The issuer rating of the northwestern Nevada city of Sparks and the bond rating for special county bonds that funded the development of the shopping, retail and entertainment district were upgraded by Moody’s Investors Service on Friday.
Sparks, a city of 103,230 in Washoe County bordering Reno, was upgraded from A2 to A1 by Moody’s and had a special tax rating that was upgraded from Ba2 to Ba1.
The issuer rating reflects the city’s ability to repay debt and debt-like obligations without regard to pledges, collateral or structural features. The rating action concludes a review initiated on November 3 in conjunction with the release of the US Cities and Counties Methodology, the rating agency said.
Outlets at Legends
The particular increase in district ratings was for Sparks Tourism Improvement District No. 1 Series 2019A Bonds. The outlook for the TID bonds was also revised from under review to positive. Moody’s hasn’t given the city an outlook, saying it doesn’t typically provide outlooks for local governments with this low level of debt.
“The positive outlook on the special tax assessment reflects the expectation that committed sales tax revenues 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. Going forward, Moody’s said it would no longer place the sales tax bonds under Sparks Tourism Improvement District No. 1 but will rate below the City of Sparks.
The special district bonds, called STAR bonds, were issued to support the development of Outlets at Legends, which was originally intended to include a ballpark, casino, hotels, and outdoor mall. The mall, which anchors Scheels All Sports, Target, and Lowe’s, was completed in the early 2010s without major features such as the ballpark, 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 STAR bond story is one of redemption. The Outlets at Legends project went full speed towards construction until the economy collapsed in 2008 and all the wheels fell off. The developer, Kansas City-based RED Development, entered a strategic default on a $141 million personal loan and filed a notice of default on the bonds intended to pay for a portion of the 148-acre project. The $115 million STAR bonds allowed the developer to keep 75% of sales taxes generated to pay off development costs.
When Red Development defaulted on the STAR bonds in 2012, the ratings dropped to B2 with a negative outlook. The ratings were raised to B1 in June 2014 because, according to the rating agency, a default was no longer likely and the bonds were given a stable outlook.
When the special district received another rating boost from B1 to Ba3 in 2017, then-Moody’s analyst Pat Liberatore told The Bond Buyer the project “didn’t materialize as planned,” and rating history reflects that, but it was challenged mainly by the recession. The developer was finalizing plans for the project when the 2008 economic crash hit, Liberatore said.
According to this rating report, the increase in the Ba3 rating in 2017 meant that the bonds were no longer at risk of default. Sparks Special Improvement District has never been rated investment grade by Moody’s. The rating agency gave the bonds a Ba2 rating for the first time in 2008. In December 2009 the bonds were downgraded to Ba3, in December 2011 the rating dropped to B2. In June 2014, the bonds were upgraded to B1 and given a stable outlook.
The city’s upgraded rating “reflects the city’s growing economy and residents’ average income, which continues to improve, supported by continued economic diversification away from the tourism and gaming industries emerging from the pandemic, in addition to moderate leverage and fixed cost ratios.” ‘ according to the Moody’s report.