Fitch Ratings has assigned an 'A' rating to the Memphis and Shelby County Sports Authority, Tennessee's $134 million of revenue refunding bonds, series 2009A and 2009B. The bonds are scheduled to price via negotiation on June 23, 2009, with proceeds refunding the authority's outstanding series 2007A and 2007B variable rate demand revenue refunding bonds. In addition, Fitch affirms the 'A' rating on the authority's approximately $69 million of outstanding revenue bonds. The Rating Outlook is Positive.
The bonds are secured by a series of pledged revenues, including a citywide hotel/motel tax (on or after July 1, 2016); a countywide hotel/motel tax, substituted by state-transferred tourism development zone taxes; countywide car rental taxes; an annual $2.5 million PILOT from Memphis' water utility; and two arena-based revenues -- a $1.15 per seat-use fee and a state sales tax rebate. In addition, Memphis and Shelby County have covenanted to appropriate legally available non-ad valorem revenues to replenish any deficiency in the debt service reserve fund (DSRF) throughout the life of the bonds. The rating is based on this several obligation of the city and county.
The 'A' rating reflects the credit characteristics of Memphis and Shelby County, whose general obligation bonds are rated 'A+' and 'AA', respectively, by Fitch; the Rating Outlook for Memphis' general obligation bonds was revised to Positive from Stable in April 2008, reflecting significant improvements in the city's financial operations. While the backup covenant to replenish the DSRF does not constitute a full faith and credit obligation of the city or the county, Fitch takes comfort in the considerable general fund reserve levels of both municipalities.
Although pledged revenue cash flow is adequate, the current debt load produces slim debt service coverage and includes the use of accumulated reserves. Fitch notes that there is a speculative element to the arena-based revenues that may require support from the backup covenant of the city and county in future years. Fitch will review the financial positions of the city and county if they are called upon to provide a material makeup of the DSRF to determine the impact on their respective credit ratings.
Initial bond proceeds were used to construct an arena for Memphis' National Basketball Association franchise, the Memphis Grizzlies. The site is located in downtown Memphis, immediately adjacent to the historic Beale Street area.
If the Grizzlies leave Memphis before or after the date of the early termination right, the Grizzlies' corporate parent, Hoops LP, is required to make a lump sum payment that, together with certain remaining revenues, is sufficient to pay the series 2009A bonds in full. The remaining bonds would be redeemed as they come due from available revenues and, if needed, the backup covenant. Issuance of additional senior or subordinate bonds for the arena, not currently planned, or for another non-arena project will trigger a review of this credit.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings
Ryan A. Greene, +1-212-908-0315 (New York)
Kelly
McGary, +1-813-224-0492 (Tampa)
Cindy Stoller, +1-212-908-0526
(Media
Relations, New York)
cindy.stoller@fitchratings.com
