New York Mets’ Citi Field Debt Gets Downgraded To Below Investment Grade

It may have just gotten a little tougher for Fred Wilpon to hand onto the New York Mets.

This afternoon, credit rating agency S&P Global Ratings announced it was lowering its ratings to ‘BB+’ from ‘BBB’ on New York City Industrial Development Agency’s (NYCIDA) series 2006 $547.4 million payment-in-lieu-of-taxes (PILOT) bonds, $58.4 million installment purchase bonds, $7.1 million lease revenue bonds, and series 2009 $82.28 million PILOT bonds issued for Queens Ballpark Co. LLC (Citi Field), the baseball team’s ballpark. S&P said it was also assigning a recovery rating of ‘1’, reflecting our expectation for very high (90-100%; rounded estimate: 95%) recovery in the event of a default.

The team made a PILOT bond payment of $44 million in 2019. The ‘BB+’ rating is the first step towards being rated below investment grade. Specifically, an insurer rated ‘BBB’ has good financial security characteristics but is more likely to be affected by adverse business conditions than are higher-rated insurers, while an insurer rated ‘BB’ or lower is regarded as having vulnerable characteristics that may outweigh its strengths.

The Mets, owned by Sterling Equities, which is controlled by Jeff Wilpon, his son Jeff, and Saul Katz, have been on the block for a while. A deal with Steve Cohen broke down in February. Most recently, former MLB All Star Alex Rodriguez and Jennifer Lopez were trying to raise money to be the team, which Forbes valued at $2.4 billion in early April. In early May, I wrote that the couple had ended their attempt to buy the team because they couldn’t get sufficient funds. But it was reported five days ago Rodriguez and Lopez are taking another shot.

The Mets are losing money and have a mountain of debt: $350 million on the team and perhaps another $450 million on SNY, their 65%-owned regional sports network. According to my sources, it is likely the team has added to its leverage by borrowing from the league’s expanded credit facility to deal with the lack of ballpark revenue during the sport’s shutdown this season.

The ratings agency said “A combination cash on hand and liquidity can keep the project afloat until June 2021. We estimate cash and liquidity in the form of its debt service reserve can cover operations and maintenance (O&M) and debt service obligations for QBC if the entire 2020 season is canceled, and if this occurred would be sufficient to support the first of two debt service obligations in 2021.”

In mid-May, MLB’s owners submitted a plan to the players’ union to play an 82-game regular season starting in July. The players took to that proposal like a batter would an 98 mile an hour fastball at his head. Most recently, the owners rejected an offer from the players for an 114 game schedule. Even with a shorter season, my math shows the owers losing an enormous amount of money due to fans being kept from attending games as a result of the pandemic.

The outlook for Citi Field is troubling. S&P wrote: “The CreditWatch negative placement reflects our concerns over the continued impact COVID-19 is having on the QBC (Citi Field) given that MLB is likely to cancel a significant portion of the 2020 season, that the 2021 season could entail limited attendance due to social distancing, and that destabilization could extend into 2022, a potential strike year. Using debt service reserves may be necessary as early as December as we do not assume or rely on any team support. Additional draws could occur in 2021, depending on how the revenue profile unfolds. Beginning with the anticipated MLB announcement, we are expecting to gradually clarify the extent of cancellations in the season, including potential cancellation of all fan-attended games, as well as any social distancing requirements once games begin, and refine and publish our financial forecast as a function of our assessment of QBC. We could lower the rating if we conclude there is likely to be a substantial draw on reserves to pay debt service in 2020 and 2021.”

More serious problems would occur should there be a work stoppage prior fo the next collective bargaining agreement (CBA). The ratings agency noted “An insufficient liquidity position could expose Citi Field to additional financial risk if a 2022 MLB players strike occurs. If liquidity is drawn this year or next, the replenishment of the debt service reserve, if used, is unlikely to be quick. The current collective bargaining agreement with players sunsets at the end of 2021, and if a players strike occurred, pre-existing 2020 or 2021 draws on the debt service reserve account may not be adequate to support the stadium through the strike.”

To be fair, the Mets would not be the only team a work stoppage would test the financial mettle of the owners. One example: the Texas Rangers, for example, had to make $100 million in capital calls from their investors to pay for their new ballpark, which has yet to host a single game.

Challenging times for baseball. Very challenging times for the Mets.