Fri December 7, 2012
Standard & Poor's Revises Outlook on KFC Yum! Center from 'Stable' to 'Negative'
Standard & Poor's on Friday revised the outlook for the bonds used to build the KFC Yum! Center from "stable" to "negative" -- citing several areas of uncertainty.
In announcing its decision, S&P cites the Louisville Arena Authority's reliance on tax increment financing, concerns about efforts to stabilize operating costs and questions about the arena's ability to bring new revenue under its new operator, AEG. The rating on the bond remains BBB-.
The tax increment financing has the potential to be volitile, S&P said.
The negative outlook reflects our view of continued project exposure to potentially volatile TIF revenue and uncertainty about direct arena revenue and expenses in the near term. Although last year's amendment to TIF calculations and the recent change of operator sought to address what we viewed as the two most volatile sources of revenue for the project, the project remains exposed to underperformance in either TIF revenue growth or Arena net revenue. AEG is a professional and experienced operator, but the short operating history since AEG took over means some uncertainty in projections of Category B revenue. DSC should remain low for the rating in the near term, but the fixed contractual nature of approximately 50% of total revenue (metro payments and Category A revenue) somewhat mitigates this.
S&P said the KFC Yum! Center has some good things going for it, in terms of paying its debt:
-The Louisville Cardinals are playing well - which means big crowds to the arena and people spending money around the arena, which helps the TIF. And fans don't seem to mind higher prices.
-AEG is the new operator, and the company has a proven abilty to book more "top concert headliners."
-Revenue from naming rights? Those are mostly working out.
The Louisville Arena Authority spotlighted the positives from S&P's negative outlook.
"I am pleased that S&P has recognized the positive steps we have taken to improve the operations of the KFC Yum! Center, including hiring AEG to manage its operations," said Larry Hayes, the authority's chairman, in a statement.
"The company has already proven its strength by exceeding budgeted expectations for the four months it has managed the arena."
For example, The Who play in February and Taylor Swift performs in May.
AEG recently replaced the Kentucky State Fair Board as the arena's operator.
The decision affects $339 million on bonds from the Kentucky Economic Development Authority issued on the KFC Yum! Center.
Earlier this year, Moody's downgraded the bonds.