Fitch Affirms South Florida Stadium LLC Revs at 'BBB' (Underlying); Outlook Stable

NEW YORK--()--Fitch Ratings affirms the underlying 'BBB' rating on the following Miami-Dade County Industrial Development Authority's (IDA), Florida outstanding bonds:

--$155.6 million in taxable IDA revenue bonds (Dolphins Stadium Project);

--$76.3 million in series 1985 tax-exempt IDA revenue bonds.

The Rating Outlook on all bonds is Stable.

KEY RATING DRIVERS

NFL'S FINANCIAL STRENGTH: The strength of the National Football League's (NFL) financial model is underscored by long-term national television contracts; robust revenue sharing; historically conservative operating profile and stable attendance and viewership levels. Considerable stability is also provided by the collaborative working relationship between the NFL and NFL players union as represented by the current collective bargaining agreement (CBA) that runs through 2021.

HISTORICALLY PROMINENT FRANCHISE AND ROBUST MARKET: The Miami Dolphins maintain a stable fan and corporate base and have played in Miami since 1966. However, recent on-field team performance has pressured game-day attendance and renewals of club seats. As with any sports facility, the entertainment nature of sports and its vulnerability to economic downturns and team performance are inherent risks to this transaction. Miami-Dade County's solid wealth levels and demographics are viewed favorably.

BROAD REVENUE PLEDGE: A high percentage of collateral is contractually obligated and consists of luxury suite revenues; club seat revenues; stadium advertising and sponsorships; concessions; annual stadium rent; parking and other revenues. Revenues from suites, club seats, sponsorships and advertising agreements are exposed to renewal risk and continued economic uncertainty. Combined with lackluster team performance, price points and renewal terms may be pressured.

VARIABLE-RATE DEBT AND ESCALATING DEBT PROFILE RISKS: Variable-rate debt exposes the credit to fluctuations in interest rates and refinancing risks. These risks are partially mitigated by adequate financial flexibility with average debt service coverage since 2007 above 2.0x. However, should pledged revenues not rebound, debt service coverage ratios may be pressured in the near term, given the escalating debt service profile.

INFRASTRUCTURE RENEWAL: South Florida Stadium, LLC (aka Sun Life Stadium) is a state-of-the-art facility that was renovated in 2007. The current ownership group continues to invest in the facility to improve the overall fan experience and remain a competitive venue.

WHAT WOULD TRIGGER A RATING ACTION

--Management's inability to grow net revenues in the medium term and continue historical levels of financial flexibility including debt service coverage ratios and declining leverage;

--A reduction in attendance and/or weak renewals that lead to reduced financial flexibility;

--An increasing percentage of long-term contractually obligated income shifting to shorter term renewals.

SECURITY

South Florida Stadium, LLC (aka Sun Life Stadium) is the obligor for all debt service payments. Sun Life Stadium was formerly known as Land Shark Stadium and prior to that Dolphin Stadium, Pro Player Stadium and Joe Robbie Stadium. The net revenues of Dolphin Stadium and a $2 million state sales tax rebate (which expires in 2022) secure the bonds.

CREDIT SUMMARY

Sun Life Stadium is home to the NFL's (senior unsecured rated 'A+' with a Stable Outlook; Football Funding LLC and Football Trust rated 'A' with a Stable Outlook by Fitch) Miami Dolphins and since 2008, the University of Miami Hurricane's football team. Major League Baseball's (MLB, Trust Securitization rated 'A-') Florida Marlins played their last game in Sun Life Stadium in 2011 and has relocated to a new stadium near downtown Miami on the site of the former Orange Bowl. Fitch's analysis incorporated the Marlins' relocation to a baseball-only stadium in 2012.

Luxury suites and club seats in professional sports have faced pricing and volume renewal pressure stemming from weakened U.S. economic conditions, pressure on individual and corporate discretionary spending levels and in some cases, lackluster on-field team performance. Sun Life Stadium is no exception, experiencing increasingly shorter renewal terms and advertising and sponsorship agreements have also faced some renewal pressure. The naming rights partner agreement in 2010 with Sun Life did help.

