By Kelly Nolan, Wall Street Journal
Glendale, Ariz., is selling about $136 million in debt in the municipal-bond market this week, just days after Moody's Investors Service cut its bond rating because of the desert city's obligations to cover losses on a National Hockey League franchise.
In exchange for the NHL's promise to manage team operations and keep the team in Glendale until a new owner is found, the city agreed to compensate the league, the city's executive communications director, Julie Frisoni, said.
The Coyotes filed for bankruptcy protection in 2009, and that spring, the NHL became the owner of the team. In exchange for keeping the team, the city signed an agreement to absorb up to $25 million of the team's losses in both 2011 and 2012, in anticipation of finding a new owner, Moody's analysts said.
A spokesman for the NHL, which owns the Coyotes, didn't respond to requests for comment.
The sale, which will refund old debt at lower interest rates, is coming in two parts: $78 million is connected to the city's water and sewers, while $58 million is ultimately being backed by the city's excise tax, a combination of various local and state-shared taxes, as well as other fees. The excise-tax bonds are being sold through a shell entity, the Municipal Property Corporation, which will repay bondholders through lease payments paid off by the excise tax.
Both sales are part of an effort by the Phoenix suburb to restructure its debt, Ms. Frisoni said. The water-and-sewer deal priced and saw good reception Tuesday, while the excise-tax deal is expected to sell Wednesday, market participants said.
"The city is confident through these refinancing initiatives already begun, along with the improving economy, Glendale will regain its previous high rating bond status," Ms. Frisoni said.
Moody's downgraded Glendale's general-obligation bond rating a notch, from Aa2 to Aa3, last week, noting the city's "strained" financial position after a "significant" payment to the NHL for the Phoenix Coyotes' operating losses.
The ratings firm also said the downgrade reflected "negative effects of the broad downturn in the region's economy" and the city's "high debt burden." Moody's also has a negative outlook for Glendale, because it may have to pay the NHL as much as $25 million more, for 2012, if the team doesn't secure a new owner in the coming months.
Ms. Frisoni said Glendale continues to work with the NHL to find a new owner for the Coyotes, which moved to Arizona in 1996.
Glendale's commitment to the Coyotes is enough to keep some investors from buying the city's debt. Kathy Bramlage, director at Treasury Partners, a unit of financial-advisory firm HighTower Advisors in New York, said she was passing on Glendale's debt for that reason.
Todd Curtis, portfolio manager of the Tax-Free Trust of Arizona, which has more than $300 million in assets, said he bought some of the Glendale water-and-sewer debt, but he wasn't sure he would participate in the excise-tax deal.
The water-and-sewer deal is backed by "an essential service" from "a pretty solid, residential-style community to the west of Phoenix," he said. On the other hand, Mr. Curtis added, "there are some gray clouds" over Wednesday's excise-tax deal, because of Glendale's affiliation with the Coyotes and the Moody's downgrade.
Market participants said the first part of Glendale's package, the water-and-sewer deal, saw good demand, and yields were moved lower on some maturities in a repricing. The longest maturity, in 2028, for instance, yielded 3.20%, versus 3.26% in an initial pricing. Standard and Poor's rated the issue double-A, while Moody's rated it Aa3, the third- and fourth-highest of 10 investment-grade ratings, respectively.
The excise-tax part of the financing package is scheduled to sell Wednesday.