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Is Reliant Stadium Debt Really Junk?

The Houston Chronicle reports:

The Harris County-Houston Sports Authority is short $5 million on a debt service payment for Reliant Stadium due this week, prompting it to dip into its reserves to cover the bill.

It marks the first time the Sports Authority has had to draw on its $56 million reserve account to meet a debt obligation, signaling that the authority is not bringing in enough money to make its payments.

Those payments surged last year after the downgrade of its bond insurer and the subsequent demand by JPMorgan that the authority pay off in five years debt that had been due by 2030.

Simultaneously, the authority's income has declined. More than half its $72 million in annual receipts come from hotel-motel occupancy taxes and car rental taxes. The economic downturn has reduced how much the authority takes in from those sources.

Sports Authority board chairman J. Kent Friedman described the problem as a short-term "cash-flow crunch."

This has the makings of a really interesting story, one worth digging in to and getting the facts.  JP Morgan (Chase) is surely acting within its contractual rights in demanding the early payoff, but it is surprising to me that they'd actually take that step.  Are stadium tax revenues ten years out really so risky that forcing the authority to use its reserves makes sense for Morgan?  In a sense the answer must be yes, otherwise the Stadium Authority could enter into a contract with a re-insurance firm (although the problem there may be in the re-insurance market and not with stadium revenues per se).

Mr. Friedman is adopting an "everything is hunky-dory" posture, stating that "the community will be a lot better off if we can pay these bonds off early."  This begs the question of why they sold long term bonds in the first place, of course.   And there appear to be both age-old and recent issues hiding under the rug:

The debt challenges arise as county leaders consider pricey plans to revive or raze the vacant Astrodome, the Sports & Convention Corp. seeks $5 million from the maker of Reliant's roof to recover expenses resulting from Hurricane Ike damage and the authority is negotiating with the Houston Dynamo over the terms of a lease on a publicly owned soccer stadium.

The tendency for teams to leave their digs before the debt has been paid off has been noted here before.  The $32 million owed on the Astrodome (from an original debt of $27m!) may be a worrisome sign to lenders.  See also "Muni Bond Watch Turns to Sports Facilities."