The Houston authority that finances the stadiums of the Astros, the NFL’s Texans and the NBA’s Rockets is asking bondholders to hand in some holdings in an effort to lower bond payments due over the next year.
The Harris County-Houston Sports Authority has crafted a $100 million bond offering to allow it to conduct a Dutch auction to manage a cash crunch created by the plunge in the hotel and rental car tax revenue that pays the debt-service each quarter. Further unsettling the authority’s situation is the right of the Houston Astros to get relief from $4.6 million in annual lease payments when their games are canceled.
The baseball team formally requested credit in early April for its four March home games that were canceled, according to disclosures made by the authority. On Tuesday, the Astros, through a spokesperson, said their lease agreement means they will get a reduction in lease payments for 53 games at $42,000 a game, or $2.226 million, assuming the full, modified 60-game season is played.
The reduction in Astros payments further intensifies the pressure on the Houston Sports Authority. From January through July this year, revenue from a hotel occupancy tax fell 25%, or $4.9 million, while rental car tax revenue fell 30%, or $4.4 million, from the same time in 2019. In April, S&P Ratings lowered its score for some of the authority’s bonds to the lowest investment grade level due to concerns over lower tax revenue in the pandemic. By November 2022, the Houston authority has $135 million in principal and interest payments to make, according to an April financial statement made through the municipal bond disclosure system.
The $100 million program is an effort to redistribute – or specifically, backload – payments from sooner until later. The authority sent letters to holders of $66.5 million in bonds maturing through 2023 (as well as $267,000 of bonds maturing in 2038 and 2040), asking them to participate in a Dutch auction. In a Dutch auction, people submit the minimum price at which they would sell their bonds. The buyer decides what price to pay based on how many sellers it gets at that level, usually above the lowest price and below the highest price offered. The U.S. government sells Treasury bonds through a Dutch auction process, and it’s how Google priced its 2004 IPO. In Houston’s case, the sports authority will buy an undisclosed portion of the bonds that holders offer up, paid by money raised from selling $100 million in new bonds that mature later on.
A banker working with the Houston authority on the transaction declined to comment. The authority didn’t return a request for comment.
All told, the authority has $891 million in bonds outstanding from the construction of Minute Maid Park, which opened in 2000, NRG Stadium, which started hosting play in 2002, and the Toyota Center which was completed in 2003: the three are home to the city’s baseball, football and basketball franchises, respectively. The MLS’s Houston Dynamo’s stadium, which the authority helped construct in 2012, doesn’t have publicly held debt.