Sparks, Nevada, and its entertainment district upgraded
The northwestern Nevada city of Sparks had its issuer rating and the bond rating on special district bonds that funded the development of a shopping, retail and entertainment district upgraded Friday by Moody's Investors Service.
Sparks, a city of 103,230 located in Washoe County that borders Reno, was upgraded to A1 from A2 and had a special tax rating upgraded to Ba1 from Ba2 by Moody's.
The issuer rating reflects the city's ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. The rating action concludes a review initiated on Nov. 3 in conjunction with the release of its U.S. Cities and Counties Methodology, according to the rating agency.
The special district ratings boost affected the Sparks Tourism Improvement District No. 1 Series 2019A bonds. The outlook on the TID bonds was also revised to positive from under review. Moody's didn't assign an outlook for the city, saying it doesn't typically provide outlooks for local governments with this little debt.
"The positive outlook on the special tax rating reflects the expectation that pledged sales tax revenue will continue to experience healthy growth in the near-term and support improved maximum annual debt service coverage," analysts wrote.
The city has approximately $92 million in outstanding debt as of June 30, 2022. Moving forward, Moody's said it will no longer rate the sales tax bonds under Sparks Tourism Improvement District No. 1, but under the city of Sparks.
The special district bonds, called STAR bonds, were issued to support development of the Outlets at Legends, that was originally supposed to feature a baseball stadium, casino, hotels as well as an outdoor shopping center. The shopping center anchored by a Scheels All Sports, Target and Lowe's was completed in the early 2010s minus major features, like the baseball stadium, IMAX and casino.
Since then, some of the other pieces have slowly been added. The IMAX theater was completed in 2014, and the casino opened last summer.
The story of the STAR bonds is one of redemption. The Outlets at Legends project was going full-speed toward construction until the economy crashed in 2008, and all the wheels fell off. The developer, Kansas-City based RED Development, filed a strategic default on a $141 million private loan and filed a notice of default on the bonds that were to pay for a portion of the 148-acre project. The $115 million in STAR bonds allowed the developer to keep 75% of the sales taxes generated to pay off development costs.
When Red Development went into default on the STAR bonds in 2012, the ratings plummeted to B2 with a negative outlook. The ratings were revised upward to B1 in June 2014, as default no longer seemed likely, according to the rating agency, and the bonds were given a stable outlook.
In 2017, when the special district received another ratings boost to Ba3 from B1, then-Moody's analyst Pat Liberatore told The Bond Buyer the project didn't "come to fruition as planned," and the ratings history reflects that, but it was challenged largely by the recession. The developer was finalizing plans for the project just as the economic crash hit in 2008, Liberatore said.
The Ba3 rating uplift in 2017 meant the bonds were no longer in danger of default, according to that rating report. Sparks' special improvement district has never been rated investment grade by Moody's. The ratings agency started rating the bonds in 2008 at Ba2. In December 2009, the bonds were downgraded to Ba3, and in December 2011, the ratings fell to B2. In June 2014, the bonds were upgraded to B1 and given a stable outlook.
The city's improved rating "reflects the city's growing economy and average resident income levels that continue to improve, supported by the continued economic diversification away from tourism and gambling industries. The rating further reflects recently improved fund balance and liquidity ratios resulting from strong consolidated tax receipts emerging from the pandemic, in addition to moderate leverage and fixed cost ratios," according to the Moody's report.