Saturday, June 20, 2015

Fitch Bond Rating Release On IMS Bonds Sheds More Light On The Deal

The Indiana media's coverage of the mechanics of the $100 million public subsidy for improvements to the Indianapolis Motor Speedway has been less than informative. A press release this week from Fitch Ratings announcing an AA+ rating for the bonds provides more information than previous news reports have offered about the deal. Along with issuing its second-highest rating to the IMS bonds, the credit rating agency also reaffirmed the state's AAA bond rating.

The bonds are described as "limited obligations" of the Indiana Finance Authority ("IFA"), which are paid from biennial appropriations made to the legislatively-created Indiana Motorsports Commission ("IMC"). The high bond rating assigned to the IMS bonds is instructive. It's based entirely on the state's current financial and debt situation and has nothing to do with the continued economic vitality of the Indianapolis Motor Speedway ("IMS") as a going concern.

According to Fitch, IMS will lease to IFA any part of its facilities on which improvements are being made with the $96 million derived from the bond proceeds. IFA will, in turn, lease the facilities to the IMC, the state entity responsible for carrying out the improvements to the IMS, which will then lease the facilities back to the IMS. The IFA and IMC have covenanted to obtain state appropriations of $7 million annually to repay the bonds, which will have a 20-year maturity cost of $140 million.

Fitch's rating is unaffected by the fact that the proceeds of the bonds are being used for a privately-owned facility. "IFA has strong incentive to seek appropriations for this project given the demonstrated state commitment," Fitch says. "In three consecutive legislative sessions the general assembly approved legislation for this transaction. Each of the legislated changes enhanced protections for bondholders and deepened the state's commitment to the project." Fitch notes the currently biennial budget includes a $14 million appropriation to cover debt service on the bonds.

IMS has pledged to pay $2 million annually to IMC to cover the $40 million difference between the amount the $100 million authorized by the legislature and the $140 million needed to cover the 20-year bond obligation. The state will also credit the IMS for taxes and fees collected from the special taxing district it has created to encompass the speedway and surrounding areas. After 30 years, the IMS pledges to guarantee any shortfall in the difference between the $140 million and the annual $2 million in payments it made to the IMC, plus a credit for taxes and fees paid into the special taxing district. It's interesting that the bonds have to be paid off in 20 years, but a determination of a shortfall between revenues generated from within the special taxing district and the $140 million won't be made until a decade later.


Anonymous said...

I don't know... but in reading about these bonds and this IMC and what seems to be convoluted finances... from where this simpleton with only a baccalaureate sits this "deal" brings to mind...Bernard Madoff. Nothing there was as it seems and I think I can safely say the same of this ridiculous motorsports commission payoff.

How "nice" that the Hulman's and their race care enterprise are bailed out by the taxpayers; politicians love to give away money that they didn't have to toil to earn ... I think I'll start a business, watch it eventually decline as consumer tastes change... and then rent a civic leader to have some dumbass governor seal the deal and save me from having to use my own money to improve and save my own business.

Eric Morris said...

Anon 150PM: Can I partner with you in your proposed business?

Pete Boggs said...

Could this explain why George Foreman gave his kids the same name? Or, is there a such thing as circumnavigational economics?

Furthermore, these prospective matters of circumnavigational economics, begs still another question. In the nursery rhyme where the monkey chases the weasel; does the weasel pop or pop the monkey- what the heck happened there?

Sir Hailstone said...

Mari George doesn't have many years left. The Board is thinking of an IMS post Hulman-George. Whether that's an entity already involved in motorsports (France Family, Bruton & Marcus Smith) or someone who isn't involved in motorsports and buys into IMS such as Tony Hulman himself who owns a grocery warehouse prior to his purchase of a dilapidated post-war IMS in 1946. Or Tony George uses his name to force his way back into IMS with outside investors and gives his aunts and siblings the heave-ho off the IMS board?

The improvements to the facility will be nice - kinda like someone who repaints a house and does some remodeling for curb appeal prior to putting the house on the market for sale.

Anonymous said...

Who is Mark Miles? -What is his relationship to Blue Indy? -What is his relationship to Ballard's Vision Fleet?

"The proverbial s_ _ _ hit the fan at tonight's Public Safety and Criminal Justice Committee of the Indianapolis City-County Council when the subject turned to Mayor Greg Ballard's no-bid, $32 million lease agreement with Vision Fleet, a completely untested, heretofore non-existent company until the administration entered into the corrupt, one-sided agreement with the company without consulting with the council."