Fitch Affirms the USTA at 'A'
NEW YORK — Fitch Ratings affirms the ‘A’ underlying rating on the National Tennis Center (NTC) approximately $100 million civic facility revenue bonds outstanding. The 2003, 2004, and 2007 bonds were issued through the New York City Industrial Development Agency (IDA). The 2009 bonds were issued by the NTC. The bonds mature in fiscal 2024. The Rating Outlook is Stable.
KEY RATING DRIVERS:
PROVEN AND RESILIENT DEMAND PROFILE: The U.S. Open is a premier international sporting event with strong historical attendance and healthy revenue growth trends, demonstrated during economic downturns;
STRONG YET NARROW OPERATING HISTORY: The U.S. Open has been operating successfully for over 100 years and enjoys financial strength as an operating entity of the United States Tennis Association (USTA). The facility benefits from a market with solid demographics, a large corporate base, and a strong consumer market in the greater New York/New Jersey region resulting in successful suite renewal despite a concentration in financial services. However, there is single-event risk as the tournament only occurs once a year;
CONSERVATIVE AND FRONT LOADED DEBT STRUCTURE: 90% of total debt outstanding is fixed rate and maximum annual debt service (MADS) of approximately $19.5 million runs through fiscal 2014, after which debt service drops off dramatically. The NTC entered into a variable to fixed rate swap at 3.7% for the remaining 10% of the debt outstanding;
HIGH LEVELS OF FINANCIAL FLEXIBILITY: Pledged revenues generate debt service coverage levels at or above 7.3 times (x) and at or above 4.3x when netting out broadcast revenues, capturing the project’s low absolute leverage and manageable debt burden. Net debt-to-cash-flow-available is very low at approximately 0.75x. On a consolidated basis cash and investments exceed total debt;
MODERATELY AGED FACILITY: The facility is in adequate condition and management assumes minimal borrowings beginning in fiscal 2014. Management employs a balanced approach towards capital expenditures and proactively maintaining the NTC’s premiere facilities. Given the steep drop off in annual debt obligations commencing in fiscal 2014, leverage will likely remain very low.
WHAT COULD TRIGGER A RATING ACTION:
- Lower future renewals of key revenue agreements and/or significant attendance declines that have historically supported the NTC’s robust financial profile;
- Additional significant leverage that is not supported by increases in revenues will likely place downward pressure on coverage ratios.
The outstanding bonds are secured under a lease agreement with the respective Bond Trustees, which obligates the NTC to pay lease rental payments to the bondholders in an amount equal to debt service on the bonds. The lease rental payments are secured by all ticket sales and broadcast revenues from the US Open tournament.
The growth of the U.S. Open as an event and the NTC’s popularity has occurred during local and national recessions, illustrating its strong resiliency of demand and continued ability to produce strong financial metrics. The rating incorporates the legal framework and relationship between the USTA and the NTC. The NTC accounts for 100% of the USTA’s outstanding debt and 22% of the total revenue base. Additionally, the financial strength of the NTC and affiliates as a consolidated entity is also reflected in the rating.
Pledged revenues in 2010, consisting of ticket and broadcast revenues, generated a maximum annual debt service (MADS) multiple of 7.46x. U.S Open Ticket revenues alone cover MADS at 4.46x in fiscal 2010. Maximum annual debt service is approximately $19.5 million and Fitch expects coverage to remain strong at or above historical levels. Although final 2011 pledged revenues are not yet available, Fitch expects coverage levels to remain at or above 7.0x and in-line with historical performance.
The USTA’s proven fan base drives its high coverage levels and economic profile. Paid attendance for the U.S. Open has increased steadily throughout the decade, to approximately 700,000. Attendance during the most recent downturn was extremely stable, only marginally sliding by 0.9% in 2010 from 2009. In addition, the majority of broadcast revenues are secured through 2014 after which debt service drops off. Per the 2012 budget, the USTA is forecasting to reach approximately $99 million in gross U.S. Open ticket sales ($92 million net of sales tax) which represents the highest level since fiscal 2010. While the mix of luxury box contracts leans heavily toward the financial services industry, U.S. Open revenues continued to grow during recessionary periods, and the USTA showed no meaningful deviation from their long-term growth trend lines despite a period of stress for the financial services sector.
Projects completed with the most recent bond issuance include new locker rooms and fitness facilities at Arthur Ashe Stadium, expanded seating at several venues, and the completion of a 243,000 square foot indoor tennis facility. Fitch expects the management to continue to proactively invest in the NTC to maintain the overall high quality of entertainment and preserve the fan experience. Currently the NTC has a manageable capital plan and anticipates the possibility of additional debt post fiscal 2013.
Created in 1978 as an operating entity of the USTA, NTC is a 501(c)(3) entity that operates and maintains the USTA Billie Jean King NTC. The USTA has owned and operated the U.S. National Tennis Championships since 1881 without interruption, and the tournament has been known as the U.S. Open since 1968. The tournament moved from the West Side Tennis Club in Forest Hills (Queens), NY, to the NTC at Flushing Meadows (Queens), NY, in 1978. The U.S. Open is one of the four so-called ‘Grand Slam’ tennis events, which also include Wimbledon, the French Open, and the Australian Open.
Additional information is available at fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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