Louisville Arena Authority completes KFC Yum! Center refinancing deal
For more than a year, arena leaders achieved political victories at the local and state levels needed to lock in public funds for the Yum! Center’s debt plan. On Wednesday they said they've successfully refinanced the arena's construction debt.
LOUISVILLE, Ky. (WDRB) – The Louisville Arena Authority said Wednesday it successfully refinanced the KFC Yum! Center’s construction debt, a step meant to avoid a looming default and make paying off the downtown arena more affordable.
The $377.8 million in new bonds were bought by national investment houses and individual investors in Kentucky, arena officials said.
For more than a year, arena leaders achieved political victories at the local and state levels needed to lock in public funds for the Yum! Center’s debt plan. They also convinced the University of Louisville to amend its lease and pay up to $2.42 million more annually to the arena authority for using the building.
“It is a tremendous achievement in my opinion by the arena authority, the state, the city and the University of Louisville to get this accomplished,” arena authority chairman Scott C. Cox said in an interview.
“And I can tell you that there wasn’t one bit of it, one part of it, that was easy,” he said. “But everyone pulled together and we got it done -- and we couldn’t be any more proud.”
The refinancing resulted in a weighted average interest rate of 4.5 percent, or nearly two percentage points lower than the bonds sold for the arena in 2008, according to the press release. The release said that will lead to “tremendous savings for Kentucky taxpayers.”
Cox wasn’t able to immediately quantify that figure.
Arena officials also weren't able to provide a schedule of anticipated debt payments, although prior projections are for the yearly contribution to be less over the next decade – in some cases, as much as $10 million less.
Louisville Mayor Greg Fischer, who appoints the arena board along with Kentucky’s governor, said in a statement that the deal will lead to “savings of many millions of dollars for our community.” The city had increased its annual arena contribution, to $10.8 million, during negotiations this year.
The nonprofit arena authority was forced to make a late change to one of its key agreements in order to appease advisers concerned about the tax-free bonds that make up more than half of the deal, Cox said.
Arena manager AEG no longer must guarantee $1.5 million annually to the arena board as part of a contract change executed late Monday, according to Cox. “This guarantee has been removed to eliminate the risk that the bonds could lose their tax-exempt status for having too much private use revenue,” Moody’s Investors Service wrote in a research note published Tuesday.
Despite that change, Cox said the arena authority retained the “strongest possible language short of a guarantee.”
If the $1.5 million “target” is not met for two consecutive years, Moody’s said, arena authority and AEG will “endeavor, but are not required, to work together to remedy the shortfall” or reduce an annual $700,000 payment to the sports venue operator.
AEG confirmed this week that Dennis Petrullo, who had been the Yum! Center’s general manager since the Los Angeles-based company began operating the arena in 2012, had left the company. An interim general manager has been named.
In its note, Moody’s said it believes Petrullo’s departure will have a “limited impact” because arena bookings are driven by AEG’s connections instead of “any specific relationships the prior general manager had in place.”
Much like refinancing a home mortgage, arena officials sought to make their annual debt payments cheaper. In 2020, the year arena officials warned could lead to a default, estimates show scheduled debt payments of $22.5 million would be nearly $7 million below current levels.
Even so, the prior data provided to Kentucky officials predicts the arena authority will pay more per year to retire the new bonds, according to a WDRB News analysis.
Arena officials would be on the hook for annual payments averaging $29.3 million through 2045, compared with $25.8 million under current obligations that end in 2042.