Standard & Poor’s has reduced the rating of bonds used to pay for the construction of the KFC Yum Center.
The lower rating of “BB” from “BBB-” on senior lien bonds stems from concerns that the tax increment financing district used to pay part of the debt isn’t performing as previously expected, the financial services agency said. The downgrade lowers the bonds below investment grade to “junk” status.
In response to the downgrade, Louisville Metro Councilman Dan Johnson called Friday for a review of the arena’s operations—including its lease with the University of Louisville.
In a statement, Johnson said the S&P report raises concerns that the KFC Yum Center could default.
“One way to shore up the financial future of the arena is to make more dates available for attractions but that will not happen until the lease agreement with the University of Louisville is reviewed and restructured,” Johnson said. “It is time to have a wider variety of events that will attract the kind of revenues that will stabilize the bonds and the financial future of the arena.”
Johnson is a longtime supporter of bringing an NBA franchise to Louisville.
The revenue to UofL athletics from the KFC Yum Center was a major factor in Forbes magazine proclaiming the Cardinals college basketball’s most valuable franchise in March.
The “BB” rating means that, in S&P’s view, the debt is “less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.”
S&P’s outlook change to stable (from negative) stems from “stable to modest” growth in revenue from the arena and Louisville Metro government’s contributions to the debt payments.
Earlier this year, Metro Council voted to revise the TIF district from six miles to two miles.
In a statement, the Louisville Arena Authority said:
Standard & Poor’s cites AEG’s strong management of the Arena’s activities, success of the University of Louisville’s Cardinals basketball teams, and resizing of the TIF District as positive steps taken by the LAA. At this point Standard & Poor’s believes debt service coverage, although improving is insufficient to warrant a higher rating.
The Louisville Arena Authority is disappointed in the rating action, given AEG’s strong performance and demonstrated cooperation among the Commonwealth, Metro Louisville and the University of Louisville. We agree with Standard & Poor’s that the overall trajectory of the LAA is one which has stabilized and is on a path which will continue to demonstrate strengthening debt service coverage.
The leadership of the LAA is committed to continued improvement in fiscal performance. We look forward to further discussions with Standard & Poor’s.
A spokesman for UofL athletics could not immediately be reached for comment.