Overview
-- The financial performance of U.S. baseball park operator Yankee
Stadium LLC and its owner, Yankee Stadium Holdings LLC, is strong and
predictable as the former moves toward stabilized operations.
-- We are raising the rating to 'BBB' from 'BBB-' on Yankee Stadium and
Yankee Stadium Holdings.
-- We are revising the outlook to stable from positive.
Rating Action
On July 31, 2012, Standard & Poor's Ratings Services raised its long-term
rating and, where applicable, its underlying rating (SPUR) to 'BBB' from
'BBB-' on the New York City Industrial Development Agency's (NYCIDA) $942.6
million series 2006 payments-in-lieu-of-taxes (PILOT) bonds, $259.0 million
series 2009A PILOT bonds, $25.0 million rental bonds series 2006, and $111.9
million series 2009 rental bonds issued for Yankee Stadium LLC (StadCo). At
the same time, we raised our long-term rating to 'BBB' from 'BBB-' on StadCo
owner Yankee Stadium Holdings LLC's (Holdings) $46.4 million bank loan. We
revised the outlook on the ratings to stable from positive.
Rationale
The rating action reflects our view of a trend of strong operating and
financial performance since the new stadium opened in 2009. Despite opening
during a recession, the project has performed well, attracting more than 3.7
million visitors annually with an average ticket price of about $85. These
trends combine to generate more than 2.8x coverage of all project obligations
during the past three years.
StadCo owns the leasehold interest and operates the 50,291-seat baseball
stadium for the New York Yankees, a Major League Baseball (MLB) team, located
in the Bronx, N.Y. Bond and bank loan proceeds and an equity contribution in
excess of $100 million from New York Yankees Partnership (the New York Yankees
baseball team, the Yankees) funded construction of the stadium. The stadium
opened as expected in April 2009.
The assigned ticket and suite license revenue generated at the stadium support
PILOT and rental revenue payments. Bondholders are paid from gross revenue,
but the stadium's operating and capital expenses must be paid before excess
pledged revenue can be distributed. The stadium is owned by NYCIDA, which
leased it to StadCo for an initial term of 43 years beginning on Aug. 22,
2006. NYCIDA services the debt for the PILOT and rental revenue bonds from
PILOTs and rental payments received from StadCo, which is owned by Holdings
(an indirect wholly owned subsidiary of Yankee Global Enterprises LLC, or YGE,
a 99% indirect limited partner of New York Yankees Partnership).
The rating reflects our view of:
-- The Yankees' status as a well-established baseball franchise with a
solid fan base in the New York metropolitan area. The team has won 27 World
Championships and 40 American League pennants.
-- The stadium's location in the largest media market in the U.S., with
sound demographics. The team draws from the metropolitan area's population of
more than 22 million, above-average demographics, and strong corporate base.
-- Strong commitment to the market. The team has played in New York since
1903 and played in the old Yankee Stadium from 1923 until 2008.
-- Sound cash flows, with a low break-even annual attendance of 2.75
million assuming $65.50 tickets. The break-even figure is below the 30-year
annual average of 2.8 million, and in line with the average ticket price in
2008, the last year in the old stadium. The break-even analysis includes
payment of stadium operations and maintenance expense.
-- Sound security for bondholders, including a nonrelocation agreement in
which the Yankees agree to play all of their home games at the ballpark. The
nonrelocation agreement provides that the team pay liquidated damages if it
attempts to relocate during the remaining 37-year term of the debt. In
addition, the project's obligation to make annual PILOT payments is secured by
a series of PILOT mortgages, which are similar to real estate tax liens.
Partly offsetting the above strengths, in our view, are:
-- A pledge of ticket and suite license revenue to support PILOT and
rental revenue payments, which is subject to renewal risk. Although about 25%
of the assigned revenue, specifically the club and suite licenses, have
multiyear contracts ranging from three to 10 years, the remainder is not under
long-term contracts and is subject to annual renewal risk. Ticket pricing is
affected by such factors as economic cycles and competition from other sports
teams.
-- Competition from other new stadiums in the New York region for luxury
amenities, which affect pricing, occupancy rates, and renewals for the suites,
luxury club seats, and general seating.
-- The project cannot distribute funds out of the flow of funds until all
annual requirements are made. However, comparable transactions require more
than 1x coverage of all requirements before distributions are made and the
distributions are less frequent -- typically one to four times per year as
compared with monthly or more frequently in this project.
-- The possibility that the PILOT may, under specific circumstances, drop
below annual PILOT bond debt service payments, causing a debt service payment
shortfall but not an event of default. The PILOT payment cannot exceed the
value of the site's and stadium's equivalent real estate taxes if they were
subject to real estate property taxes. The real estate taxes may decline if
the value of the stadium declines, the tax rate decreases, or the assessment
methodology is changed.
-- Long debt tenor. The remaining 37-year debt tenor on the project is
longer than that of most comparably rated projects.
