Arena authority selects firms to help reorganize debt
The debt on the KFC Yum! Center construction bonds is set to rise dramatically in the coming years, prompting arena officials to warn that by 2020 they may not be able to make payments.
LOUISVILLE, Ky. (WDRB) – The Louisville Arena Authority has selected Bank of America Merrill Lynch to oversee the possible refunding of the KFC Yum! Center’s construction debt.
The investment bank is one of 12 companies that make up the management group chosen by the arena board at a special meeting Friday. The firms would lead the arena board’s goal of restructuring bonds sold in 2008 that are now considered “junk,” or below investment grade.
The debt on those bonds is set to rise dramatically in the coming years, prompting arena officials to warn that by 2020 they may not be able to make payments on principal and interest.
But before it can refund its debt, the arena authority hopes to revise its deal with the Yum! Center’s main tenant, the University of Louisville, and convince the Kentucky General Assembly to pass a bill allowing the tax increment financing district around the arena to collect more revenue for the project.
Arena authority chairman Scott C. Cox said after Friday’s meeting that he expects “some significant progress here in the next two weeks. I can tell you that the principals involved – talking about the governor, the mayor – they’re all talking with University of Louisville officials and we think that we’re making progress and we hope to have some restructuring of our financial arrangements with our partners very soon.”
U of L athletics director Tom Jurich told WDRB News in January that he didn’t expect a resolution to the lease issue in the coming months.
Cox said the university has been “very open” to discussions about the arena lease.
“We’re still talking to them, and I am very confident we’ll have a new or amended contract with the university,” Cox said.
Kentucky House Speaker Jeff Hoover said last month that there is “strong support” for an arena measure during the current General Assembly, which reconvened earlier this week. The Senate also plans to consider a tax increment financing bill.
A portion of sales and income taxes generated near the arena was supposed to provide the bulk of revenues for the arena authority. But the tax increment financing, or TIF, district has failed to meet expectations, even as it produced more than $10 million in 2015.
One scenario is for the arena authority to ask the Kentucky General Assembly to let the TIF collect revenues for 10 more years than currently scheduled – or until 2039.
By refinancing the debt, Cox said, the arena board hopes to lock in lower interest rates and secure a better rating from Wall Street credit agencies, helping to drive down interest costs.
The firms chosen Friday would be paid from proceeds during any future bond issue, said Alex Rorke, senior managing director of municipal securities for arena adviser Hilliard Lyons.
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