While management has historically produced solid operating margins and demonstrated financial flexibility, the current economic uncertainty and poor on-field performance may constrain future performance. An additional medium-term risk is Sun Life Stadium's escalating debt profile. Annual debt service requirements associated with the outstanding bonds are expected to rise to around $20 million in 2014 from $8.7 million in 2011. Continued positive revenue growth and healthy management of expenses will be vital in retaining the financial flexibility needed for the 2015 and 2017 refinancings of the notes and for metrics commensurate with the current rating. Fitch continues to closely monitor the ability of Sun Life Stadium's historically proactive management team to renew luxury suites and club seats products on longer-term contracts compared to recent short-term renewals at or above existing prices.

Series 2006 and 2007 bond proceeds were used by Sun Life Stadium to fund a portion of certain costs associated with certain alterations and improvements. The completed construction and renovations continued the stadium's modern and innovative appeal with the addition of two new high-definition scoreboards; a 360-degree digital ribbon board; new concession areas including bars and restaurants; suite renovations; additional retail spaces; fan interactive areas and new corporate hospitality areas. Since its opening Sun Life Stadium has completed a number of broad capital improvements and renovations to maintain the stadium's facilities. Because of these broad capital projects Fitch does not currently expect significant additional leverage to support capital improvements; however, continued focus on rehabilitation and renovation projects to maintain the fan experience will be particularly important to drive pricing.

In Fitch's base case scenario, occupancy and pricing levels associated with key collateral perform consistent with historical levels as Sun Life Stadium has exhibited solid pricing power and demand attributes. Under this scenario, Fitch estimates debt service coverage ratios will remain above 2.0x in the next two years and remain around 2.0x over the medium term as annual debt service costs increase. In Fitch's Rating Case, pricing sensitivities were applied to renewals of pledged revenues and increased operating costs at the stadium consistent with other NFL stadium facilities in the medium term, essentially keeping Earning Before Interest, Tax, Depreciation and Amortization (EBITDA) flat. As a result, debt service coverage based on pledged revenues were maintained between 1.7-1.8x. Fitch notes that management has historically exceeded Fitch's base case expectations for debt service coverage ratios. Fitch also performed a combined downside sensitivity analysis that assumed declining EBITDA due to a combination of economic pressures, higher vacancies and lower prices in suites and club seat products and higher operating expenses. In this scenario debt service coverage ratios could be pressured within 3 - 5 years as annual debt service steps up. In the event that EBITDA declines due to the aforementioned factors or other factors, financial metrics may be inconsistent with the current rating.

Sun Life Stadium is a state-of-the-art, multipurpose sports and entertainment facility in South Florida that commenced operations in 1987. The stadium was one of the first stadium projects in the U.S. built to 'enhance the fan experience' while adeptly understanding the modern day economics of professional sports. Sun Life Stadium seats 75,540 for football games, and 40,000 for baseball games. There are 179 executive suites, 9,800 club seats plus an additional 469 Club LIV seats (built by the owners of LIV nightclub), and 25,000 parking spaces for vehicles.

Sun Life Stadium hosted the NFL's Super Bowl in 1989, 1995, 1999 2007 and 2010 as well as the NFL's Pro Bowl in 2010. Additionally, the stadium contracts with the National Collegiate Athletic Association's (NCAA) Division I Men's Football Orange Bowl Classic (a college football post-season game) through 2014 with a four-year optional extension. Sun Life Stadium hosted and will host the NCAA Division I Men's Football Bowl Championship Series (BCS) National Championship Game in 2001, 2005, 2009 and 2013.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria & Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);

--'Rating Criteria for U.S. Sports Facilities, Leagues and Teams' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for U.S. Sports Facilities, Leagues, and Teams

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685897

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Contacts

Fitch Ratings
Primary Analyst:
Chad Lewis, +1-212-908-0886
Senior Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Charles Askew, +1-212-908-0644
Analyst
or
Committee Chairperson:
Mike McDermott, +1-212-908-0605
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
New York, Media Relations
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Chad Lewis, +1-212-908-0886
Senior Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Charles Askew, +1-212-908-0644
Analyst
or
Committee Chairperson:
Mike McDermott, +1-212-908-0605
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
New York, Media Relations
elizabeth.fogerty@fitchratings.com