Moody’s Downgrades Arena Bonds

Moody's credit rating agency has downgraded the bonds used to finance the KFC Yum Center, citing high operating costs and poor performance of businesses around the arena.

Part of the plan to pay off the bonds relies on tax increment financing. A TIF district was created in downtown Louisville so any development spurred by the facility would help pay the debt. The arena was supposed to give downtown development a boost, but Moody's says the TIF district may not be enough to support the arena.

From Moody's:

The downgrade principally reflects the lower than expected state sales TIF revenues, high operating expenses of the arena, increased dependence on the Metro Louisville's additional payments, and the weakened financial metrics going forward. The rating outlook is negative. The negative outlook reflects the uncertainty of TIF revenue growth as well as the narrow debt service coverage ratio going forward. Current near to midterm coverage ratio forecasts fall short of initial projections even after taking into account the expected growth of future TIF revenues. TIF revenues may not fully support the arena's debt service as initially projected in the near future.

“I don't think that's completely accurate,” says Mayor's spokesman Chris Poynter. “All you have to do is look on Main Street at the number of restaurants that have invested there and are doing well.”

The mayor's latest budget directs money toward parts of 4th Street to further spur development, and Poynter says any lagging performance reflects the poor economy and not any shortfalls on the arena's part.

“There was another rating agency, Standard and Poor's, which has the opposite reaction,” he says, referring to S&P's decision in January to upgrade the arena's bond rating from negative to stable. “You have to look at all of these in context.”

Gabe Bullard

Gabe Bullard is the director of news and editorial strategy.

@gbullard

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