SBJ/June 8 - 14, 1998/No Topic Name
All Houston needs is a plan
Published June 8, 1998
As the city of Houston struggles to produce a credible financing plan to build a new football stadium, and possibly a new basketball arena, it already has one critical funding commitment in place: an agreement in principle for bond insurance.
This means that any debt issued to fund these venues would have the lowest interest rate possible. It also indicates that the insurer, MBIA Corp., is convinced that the city has the means to raise enough tax revenue to fund construction.
Houston is waging war with Los Angeles to attract the 32nd NFL franchise, and the city with the most advanced financing package for a new facility could turn out to be the winner. Bond insurance can be a critical part of a financing plan.
"This has become increasingly important in public-private partnerships where popular support is critical," said Rick Horrow, a stadium consultant to the NFL. "The idea of bond insurance or some form of financial guarantee is productive in terms of the certainty that the project will adhere to certain budgetary considerations."
MBIA is already insuring the $210 million of bonds that are expected to be issued soon by the Harris County-Houston Sports Authority to fund construction of the Astros' new home, the Ballpark at Union Station. Those bonds are backed by hotel-occupancy and car-rental taxes that were levied last year.
As part of the ballpark deal, according to several sources involved in it, MBIA agreed that under similar terms it would provide insurance for new debt to fund other venues, which almost certainly would include a new football stadium to replace the Astrodome.
"If in fact they have a commitment for the financing for insurance, that is an extremely useful tool for the Authority," said Brian McGough, a vice president with J.P. Morgan & Co., an investment banker familiar with the Sports Authority and its transactions.
The Sports Authority, along with other parties, is negotiating a financing proposal for a new football stadium in an effort to lure the NFL back to Houston. The clock is ticking because NFL Commissioner Paul Tagliabue promised to lead a group of league officials to Houston later this month to personally examine the proposal if, of course, it exists.
What is unclear is how much of the hotel and car-rental tax revenue will be allocated to each project. Proposals for a new basketball arena, plus renovations to the existing Astrodome to transform it into an exhibit hall, are circulating.
Houston has projected that the tax revenue will grow 3 percent annually, which would be necessary for MBIA insurance coverage. MBIA already is comfortable with the current level of taxes to insure the Astros' new ballpark, which is under construction.
MBIA's agreement to insure possible future bond sales known as a "forward commitment" is unusual. Normally, an insurer, whose blessing is avidly sought by municipalities issuing debt, will wait for a firm funding proposal. But in this case the Sports Authority is clearly intending to go forward with a football stadium, and tax revenue is solid.
Bond insurance brings an instant triple-A rating, so the debt is cheaper over its life than without the coverage.