As Major League Baseball negotiates the start of its season amid the Covid-19 pandemic, stadiums are empty. According to UBS Group, a niche in the municipal bond market is under pressure.
The New York Mets and New York Yankees are repaying their stadium financing debt in part through ticket sales, putting the teams in a difficult position, said Jeannine Lennon, municipal credit strategist at UBS, during an interview. a telephone interview on Thursday. S&P Global this month downgraded Mets-linked bond ratings to one notch below investment grade and in late March placed Yankee Stadium bonds on ‘negative watch’ over Covid-19 concerns. .
S&P said in a March 23 report that it was unclear when baseball’s season would begin or how many games would be played, citing the “significant possibility that the ultimate impact on the season would be worse” than what the MLB was planning. Lennon wrote this week in a UBS research note that the league expects to lose an average of $640,000 per game without fans in the stands.
“We are seeing this cash crisis happening right now,” she said over the phone. Meanwhile, she added, another cloud hangs over stadiums as they look for ways to safely accommodate baseball fans.
“One thing to watch is that the collective agreement with the players is actually due to end on December 31, 2021,” she said.
Stadium financing can be structured to include ‘cash reserves’ for hard times as well as ‘strike funds’, both designed to ensure investors continue to be paid when a borrower’s income dries up , according to Lennon.
“As an investor, you want to see that these debt service reserve funds are structured in the original transaction,” she said. But historically, investors have viewed the withdrawal of cash reserves as a mark against the borrower — “it’s a red X,” Lennon said.
Economic shutdowns aimed at stopping the spread of Covid-19 have made it difficult for some borrowers to avoid this stigma in stadium financing.
“We see it in this pandemic,” she said. “People are using their reserve funds because these are unprecedented times.”
The Mets, however, are prepared to step in with cash to avoid dipping into the “rainy day” fund if a shortfall jeopardizes its debt payments due in December, according to Lennon.
“They don’t have to do it according to any legal documents at the point of origin of the transaction,” she said. But for investors, “it’s good to see that a team would step in and put their own earnings on the line.”
The Mets Stadium Bond, issued in 2006, was downgraded to BB+ because its rough “revenue and liquidity profile no longer supports investment grade ratings,” S&P said in a June 4 report. While many borrowers, including the Mets, make semi-annual debt payments, Lennon said financing for Yankee Stadium is considered strong because annual debt payments are made before the start of the year.
Major League Baseball Players Association executive director Tony Clark said in a declaration posted on Twitter on Thursday afternoon that the union submitted a counter-proposal for the season frame, but no deal was reached.
“Teams all want to play,” Lennon said. “It’s just a matter of figuring out how it’s going logistically right now.”