone Louisville member of the Kentucky General Assembly's capital projects and bond oversight committee.
Wayne said the report could be ready as early as the committee's February meeting.
But Wayne, a Democrat, said he doubts renegotiating the lease to provide more money for the Louisville Arena Authority would address the project's long-term ability to make its debt payments.
"It really would not solve the problem because we have other factors here," including whether a modified tax increment financing district near the arena will be able to produce enough revenue as arena debt payments escalate in the coming years, he said.
The bond oversight committee was scheduled to discuss the latest downgrade of the arena bonds by Standard & Poor's at a meeting in Frankfort on Tuesday that was canceled due to inclement weather.
While credit raters have dropped the $339 million in outstanding arena bonds to non-investment grade, or "junk" status, the debt is considered "stable." The bonds are insured, and Moody's and S&P both expect there to be enough revenue to make the debt payments.
Moody's estimated that the arena will be able -- but just barely -- to cover its debt "in the near future." S&P predicted that revenues set aside for debt will be less than previously thought, but still enough to make payments through at least 2029, according to the firm's December report.
The arena authority relies on several sources of funds to pay off debt -- naming rights, advertising revenues and seating proceeds, along with a Metro government contribution and money from the tax increment financing, or TIF, which returns to arena officials a portion of annual sales, property and some income tax growth in an area near the building. (It does not add additional taxes.)
But the TIF has fallen short of projections, resulting in calls for other solutions to help the project meet its debt requirements.
Wayne said he has spoken with Kentucky Auditor Adam Edelen about conducting an audit of the arena authority, a nonprofit board appointed by Kentucky's governor and Louisville's mayor.
Edelen told WDRB earlier this month that he hasn't decided whether to proceed with an audit.
It may prove difficult to draw conclusions from the bond oversight committee's review of other arena contracts because of how each deal is structured, Wayne said, adding that the study will be large enough to identify trends.
U of L, which agreed to move from Freedom Hall at the Kentucky Exposition Center to the new downtown arena in 2010, will take in an estimated $24.3 million in basketball revenues in 2013-14.
The university's deal with the arena authority gives it scheduling preferences during basketball season. It also allows U of L, for example, to keep most of the money generated by sales of luxury suites and men's basketball tickets.
"We have exceeded all expectations that were placed on us in regards to the arena and have worked very closely with them to clear dates during basketball season," said Kenny Klein, a U of L athletics spokesman. "So I think we are living up to our requirements."