Finance Uncategorized Venues

Houston's $1 Billion Debt Problem Could Squeeze City's Teams

The Harris County - Houston Sports Authority has a billion dollar bond issue that could fall onto their teams' shoulders.

Photo Credit: Troy Taormina / USA Today Sports

A $1 billion bond debt might force Houston to impose a rent hike on the Texans, Rockets and Astros that could adversely impact payroll and their ability to be competitive.

The Harris County-Houston Sports Authority (HSA) – the city’s commission responsible for financing and construction of Houston sports venues – is close to making the final payment on $125 million in variable rate bonds next month. The fact that the HSA is able to retire this bond issue is a surprise given the legal drama it experienced when defunct re-insurer MBIA-National went under, an event that ultimately wrought the city’s credit rating to junk.

But even after repayment of the $125 million, the HSA will be on the hook for the approximately $1 billion in long-term bonds that mature in 2042according to Bond Buyer.

The HSA issued the $1 billion in bonds to help construct and develop Houston’s main sporting facilities, including NRG Stadium (home to the Texans), the Toyota Center (home to the Rockets) and Minute Maid Park (home to the Astros).

Will the City of Houston continue to dip into its special reserve fund – which was estimated to be $55 million in 2009 – to help pay back the debt?  Does any of this reserve even remain? Or will MBIA-National be forced as the bonds’ re-insurer to cover payment?

Last year, MBIA-National sued the Houston Sports Authority to force the commission to increase the amount of its reserve fund in order to prevent any missed payments, which could put MBIA-National on the hook to the city’s bondholders.

Taxpayers and Houston Sports Teams

According to the lease agreements available on the Houston Sports Authority website, rental payments for use of the facilities are $3.4 million per year for the Astros, $4.01 million for the Texans, and $5.4 million for the Rockets. The HSA also receives regular rental payment from the Houston Livestock Show and Rodeo and Dynamo MLS team, and further services its debt through special hotel and motor vehicle taxes.

Should revenues received from these special tax streams not be sufficient to cover payments on its outstanding bonds, the Houston Sports Authority could turn to its tenant teams with hat in hand.

According to Bond Buyer, the Houston Sports Authority is already in negotiations with the Texans, Rockets, Astros and the Rodeo to restructure its long-term bonds. 

A restructuring would likely mean higher rental payments over a shorter period – essentially a short squeeze on the teams.

Both parties, like it or not, are symbiotic partners in a venue-tenant relationship where the success of one depends entirely on the other.  And for the sake of growth in the city’s sports, a short squeeze on teams might not be best short-term option.

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