Credit downgrades for loans on Mercedes Benz Stadium, State Farm Arena announced Tuesday
By David Pendered
Credit downgrades were announced Tuesday on five loans taken out by two governmental entities that used the money to help pay for the Mercedes Benz Stadium and State Farm Arena, according to rating actions issued by Moody’s Investors Service.
The entities involved are the Atlanta Development Authority, which does business as Invest Atlanta; and the Atlanta and Fulton County Recreation Authority.
ADA issued bonds on behalf of the Mercedes Benz Stadium. AFCRA issued bonds on behalf of State Farm Arena.
The credit outlook on all the loans was rated negative because of the lingering economic slowdown related to COVID-19, according to Tuesday’s rating actions.
Analysts do not predict default on debt payments. The funding programs have enough reserves to make payments, even if the tax collections are not sufficient to cover payments due this year and next year, analysts observed.
The downgrades affected a total of five bonds. The credit rating on each bond remained in a category Moody’s views as “upper-medium grade and are subject to low credit risk.”
The reason cited for each of the downgrades was the plunging rate of travel related to the COVID-19 pandemic. The drop in travel has eroded tax revenues from hotel and motel rentals, and car rentals, analysts observed.
The downgrades were expected.
Moody’s announced April 17 it was placing the previous credit ratings on review for downgrade because of the likelihood that tax revenues were to suffer what analysts predicted would be an, “immediate and substantial drop from a coronavirus-induced slowdown.”
Analysts followed through on that prediction in Tuesday’s rating action. The rating also cited reserve funds that analysts viewed as sufficient.
In the case of AFCRA, the rating action observed:
- “The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and financial market declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. We regard the coronavirus outbreak as a social risk under our ESG [environment, social, governance] framework, given the substantial implications for public health and safety.
- “Today’s action reflects the impact of the crisis on the city’s special tax bonds.”
ADA’s bonds sold for the stadium are backed by hotel/motel taxes collected within the City of Atlanta. AFCRA’s bonds sold for the arena are backed by car rental taxes collected in Atlanta and College Park, according to the credit reports.
The rating actions observed of each entity:
- “Drastic declines in travel to the city have led to significant decreases in hotel and motel stays, which will lead to narrowing debt service coverage in the coming fiscal year.
- “The negative outlook reflects the likelihood that pledged revenues will remain below historic levels due to the pandemic, leading to narrow coverage and an increased risk of tapping the debt service reserve fund.”
- “Drastic declines in travel to the city have led to a subsequent reduction in car rentals, which will lead to narrowing debt service coverage in the coming fiscal year.
- “The negative outlook reflects the likelihood that pledged revenues will remain below historic levels due to the pandemic, leading to narrowed debt service coverage through 2021.”