Fitch Continues to Monitor NHL CBA Negotiations; Privately Rated Arena Remains on Rating Watch

NEW YORK--()--Fitch Ratings continues to closely monitor the ongoing negotiations between the National Hockey League (NHL) and National Hockey League's Players Association (NHLPA). Since the work stoppage began on Sept. 16, the NHL has canceled blocks of regular season games (now 625 games through Jan. 14 2013), its signature New Year's Day 'Winter Classic' and its All-star Game. It is possible that the NHLPA may decertify and legal proceedings would follow, all of which would likely prolong ongoing negotiations. The NHL's regular-season was expected to commence on Oct. 11.

Fitch has placed one private arena rating with a NHL anchor franchise on Rating Watch Negative and continues to closely monitor the operations of other arenas with a NHL anchor franchise. Fitch publicly rates L.A. Arena Funding's (Staples Center, Los Angeles) $201 million revenue backed notes 'BBB+', Stable Outlook and the Denver Arena Trust's (Pepsi Center, Denver) approximately $46.7 million revenue backed notes 'BBB-', Stable Outlook. Fitch does not rate the NHL league-wide borrowing facility secured by national television contracts and other league revenues.

The Rating Watch Negative reflects financial and business risks that distinguish it from other arenas, including heightened exposure to a single franchise with a significant share of arena generated revenues. The canceled games are expected to materially weaken the arena's financial performance.

Despite the canceled games Fitch believes that the Pepsi Center, Staples Center and other Fitch-rated private arenas with an anchor NHL franchise retain some, albeit limited, financial flexibility. Fitch notes that the abovementioned arena ratings also have an NBA franchise as an anchor tenant and host a significant amount of other events, providing some level of revenue certainty to support operations. Additionally, the arenas maintain a significant level of contractually obligated revenue in the form of multi-year suites and club seats, sponsorship and advertising and other long-term contracts. However, renewals of these revenue agreements may be impacted in the event of a canceled season. The pressure on renewal rates stemming from local economic conditions and, in some cases, recent on-ice performance could be exacerbated by labor uncertainty.

Fitch's rated NHL arenas are protected in the short term in the event of a work stoppage. Additional bondholder security is provided by a combination of debt service reserve funds, work-stoppage reserves, internal liquidity and, in some cases, a significant portion of contractually obligated income that is required to pay even in the event of a work stoppage. For example, the Staples Center structure requires 150 events annually to meet the threshold that would avoid credits back to suiteholders. This past NBA season, despite the NBA lockout and approximately 20 missed NBA events, arena management was budgeting 220 events before the end of this past fiscal year (June 30, 2012). Using last year as a base and accounting for all NBA events that will occur next season, the Staples Center would still host nearly 200 events next year even in the event of a full-season NHL lockout. The financial structures of several arenas and stadiums include a bullet maturity, which poses refinance risk. Fitch notes the refinance risk is heightened when periods of labor unrest coincide with the bullet maturity due date.

The NHL's 2004-2005 season was officially canceled on Feb. 16, 2005. Fitch expects to closely monitor the negotiations over the next two to three weeks at which time Fitch believes it will be determined as to whether or not enough games could still be played to salvage a partial season. In the event that material progress has not been achieved by mid-January and if Fitch believes the likelihood of season cancellation is strong, Fitch will review the other arenas on a case-by-case basis but will likely assign a Negative Outlook to all the arenas due to concerns and uncertainty related to near-term renewals of pledged revenues.

Furthermore, in the event of a full season cancellation, Fitch has concerns related to potentially harmful long-term effects to the NHL brand and fan and support. NHL franchises have a solid dedicated arena fan base as demonstrated by solid arena attendance after the 2004-2005 season work stoppage. However, a second full season cancellation could result in a materially different response by NHL fans and corporate partners. Professional sports work stoppages risk alienating sports fans, corporate sponsorship, and advertising partners in the short-term and may lead to increased revenue volatility. The combination of weak and uncertain national and regional economic conditions and the various sport entertainment options could result in a dramatic reduction of fan and corporate support

For more information see Fitch's press releases 'Fitch Closely Monitoring National Hockey League CBA Negotiations' (Sept. 14, 2012) and 'Fitch: NHL Negotiations Improving But Risks To Arenas Remain', which are available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

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