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COMMENTS

Changing Landscape Threatens Credit Quality Of U.S. Convention Centers, Arenas, And Stadiums

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State Brief: North Dakota


Changing Landscape Threatens Credit Quality Of U.S. Convention Centers, Arenas, And Stadiums

Introduction of COVID-19's "social distancing," cancellations of major sporting events and conferences, disruptions in local commerce, and material declines in business and leisure travel have and will continue to negatively affect convention center and sports authorities' revenue streams. This, in turn, has led to significant deterioration in hospitality related revenues such as hotel taxes and other special taxes leading to deterioration in budgets, reduction in debt service coverage, and weakened local economies. In many cases it has also drastically reduced liquidity available to pay debt service. Such a notable shift in a very short period has led to deterioration in credit quality for many issuers and resulted in downgrades (see table).

Going forward, the extent to which convention and sports authorities will need to adjust budgets, shift and scale back operations, reduce expenditures, and make contingency plans largely depends on the duration of mandated limitations on crowds. However, it will also be affected by how quickly the public feels comfortable returning to large-scale events. The reemergence of large crowds, and in the meantime the ability of issuers to respond to revenue decline and operational changes will determine the depth and duration of credit pressure in the sector. In addition, given different patterns of reopening and crowd sizes by state, we expect there could be significant regional variations.

Permanent Shift In The Large-Crowd Landscape

To date authorities have made adjustments to stabilize operations--including reducing budgets, readying available liquidity, furloughing staff, retiring debt in advance of scheduled maturities, and holding off on new debt or capital plans. However, despite these adjustments we think there is potential for steep pledged-revenue declines at least through next year and likely an unstable revenue climate for many years beyond 2021.

S&P Global Economics recognizes consumer spending and business investment in the U.S. have been particularly affected by restrictions on movement and stay-at-home orders (see "U.S. Faces A Longer And Slower Climb From The Bottom," published June 25, 2020, on RatingsDirect). Long-term effects will depend on the severity of the recession, which could affect local economic profiles, including employment and spending trends. 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 and could change it forever.

Alterations To The Competitive Landscape

Given the resurgence in cases of COVID-19 in the U.S. and its direct impact on pledged revenue streams, we view market exposure risk for convention center and sports authorities as high; previously it was low to moderate. Authorities typically have some flexibility to reduce administrative and marketing expenses in the event of a prolonged downturn, and in many cases they have built stable liquidity positions as a cushion for such challenging environments. However, the strong likelihood of a decline in revenues and prolonged below-average economic activity due to the spread of COVID-19 influences our view of market share.

We do not anticipate a significant change in competitive positions for convention center and sports authorities as it relates to demand, market share, market strength, and pricing metrics. While the global pandemic has certainly disrupted traditional operations, the influence is broad reaching and the competitive positions of the venues themselves are relative to other competitors in the sector that are similarly influenced by negative pressures.

Rating Actions

S&P Global Ratings has taken numerous negative rating actions over the past several months that have affected convention and sports authorities' bond ratings. The list below is not exhaustive and does not account for all convention center or sports authority related debt, in particular convention center debt that is supported by an associated city or county's general obligation pledge or debt that is supported solely from operating revenues of the facilities themselves.

Recent Rating Actions On U.S. Convention Center Or Sports Authorities
Obligor State Lien (if applicable) Current rating Previous rating Current outlook

Marion County Capital Improvement Board

IN Senior A AA- Negative
Marion County Capital Improvement Board IN 2nd BBB+ A Negative

Washington State Convention Center Public Facilities District

WA Senior BBB+ AA- Negative
Washington State Convention Center Public Facilities District WA 2nd BBB A- Negative

Las Vegas Convention & Visitors Authority

NV Senior A A+ Negative

Birmingham-Jefferson Civic Center Authority

AL Senior A- A+ Negative
Birmingham-Jefferson Civic Center Authority AL 2nd BBB+ A Negative

Wisconsin Center District

WI Senior BBB A Negative

Harris County-Houston Sports Authority

TX Senior BBB A- Negative
Harris County-Houston Sports Authority TX 2nd BBB- BBB+ Negative
Harris County-Houston Sports Authority TX Junior (between 2nd and 3rd) BB+ BB+ Negative
Harris County-Houston Sports Authority TX 3rd BB BB Negative

Muncie EDIT Building Corp.

IN Senior BBB+ A- Negative

Spokane Public Facilities District

WA Senior BBB+ A Negative
Spokane Public Facilities District WA Senior plus certain city lodging taxes BBB+ A Negative

Greater Boise Auditorium District

ID Senior A- A+ Negative
All actions listed above were taken since May 22, 2020. Rating actions are for entities whose debt is supported by special taxes and where the operating risk is associated with the particular convention center or sports authority.

This report does not constitute a rating action.

Primary Credit Analyst:Andy A Hobbs, Farmers Branch + 1 (972) 367 3345;
Andy.Hobbs@spglobal.com
Secondary Contacts:Joshua Travis, Farmers Branch 972-367-3340;
joshua.travis@spglobal.com
Jane H Ridley, Centennial (1) 303-721-4487;
jane.ridley@spglobal.com

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