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The Coronavirus Outbreak Has Led To Uncertainty And Cash Flow Pressures For Some Project-Financed Arenas And Stadiums

NEW YORK (S&P Global Ratings) March 23, 2020--Stadiums and arenas are already facing cancelled events and suspended sports seasons due to the coronavirus outbreak. As a result, cash flows in the related project financings are under pressure.

Today we placed the ratings on three U.S. project-financed arenas and stadium on CreditWatch with negative implications due to the impact of the coronavirus outbreak. Brooklyn Arena ('B+/Watch Neg') was already on CreditWatch negative due to unrelated issues, but now faces this challenge as well.

These rating actions were driven by ESG credit factors, as we consider the COVID-19 pandemic a social risk in our ESG analysis.

The coronavirus pandemic is expected to reduce operational cash flows for the two stadiums, Queens Ballpark Co. LLC ('BBB/Watch Neg') and Yankee Stadium LLC ('BBB/Watch Neg'), as well as Louisville Arena Authority Inc. (Louisville; 'AA/Watch Neg').

The two stadiums are home to Major League Baseball (MLB) teams the New York Mets and New York Yankees. The MLB, after initially announcing a two-week delay for opening day (originally scheduled for March 26, 2020), has now announced a further delay due to COVID-19, with no alternate date at this point. It's now uncertain when the season will start and how many games will be played, and therefore what impact this will have on the projects' revenues and liquidity. We believe there is a significant possibility that the ultimate impact on the season could be worse than the league currently anticipatea given the continued spread of COVID-19 in the U.S.

Currently, we do not know how much the coronavirus pandemic or recessionary headwinds will affect our forecasts, but we doubt the baseball season could endure a further significant delay without shortening the season and losing some revenues. The most recent delay might be made up with double-headers, dropping All-Star games, or extending the season slightly. As the coronavirus outbreak escalates and the economic effect worsens, we now forecast a global recession this year.

Louisville's exposure to both team and non-team events is lower than the other two stadiums and depends more on Kentucky state sales and property tax (TIF) revenues. The mix of revenues over the debt term is about 25% arena net revenues, 37% Metro Louisville‐Jefferson County payments, and 38% TIF payments. There is a one-year lag between tax receipts from the state and payout to the arena, and given there are no principal payments due in 2020 we see the pressure occurring in 2021. While property tax receipts have continued to grow modestly, sales tax receipts are highly volatile and are correlated with economic development and performance within the designated zone. Depending on the severity and magnitude of the trajectory of the outbreak, we believe this could significantly depress TIF payments.

At point we have not reviewed the rating on Jets Stadium Development LLC since the National Football League (NFL) season does not kick off until August and revenues from non-team events are not the primary driver of operational cash flows. Additionally, we believe there is enough buffer to protect the season if social distancing only lasts a month or two, and there may be more flexibility to delay or extend the season, if needed, which adds support. We will continue to monitor NFL announcements regarding any delays to the season opening.

Related Research

This report does not constitute a rating action.

The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.

Primary Credit Analyst:Trevor J D'Olier-Lees, New York (1) 212-438-7985;
trevor.dolier-lees@spglobal.com
Secondary Contacts:Antonio L Bettinelli, San Francisco (1) 415-371-5067;
tony.bettinelli@spglobal.com
David L Lum, San Francisco + 1 (415) 371 5013;
david.lum@spglobal.com
Siddharth Bhatia, Toronto + 1 (416) 507 2514;
Siddharth.Bhatia1@spglobal.com
Dhaval R Shah, Toronto (1) 416-507-3272;
dhaval.shah@spglobal.com
Benjamin Feder, New York + 212 438 1796;
benjamin.feder@spglobal.com
Anubhav Arora, Toronto + 1 (416) 507 3219;
anubhav.arora@spglobal.com

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