FARMERS BRANCH (S&P Global Ratings) April 1, 2020--S&P Global Ratings revised the ratings outlook to negative from stable on certain U.S. convention center and sports authorities in the wake of the COVID-19 pandemic. The negative outlooks provide notification to market participants that the affected entities face at least a one-in-three likelihood of a negative rating action over the medium term (generally up to two years). At the same time, S&P Global Ratings affirmed its ratings on the entities.
"The negative outlook reflects our belief that the advent of "social distancing" and subsequent cancellations of major events, as well as material declines in travel and closing of businesses in response to the global spread of COVID-19, have affected, and will negatively affect convention center and sports authorities' revenue streams," said S&P Global Ratings credit analyst Andy Hobbs. The current negative outlooks are reflective of entities where the operating risk is associated with the particular convention center or sports authority. S&P Global Ratings recognizes that with almost 200 million Americans either under shelter-in-place orders or being urged to stay at home in a concerted effort to contain the spread of the new coronavirus, the longest economic expansion in U.S. history has come to an abrupt end. The toll on GDP will be far more severe than we once thought--with the contraction showing up in the first-quarter figure and worsening substantially in the April-June period. (see "It's Game Over For The Record U.S. Run; The Timing Of A Restart Remains Uncertain ," published on March 27, 2020, on RatingsDirect).
Although the closure decisions are prudent, the health and safety "social distancing" aspect of this action will materially affect coverage, financial results, and liquidity in the near term, which we believe might deteriorate further from the onset of a global recession, and is reflective of our analysis of environmental, social, and governance (ESG) related risks The entities generally have strong fiscal metrics and liquidity positions, which are capable of providing cushion for such disruptions. However, a prolonged environment of limited to no operations will greatly hamper the entities' ability to meet debt obligations, as they do not have other significant stable revenue streams to rely on and generally have limited local authority to raise new revenues. Although we expect convention center authorities will do everything in their power to create environments that are conducive to hosting large gatherings and using their facilities, including contingency planning, altering operations and budgets projections, and working with local, state, and federal officials, their ability to do so may be largely out of their control if the current crisis persists.
We expect that sales, lodging, food and beverage, car rental, and other special tax revenues will become strained with prolonged weakness in spending and travel, which could lead to weakness in credit quality over time, including revenue loss and a decline in debt service coverage. This unprecedented uncertainty will make long-term planning and budget projections very challenging, and proactive management will be key to guiding it through.
The outlook revision encompasses various convention centers listed below; the table is not an exhaustive list of all convention center, hotel, or sports authority-related debt.
- Revenues of convention center authorities, including those that support debt service, will be dampened due to limited to no operations as well as a decline in tax revenues;
- Likelihood of debt service coverage will decline;
- Liquidity positions generally remain strong and capable of counterbalancing short-term losses;
- A prolonged environment of restricted movement in the U.S. will have a significant impact on convention center authorities and will likely lead to negative rating actions.
As Events Are Cancelled Or Pushed Off To Later Dates, Revenue Streams Suffer
The entities were created specifically to support and promote local culture, entertainment, and civic engagement, while at the same time spurring tourism and economic development. The debt the authorities have issued helps fund the construction of new facilities and updates to existing ones. That debt is typically secured by special taxes, such as hotel or lodging taxes, sales taxes, or car rental fees. While most governments and many industries are still able to operate in the world of "social distancing", this practice fundamentally stunts the ability for the authorities to provide their service, similar to the situation that bars, restaurants, and other gathering spaces across the world are experiencing.
Convention center authorities and governing bodies across the U.S. have experienced major cancellations of events that would be housed in their facilities. Professional sports seasons have been stopped indefinitely or put on hold. Subsequent travel of participants, event goers, and patrons is not occurring. Many hotels have already reduced staff in response to cancellations as local, state, and federal governments are urging citizens to stay at home and not travel. Bars and restaurants in certain locations have either closed or moved strictly to carry-out or drive-through operations only. We expect the cancellation of events, facilities' limited operations, and the significant reduction in spending, hotel stays, and rental car purchases will drastically affect convention center revenues, which will negatively hinder debt service coverage.
The convention center or sports authorities receive taxes two to three months following the transaction. Therefore, many authorities have yet to experience the significant decline in revenues that is anticipated. In addition, it is not yet clear who will bear the financial burden of contract cancellation fees, which could hinge on the party initiating the cancellation. However, we would anticipate the contracts between the authorities managing the facilities and the tenants to be unique and carry an individual set of provisions, which could include base payments or other guaranteed payments. Although we would not expect total income to drop to zero, including sales, hotel, and car rental taxes, major revenue streams are anticipated to be impaired.
Length And Severity Of Impact Are Largely Out Of Authorities' Control
In recent cases, sports leagues, concert promoters, and convention organizers voluntarily made the decisions to cancel or postpone recent events. Nevertheless, in emergency declarations and public health emergencies such as this, state and federal governments have exercised their power to place moratoriums on large gatherings or restrict movements of citizens in some form or fashion. Uncertainty exists around the confidence some governments or governing bodies would have to quickly release such moratoriums if situations change. In addition, consumer confidence may lag well behind a return to more normalized circumstances. Travelers and ticket-buying customers might be weary of booking flights and tickets, and attending large events even after the virus cedes, further adding to uncertainty and delays in revenue rebound.
In any case, the convention center and sports authorities do not downplay the severity of the current crisis and we expect they will take every available step within their control to ensure financial stability. Given the uniqueness of the organizations, the current situation, while negative, will affect obligors and revenues in varying degrees.
|U.S. Convention Center Or Sports Authorities Outlooks Revised To Negative|
|Obligor||State||Lien (if applicable)||Rating||
Maximum annual debt service coverage (x)
% Revenue decline before MADS = 1.0x
|Marion County Capital Improvement Board||IN||Senior||AA-||Stable||5.9||83|
|Marion County Capital Improvement Board||IN||2nd||A||Stable||1.5||33|
|Washington State Convention Center Public Facilities District||WA||Senior||AA-||Stable||1.7||40|
|Washington State Convention Center Public Facilities District||WA||2nd||A-||Stable||1.2||15|
|Las Vegas Convention & Visitors Authority||NV||Senior||A+||Stable||2.3||57|
|Birmingham-Jefferson Civic Center Authority||AL||Senior||A+||Stable||2.5||60|
|Birmingham-Jefferson Civic Center Authority||AL||2nd||A||Stable||1.7||41|
|Wisconsin Center District||WI||Senior||A||Stable||4.2||76|
|Harris County-Houston Sports Authority||TX||Senior||A-||Stable||1.5||34|
|Harris County-Houston Sports Authority||TX||2nd||BBB+||Stable||1.4||26|
|Harris County-Houston Sports Authority||TX||Junior (between 2nd and 3rd)||BB+||Stable||0.7||N.A.|
|Harris County-Houston Sports Authority||TX||3rd||BB||Stable||0.7||N.A.|
|Muncie EDIT Building Corp.||IN||Senior||A-||Stable||2.4||59|
|Spokane Puiblic Facilities District||WA||Senior||A||Stable||1.7||41|
|Spokane Puiblic Facilities District||WA||Senior plus certain city lodging taxes||A||Stable||1.9||47|
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
|Primary Credit Analysts:||Andy A Hobbs, Farmers Branch + 1 (972) 367 3345;|
|John Sauter, Chicago (1) 312-233-7027;|
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