KFC Yum! Center debt plan lands coveted bond rating
The stronger rating is key to reaping possible savings of tens of millions of dollars in the decades ahead, arena officials have said.
LOUISVILLE, Ky. (WDRB) – The Louisville Arena Authority has landed a coveted “investment grade” rating from the first of two Wall Street firms analyzing a new debt plan for the KFC Yum! Center.
Moody’s Investors Service on Tuesday gave the arena project’s proposed bond refinancing a Baa3 rating – one step above the current bonds’ “junk” classification. Standard & Poor’s is expected to weigh in later Tuesday or Wednesday, arena officials said.
The stronger rating comes even as the arena's main tenant, the University of Louisville men's basketball team, is tied to a federal pay-for-play recruiting probe while already on NCAA probation. Some national pundits have questioned whether the program warrants a "death penalty," which could cancel at least a whole season of play.
But Moody's analysts believe that the NCAA is "unlikely to levy severe sanctions like not allowing the team to play regular season games," according to the research note.
In rating the pending bond issue, they cited the support from the city, state and U of L, all of which have reworked agreements, contracts and other commitments in the past year to help get the arena on sounder financial footing. The arena authority is a nonprofit corporation appointed by Louisville's mayor and Kentucky's governor.
Scott C. Cox, the arena authority chairman, said he was "ecstatic" about the Moody's rating, which is key to reaping possible savings of tens of millions of dollars in the decades ahead.
“It’s critically important to us because it gives us the ability now to prepay the debt and have the funds to keep the Yum! Center state of the art," he said.
The arena authority plans to refund its existing debt and issue about $400 million in new bonds by the end of the year, drastically cutting its annual obligations on the debt. Over the next decade, debt payments are expected to be reduced by $10 million in some years..
In its research note, Moody’s analysts said their opinion of the new debt plan reflects the arena authority’s plan to lower annual payments.
They also highlighted the uncertainty over the future of the Yum! Center’s main tenant, the University of Louisville men’s basketball team, which was drawn into an FBI bribery probe while already on NCA probation.
The arena authority’s access to cash “helps mitigate the uncertainty related to a potential loss of revenues due to the pending FBI investigations surrounding the team and the uncertain NCAA sanctions that may impact the team's ability to attract talent and field a quality team as well as the team's brand for a few years,” Moody’s analysts wrote.
While it's unknown whether any sanctions might be limited or severe, Moody's said it doesn't expect a significant drop in revenue from sponsorships, naming rights and ticket sales because of the "strong underlying support for the team."
Mayor Greg Fischer said on Twitter on Tuesday evening that the Moody's rating is "evidence that the arena is on solid financial footing, thanks to leadership of the city, state and UL. The changes made by each of the three parties to the arena deal have created long-term stability – saving taxpayer money."