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Rating Action:

Moody's upgrades Yankee Stadium LLC to Baa2 from Baa3; outlook stable

24 Jun 2016

New York, June 24, 2016 -- Moody's Investors Service, ("Moody's") has upgraded Yankee Stadium LLC's (StadCo) underlying rating to Baa2 from Baa3, affecting approximately $1.26 billion of rated debt outstanding. This action concludes the review for possible upgrade initiated June 16, 2016. The rating outlook is stable.

Issuer Profile

Yankee Stadium is the home facility for the New York Yankees and is located in the Bronx, New York. The land upon which the facility is situated is owned by the City of New York and is leased to the New York City Industrial Development Agency (NYC IDA) for a 99-year term and the NYC IDA owns the facility itself. Yankee Stadium LLC (StadCo) leases the facility and subleases the land from NYC IDA. Debt service-like payments are made from StadCo to the NYC IDA in connection with both the lease and the sublease. StadCo makes a payment in lieu of taxes (PILOT) and a rental payment to the NYC IDA, the issuer of the bonds. The NYC IDA uses the PILOT and the rental payment to pay debt service on the PILOT bonds and the taxable rental bonds. Assigned revenues from StadCo, which are generated by luxury suite license fees and ticket sales from approximately 81 regular season Yankees home games, are the source of PILOT and rental payments.

Summary Rating Rationale

The upgrade to Baa2 from Baa3 is based on StadCo's proven resiliency through variable team performance and economic cycles that is likely to continue to generate significant excess cash flows to support consistently strong debt service coverage ratios (DSCR). The upgrade also incorporates the reduction in market and interest rate risk following the termination of virtually all derivative transactions, which simplifies the capital structure. The upgrade also recognizes certain aspects of the stadium's project finance structural features that exist in the financing documents, which we believe provide incremental protection for bondholders in several downside scenarios.

The Baa2 rating reflects the strength of the Yankees franchise and the teams' location in the strongest and most affluent media market in the US. A key credit strength is the teams' non-relocation agreement that ties the team to the stadium. The rating acknowledges the inherent cyclicality of the sports industry and incorporates the variable nature of the essentially single-sourced revenue stream assigned to the bonds. This warrants higher coverage ratios compared to projects with lower coverage ratios that have a higher level of contracted and more predictable revenues assigned to pay debt service. This revenue variability is balanced against a long history of demand and a proven resiliency that provides a degree of cash flow certainty. The Yankees have a long history of loyal attendance that provides a base level of demand to support stadium operations, debt service, and distribution of excess revenues. The capital structure provides significant headroom to absorb the revenue variability that is likely to occur multiple times over the life of the bonds. Debt service coverage ratios have remained strong despite declines in recent years owing to lower revenues and rising debt service costs that will plateau in 2018. The rating further incorporates the relatively simple nature of the stadium operations and capital reinvestment profile, as well as the notably reduced swap portfolio with only one swaption outstanding with a manageable exposure given a low negative mark-to-market of $4.7 million as of mid-June 2016.

Rating Outlook

The stable outlook reflects our expectation that assigned regular season ticket sale and luxury seat license revenues will provide satisfactory coverage of annual debt service costs and distribute excess cash flow to support team operations.

Factors that Could Lead to an Upgrade

Debt service coverage ratios consistently exceed 3.5 times on a gross basis

A reduction in total leverage

Factors that Could Lead to a Downgrade

Debt service coverage ratios consistently below 2.0 times on a gross basis

Competitive pressures impact New York Yankees Partnerships (NYYP) ability to field a quality team, which results in a material decline in future attendance and ticket sales

A prolonged player strike that results in materially weaker revenues and the need to draw on the reserve fund

Legal Security

PILOT REVENUE BONDS: PILOTS (PAYMENT-IN-LIEU-OF-TAXES)

PILOTs are paid by StadCo, a special purpose entity created to construct, operate, and maintain the stadium, which StadCo leases from the NYC IDA and subleases to NYYP. Revenues for the PILOT payments are derived from regular season ticket and suite revenues generated at the stadium, which have been assigned to StadCo by NYYP. Each annual obligation to pay the PILOT is secured by a separate leasehold PILOT mortgage, which, in the event of non-payment will trigger a lien on the stadium. Also, because StadCo is a non-tax paying entity, there is no other taxing entity that could impose a lien that would have priority over the PILOT lien. Failure to pay the PILOT, if not cured, could trigger a foreclosure on the stadium by the PILOT trustee. A debt service reserve fund equivalent to maximum annual debt service (MADS) is available for 2006 bondholders, and equivalent to 10% of par, or $29 million is available to 2009 PILOT bondholders. The debt service reserve for the 2006 issuance is completely cash-funded. The 2009 Debt Service Reserve is half cash-funded and half supported by a surety from Assured Guaranty Corp (A3 negative).

Under the PILOT structure, StadCo must pay the lesser of the deemed ad valorem tax rate, or the contractual PILOT. The most recent 2016 tax assessment was $91.7 million, which exceeds the projected maximum annual net debt service on the PILOT bonds of $77 million. This margin continues to grow as taxes increase, minimizing the risk that the tax assessment will ever fall below the amount needed to pay the PILOT bond debt service.

RENTAL BONDS

Rental Revenue Bonds are secured by rental payments due from StadCo to the NYC IDA under the lease agreement. Additional Rent payments may also be derived from regular season ticket and suite revenues assigned to StadCo, but are not explicitly secured by the assigned revenues. A fully cash-funded debt service reserve fund equivalent to 10% of the par amount of the bonds is in place. In addition, if there is Pending Major League Baseball Strike Risk, which occurs if the then current CBA will terminate or expire by its terms within twelve months, prepaid rent equivalent to 1/2 MADS must be paid to the NYC IDA for deposit into the strike reserve fund. The prepaid rent must be paid no later than 30 days after the occurrence of a Pending Strike Risk unless the CBA expires between the end of baseball season and January 15, in which case the prepaid rent must be paid by February 1.

Obligor Profile

Yankee Stadium LLC is a special purpose entity charged with the development, construction, operation and maintenance of Yankee Stadium and related activities. Ultimately owned by Yankee Global Enterprise (YGE), Yankee Stadium LLC does not partake in other business related activities and its obligations are without recourse to YGE or any related affiliate.

Methodology

The principal methodology used in this rating was Generic Project Finance Methodology published in December 2010. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

John Medina
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Kurt Krummenacker
Additional Contact
Project Finance
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Yankee Stadium LLC to Baa2 from Baa3; outlook stable
No Related Data.
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