The Rating Outlook is Stable.
KEY RATING DRIVERS
--Strong Underlying League Economics: The
--Three Major Anchor Tenants & Experienced Operator in Strong MSA: The notes benefit from long-term leases with three anchor tenants, the
--Demonstrated Stability of Collateral: The collateral is inherently subject to revenue contract renewal risk, and the sector is vulnerable to economic downturns and discretionary spending, as with any other facility of this type. This risk is mitigated by management's robust operating history and success with suite, premier seat, and advertising and sponsorship renewals despite team performance and economic conditions. Currently, all such pledged contracts are leased on a long-term basis; one Founding Partner advertising agreement was terminated, but negotiations for a replacement contract are currently underway with three companies.
--Solid Financial Metrics and Adequate Debt Structure: Leverage levels in the 3x range and Fitch rating case coverage levels averaging 2.1x adequately support the 'BBB+' rating and compare favorably to peers. Though legal maturity of the notes occurs in 2026, two years after team leases expire, LA Arena Funding plans to amortize the debt to a scheduled maturity of 2021. Moreover, the
--Contract Renewal or Pricing Pressure: Suite, other premium seating, and advertising pricing and renewals that differ from past and projected performance leading to debt service coverage ratios materially below the 1.4x range from current levels between 1.5x and 1.6x could lead to a downgrade.
--Upgrade Currently Not Anticipated: Currently, Fitch rates the
The notes are secured by a bankruptcy-remote securitization of 101 luxury suites, on-site advertising agreements with the arena's 11 founding partners, the naming rights agreement with Staples Inc., annual revenue from certain premier seating contracts, and the minimum guarantee portion of the concession agreement with
Pledged contractual revenue sources covered debt service in 2013 at 1.51x. Unlike consolidated EBITDA through the recession, noteholder collateral did not exhibit significant volatility, as the bankruptcy-remote securitization of the pledged collateral does not leave the notes exposed to margin or expense fluctuations. Advertising revenues represent the largest percentage of collateral and have increased 5.4% since 2008, reflecting pricing escalations in the contracts and a new agreement executed last year with American Express. Naming rights payments from
In its base scenario, Fitch assumes that pledged revenues increase moderately as the
Fitch notes that the nearby Forum in
Additional information is available at 'www.fitchratings.com'.
--'Rating Criteria for Infrastructure and Project Finance' (
--'Rating Criteria for U.S. Sports Facilities' (
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for U.S. Sports Facilities, Leagues, and Teams
Source: Fitch Ratings
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