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The Sports Authority responds

J. Kent Friedman, the chairman of the board of the Harris County-Houston Sports Authority, contributes this op-ed to counter the idea that taxpayers may be on the hook for some of its obligations.

• • Up to $4 million per year of Reliant Stadium parking revenue was pledged to back any shortfall in the Reliant Stadium bonds. The bond insurance company required this pledge, due to the Texans being a brand new entity with no prior financial history. Since the opening of Reliant Stadium, approximately $56 million in parking revenues have been received by Harris County. Until this year, none of those revenues was ever needed. Due to the credit crisis, up to $4 million per year of those parking revenues will now be used during the five years of accelerated payments.

• • If for any reason, the sports authority is unable to make payments on the bonds, the bond insurance company, MBIA, would be required to pay the debt service on the bonds, which is exactly why the sports authority purchased insurance when the bonds were issued.

• • If the bond insurance company for some reason did not pay the bonds, then either JPMorgan Chase or the bondholders would have to wait until enough funds were collected through the current financing structure, or until the sports authority could refinance, if feasible.

This is basically the argument that Gene Locke made in my interview with him. All I can say is that the previous reporting, both in the Chron and elsewhere, does not give the impression that JPMorgan Chase or the bondholders would have to wait to get the money they’re demanding. And even if that is the case, it seems to me that refinancing may well include the possibility of higher annual payments, as such a re-fi may mean shorter terms for the loan. Friedman didn’t address that point, nor did he specifically call out any aspect of the Chron story as wrong, so I don’t know if that means I’m misunderstanding something, or if he’s simply glossing over that stuff. But there you have it from their perspective.

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  1. JJMB says:

    I offer this up as possible help in understanding all this.

    “All I can say is that the previous reporting, both in the Chron and elsewhere, does not give the impression that JPMorgan Chase or the bondholders would have to wait to get the money they’re demanding.” I agree that is the impression, but it seems to me that it is clearly WRONG. I think people like you have been very seriously misled. I don’t know why — perhaps to sell papers, (“Taxpayers 100% Protected By Sports Authority” is rather dull for either the Chron or Texas Watchdog), perhaps because the reporters aren’t very bright, perhaps because someone had a political attack they wanted to support…

    Years ago I assisted some senior lawyers in their public bond law practice and know this — the Sports Authority is a separate entity from the City or County or anything else. The bonds can ONLY make a claim against that entity. If the Sports Authority doesn’t have the cash on hand, then the bondholders have to wait until it does, or never get fully repaid. That’s the RISK they took to get the interest rate (think about it — it doesn’t make sense that they bought bonds with NO RISK, does it?) I assume Friedman doesn’t call out the Chron because it is always dangerous to go to war with someone “who buys ink by the truckload” as the old saying goes.

    The problem with “reporting” is that whenever I have been personally involved and knowledgeable about the facts, the reporter always got at least 25% wrong. Which is painful to me. I was a big journalist in high school and pursued it for a bit in college, and I LOVED journalists and the idea of journalism. But whenever I know what is going on, both left leaning and right leaning journalists always have a couple huge, huge mistakes in their reporting. It is very disheartening. Whenever I read a story, how am I supposed to know which 25% is completely wrong?

    By the way, a refinance might work because the Sports Authority has an extra $55mm on hand right now (they planned for a rainy day, but have not been praised, have they?), so that money stretched over time might make the re-fi work rather than having to use up that reserve all in the 1st year of the 5-year accelerated payback that JP Morgan Chase has triggered. Also, a re-fi would eave the Sports Authority viable to perhaps issue bonds in the future for improvements, a soccer stadium (although that’s not the current plan), etc. — which an economy that wasn’t in the worst recession since the 1930s would allow it to. But defaulting on the Reliant bonds — because taxpayers ARE NOT ON THE HOOK — while it is an option, would relegate the Sports Authority to the sidelines (sorry for the pun…).

  2. local boy says:

    JJMB are you saying that if the Sports Authority defaults it wont have an effect on the interest rate of other local bonds being issued?

  3. JJMB says:

    I don’t recall enough when I practiced in the area, but I did specifically ask a non-interested bond lawyer that question about two weeks ago, and he was very precise in his view that the public bond market clearly differentiates between issuing entities and thus Sports Authority bonds (which might in the future if the economy doesn’t improve — but are not yet — be in bad shape if hotel and car rental tax collections continue to decrease) are viewed separately from, for example, general obligation Houston or Harris County bonds, so the latter would not be subject to higher interest, lower ratings, or declining trading prices. But I admit that’s a lawyer view/knowledge, and I have not asked a public bond investment banker for their view.

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