The stadium project opened in 2009 and we believe it is moving toward
stabilization. Since opening, paid attendance has trended at anticipated
levels or higher, while the average ticket price has been lower because of the
recession. Attendance has not been below 3.65 million annually and 88%
occupancy. Generally attendance trends higher with the team's on-field
performance, and we believe it is moving toward a slightly lower, stabilized
level. Yankee attendance peaked in 2008 at 4.3 million in the old stadium,
which had a higher capacity. It has averaged 3.69 million with 91% occupancy
in the new stadium. Attendance in 2011 dropped by 3% and the number of season
ticket holders, or full season equivalents (FSE), is trending downward. We
believe the number of FSE and annual ticket sales will reach stabilization
during the next two to three years. However, even if it reaches stabilization,
we anticipate that attendance will go through at least one downward cycle
during the 40-year term of this transaction.
The Yankees' average ticket price remains in the top five of MLB, but the
recession hurt prices. Since opening, the average ticket price has declined by
a compounded rate of 1% annually, remaining around $86 since 2010. Our
financial projections assume flat average ticket prices this year.
We believe that MLB provides stability for the teams as the governing body
through the league's constitution and various contractual agreements,
including the collective bargaining agreement with the MLB Players Assn. The
MLB collective bargaining agreement was extended this December until 2017. The
new agreement maintains the financial and operating provisions. The ratios
required under the debt service rule were improved slightly but remain at
levels that we believe are high compared with corporate metrics.
The league and players have not had a work stoppage since 1995, but we believe
it is likely that at least one work stoppage will occur during the remaining
37-year bond term. In addition, in light of the bankruptcy filings of three
MLB teams during the past three years, we reviewed the financial and legal
structure for StadCo and its owner and found that the documents somewhat
insulate the stadium project from the team and other baseball assets if they
were to have financial problems. Furthermore, we assume that a team would
remain in the stadium and continue to play during a period of financial strain
or restructuring, as seen in the limited number of bankruptcies of
professional teams.
The project cash flow remains strong. Management's 2012 budget assumes paid
attendance is flat at 3.73 million while the average ticket price is
essentially flat at $86.78. Year to date, paid attendance is trending 3% to 4%
lower than budget, with a strong second-half home schedule. Operating expenses
are up 2.5% in 2012, indicating a more stabilized growth rate. We consider the
payment of the PILOT, rental, and bank loan payments together because we see
few significant limitations on distributions between StadCo and its parent,
Holdings. Coverage of all PILOT, rental, and bank loan payments in 2011 was
3.4x, or 3.6x when excluding the bank loan. Based on management's 2012 budget,
the projected coverage of all obligations is in line with 2011.
We believe paid attendance will stabilize at lower levels. Management projects
less than 1% annual revenue growth. Standard & Poor's base case assumes that
attendance will stabilize at a lower level of 3.3 million and about 80%
capacity. This level is between the 20- and 10-year average annual attendance
of 3.1 million and 3.8 million, respectively. We assume that ticket revenue
will increase at 1% annually, and exclude any postseason ticket revenue. For
operating costs, we assumed costs would increase annually by 3%. Under our
base case, coverage of all obligations, including the bank loan, averages
2.47x through 2016 with a minimum of 1.74x. Coverage of the PILOT and rental
payments averages 2.61x, with a minimum of 2.37x during the debt's term. The
minimum coverage of all obligations occurs in 2016, when the bank loan bullet
maturity is repaid -- from cash flow, we assume.
Liquidity
We believe liquidity is adequate. The bonds and loan have a debt service
reserve funded to an amount equal to the maximum annual principal and interest
payments, excluding the final maturity or 10% of bond proceeds. They are
funded with a combination of cash and surety bonds provided by an
investment-grade provider. Additionally, a strike reserve fund is required to
fund an additional six months of debt service if a collective bargaining
agreement between MLB and the players' union is not in place. These reserves
are available to fund shortfalls in debt service payments but may be used
during a work stoppage or shortfall in the PILOT payment. For the current
funding status of the reserves, see our transaction update to be published on
RatingsDirect on the Global Credit Portal.
We believe the project has enough liquidity to withstand a work stoppage
lasting more than one year. In addition to the strike and debt service reserve
funds, the suite and club seat contracts require payments to be made during a
work stoppage, with credits issued for lost events after the games resume.
Outlook
The stable outlook reflects our view of adequate revenue from contracted
sources, strong and predictable financial performance, and a stable operating
expense profile. We believe that the project and the holding company have
limited opportunity for a higher rating given the discretionary nature of the
pledged revenue and our current assessment of YGE, the ultimate owner of
StadCo and Holdings. We may lower the rating if the stadium fails to maintain
the current level of revenue, if operating expenses far exceed expectations,
and if the project significantly underperforms, resulting in consolidated
coverage levels of less than 2x.
Related Criteria And Research
-- Updated Project Finance Summary Debt Rating Criteria, Sept. 18, 2007
-- Project Finance Stadiums Can Score Investment-Grade Ratings, Aug. 29,
2000
Ratings List
Upgraded
To From
Yankee Stadium LLC
$942.6 mil ser 2006 PILOT bds BBB/Stable BBB-/Positive
$259.0 mil ser 2009A PILOT bds BBB/Stable BBB-/Positive
$25.0 mil ser 2006 rental bds BBB/Stable BBB-/Positive
$111.9 mil ser 2009 rental bds BBB/Stable BBB-/Positive
Yankee Stadium Holdings LLC
$46.4 mil sr sec term bank ln BBB/Stable BBB-/Positive
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
