City in Penalty Box over Team Finances

January 30, 2012

Glendale, Arizona, a Phoenix suburb, finds itself in a financial bind tied to, of all things, its local National Hockey League (NHL) team.  When the Phoenix Coyotes filed for bankruptcy in 2009, the NHL was charged with finding a new owner to take on the ailing franchise, but Glendale was left with a sizeable financial commitment that has drained the city's fragile revenue pool, says the Wall Street Journal.

  • In exchange for the ability to keep the team despite the bankruptcy, Glendale promised the NHL it would absorb up to $25 million of the team's losses in both 2011 and 2012.
  • Due to large payments to the NHL to cover that commitment, Moody's Investors Service downgraded the municipality's bond rating, citing the financial strain resulting from the payment.
  • In response, the city is hosting a two-part sale of municipal bonds, the first amounting to $78 million and the second to $58 million, for a total expected receipt of $136 million.

The city hopes to receive enough subscribers to its sales, despite the recent credit downgrade by Moody's, by backing up the bonds with specific sources of revenue.  The first portion of the sale will be secured to the city's water and sewers, while the second, smaller portion will be tied to a combination of taxes including the city's excise tax.

The first portion of the sale had a solid showing of investors and received excellent ratings from both Moody's and Standard and Poor's.  But, as some investors were quick to point out, the revenue stream from essential services such as water and sewer is far more reliable than a hodgepodge of other taxes.  For this reason, the second part of the bond sale appears gloomy, and Glendale city administrators are uncertain if it will be as well-subscribed as the first.

Source: Kelly Nolan, "City in Penalty Box over Team Finances," Wall Street Journal, January 25, 2012.

For text:

http://online.wsj.com/article/SB10001424052970204624204577181231337161186.html

 

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