Move over Greece: Louisville joins ‘junk bond’ club as Moody’s downgrades $340 million KFC Yum! Arena debt
Gordon Gekko at Goldman Sachs, placing the KFC Yum! Arena debt.
Louisville and Greece now have something in common: Both have bonds that have been downgraded to “junk” because of a bleak outlook when it comes to our servicing public debt.
Two days ago, without anyone much noticing, Moody’s Investors Service downgraded the underlying rating on the Kentucky Economic Development Finance Authority’s Louisville Arena Project Revenue Bonds to Ba2 from Baa3.
For the non-bond vigilantes, that’s two ratings below Baa, where high-risk junk rating begins and investment grade ends – along with low interest rates.
Not that this was unexpected: Moody’s put KEDFA on notice back in December this was coming unless Louisville officials figure out some way to increase tax revenues in the tax increment financing district around the arena, which was projected to be chock full of retail, hotels and restaurants by now.
3 comments:
Gee, I've never heard of a TIF falling short of projections.
Well, TIF districts can't technically fail, can they?
Quoting the Courier-Journal: "unless Louisville officials figure out some way to increase tax revenues in the tax increment financing district around the arena, which was projected to be chock full of retail, hotels and restaurants by now."
The TIF is supposed to generate enough tax revenue to pay off the bonds. If it does not generate enough revenue the bonds can go into default and that ruins a city's credit rating. That's why they will try anything to generate more tax revenue or find some other means to cover the bond payments. Sometimes those bond are backed up by a general fund obligation if the TIF doesn't generate enough revenue. Kind of like co-signing for your brother-in-law's car loan. If he doesn't make the payment, you have to.
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