Credit downgrades for Mercedes Benz stadium loans, State Farm Arena announced on Tuesday

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By David Pendered

Credit downgrades were announced Tuesday on five loans taken out by two government entities that used the money to help pay for the Mercedes Benz Stadium and State Farm Arena, according to rating shares issued by Moody’s Investors Service.

The credit rating was downgraded Tuesday on the bonds sold to help pay off the Mercedes Benz stadium. Credit: Kelly Jordan

The entities concerned are the Atlanta Development Authority, which operates under the name of Invest Atlanta; and the Atlanta and Fulton County Recreation Authority.

ADA issued bonds on behalf of Mercedes Benz Stadium. AFCRA issued bonds on behalf of State Farm Arena.

The credit outlook on all loans was rated negative due to the persistent economic downturn linked to COVID-19, according to Tuesday’s rating actions.

Analysts don’t predict debt default. Funding programs have enough reserves to make payments, even if tax revenue is not enough to cover payments due this year and next, analysts observed.

The degradations affected a total of five bonds. The credit rating of each bond remained in a category according to Moody’s as “above-average quality and subject to low credit risk”.

The reason given for each of the downgrades was the drop in the rate of travel related to the COVID-19 pandemic. Falling travel has eroded tax revenues from hotel and motel rentals and car rentals, analysts observed.

The damage was expected.

State Farm Arena

The credit rating was downgraded Tuesday on bonds sold to help pay for State Farm Arena. Credit: Kelly Jordan

Moody’s announced on April 17 that it was subjecting previous credit ratings to review for downgrading due to the likelihood of tax revenue suffering what analysts predicted to be an “immediate and substantial drop from a coronavirus-induced downturn “.

Analysts followed through on that prediction in Tuesday’s rating action. The rating also cited reserve funds that analysts considered sufficient.

In the case of AFCRA, the rating action noted:

  • “The rapid and increasing spread of the coronavirus epidemic, the deteriorating global economic outlook, falling oil prices and declines in financial markets are creating a severe and widespread credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. We consider the coronavirus epidemic as a social risk as part of our ESG [environment, social, governance] given the important implications for public health and safety.
  • “Today’s action reflects the impact of the crisis on the city’s special tax obligations.

The ADA bonds sold for the stadium are backed by hotel / motel taxes collected in the city of Atlanta. The AFCRA bonds sold for the arena are backed by car rental taxes collected in Atlanta and College Park, according to credit reports.

The rating actions observed by each entity:

ADA

  • “The drastic decline in trips to the city has resulted in a significant decrease in hotel and motel stays, which will result in reduced debt service coverage over the next fiscal year.
  • “The negative outlook reflects the likelihood that promised revenues will remain below historical levels due to the pandemic, resulting in tight coverage and increased risk of drawing on the debt service reserve fund. “

AFCRA

  • “The drastic decline in trips to the city has resulted in a subsequent reduction in car rentals, which will result in reduced debt service coverage in the next fiscal year.
  • “The negative outlook reflects the likelihood that promised revenues will remain below historical levels due to the pandemic, resulting in reduced debt service coverage until 2021.”


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