RIVER CITY REGIONAL STADIUM FINANCING AUTHORITY AGENDA REPORT MEETING DATE: June 8, 2020 ITEM # 4 SUBJECT: COVID-19 UPDATE ON BALLPARK OPERATIONS, REVENUES AND DEBT OBLIGATIONS INITIATED OR REQUESTED BY: REPORT COORDINATED OR PREPARED BY: [ ] Council [X] Staff Roberta Raper, Treasurer Jeff Savage, President [ ] Other ATTACHMENT [X] Yes [ ] No [ ] Information [ ] Direction [X] Action OBJECTIVE The purpose of this report is to provide an update of the impacts of COVID-19 and related public health orders on the baseball season, ballpark revenues, and upcoming debt obligations. RECOMMENDED ACTION As this is an update, there is no recommended action. This report is intended to provide an update, allow for a conversation and to respond to specific questions and solicit feedback from the Board related to impacts from COVID-19. BACKGROUND In 1999, the River City Regional Stadium Authority was formed as a joint powers agency for the purpose of assisting with the financing of the Raley Field ball park (recently changed to Sutter Health Park), and that year issued $39.99 million in taxable lease revenue bonds to construct the facility. The bonds were secured by an installment sale agreement with River City Land Holding Company (RCLH) which requires that RCLH makes lease payments to the Authority sufficient to cover debt service on the bonds. A substantial portion of stadium revenues flow to a “lock box” from which they are distributed on a 50/50 basis to the River City Stadium Management (RCSM) for operating expenses and to the bond trustee (BNY Mellon) for payment of debt service. Funds sent to the trustee are used first for bond service then to fund various reserves. Additional funds are then returned to the RCSM for stadium operations. The stadium is owned by the RCLH, a limited purpose corporation that is legally isolated from the RCSM via a chain of leases, with the RCSM as the ultimate lessee. This structure is intended to create protections that would preserve the Authority’s ability to foreclose on the stadium and grounds in the event of a bankruptcy. Under the stadium lease, the RCSM is obligated to make rental payments equal to the debt service on the revenue bonds. In addition, there are agreements that secure the Rivercats team to the stadium, including non- relocation agreements, security agreements, pledge agreements and a deed of trust. There are a number of measures put in place to ensure that the Authority and the purchasers of the bonds are protected. For example, at the time the bonds were issued, bond insurance was purchased for the bonds, and this insurance protects the purchasers of the bonds, not the Authority. To protect the Authority, a number of reserve funds were established; in fact, multiple layers of required reserves are built into the stadium transaction in order to minimize the likelihood that if RCSM is ever unable to make required debt service payment various funds would be available, including: 1. Revenue fund reserve: this is the debt service fund and is maintained equivalent to one year’s debt service; 2. Supplemental reserve fund: funded at $250,000 per year up to $1 million maximum; 3. Guaranteed Payment Reserve Account: funded at $100,000 per year up to $2 million maximum; and 4. Attendance-Based Payment Reserve Account: funded up to $50,000 per year, with amounts varying depending upon attendance. 5. Reserve Fund (funded by surety) The Authority receives an annual report from the Treasurer in order to determine that stadium operations are not in default and to allow for early intervention before reserves are exhausted. COVID-19 Update June 8, 2020 Page 2 The Board received a Treasurer’s Report update for calendar year 2019 in a previous item on today’s agenda. This item will provide an update on anticipated impacts from COVID-19 and related public health orders on the ballpark’s 2020 revenues and ability to meet debt service obligations in the upcoming year. It should be noted that in the past 20 years, there has never been an issue with RCLH meeting debt service obligations for the stadium. ANALYSIS The Baseball Season As a result of the Coronavirus outbreak, major sports leagues around the world have temporarily suspended their seasons, including Major League Baseball (“MLB”), which provides players to Minor League Baseball teams (“MiLB”), including the Sacramento River Cats. MLB is currently working on a plan to begin playing a shortened season, but with many restrictions. The most significant restriction includes playing at their home stadiums but with no fans present. If approved, players would limit their exposure to the outside world and travel would be limited to regional opponents. One major implication of the current plan revolves around the size of the MLB rosters. Normally, MLB teams operate with a roster of 25 players, but the current plan includes expanded rosters of 30 players and a “taxi squad” of an additional 20 players. Fifty (50) players is the equivalent of 2 teams, an MLB team and an MiLB team, presumably filled with players who are closest to helping the MLB team if injury occurs, or in other words, a teams’ AAA players. Even if MiLB teams did have players available to play games, playing in front of empty stadiums is not financially viable for most MiLB teams. Governor Newsom has stated that mass gatherings would not occur in California until the state has entered Stage 4 and that therapeutics or a vaccine would be needed. It is unknown when a vaccine will make it to market and be widely available. Should MLB successfully start its season, we are currently looking to host the taxi squad of players and hope that once larger gatherings are allowed, we could potentially open our stadium to a restricted number of fans to watch those players practice or scrimmage. We are also working on providing a list of non-baseball events that could be held through the different stages of the state reopening plan. The River Cats business model is almost entirely dependent on large gatherings which have been restricted and it is unknown when our normal business activities can resume. The Debt Service Obligations The bonds were secured by an installment sale agreement with River City Land Holding Company (RCLH) which requires that RCLH makes lease payments to the Authority sufficient to cover debt service on the bonds. RCLH signed a lease agreement leasing the site and stadium with Yolo County. The City and Sacramento County in addition signed a sublease agreement with Yolo County for the site and stadium. To the extent that the Trustee does not receive sufficient payments from the River City Companies under the Stadium Lease to pay debt service on the Bonds, the City of West Sacramento and the County of Sacramento agreed to make up any deficiency in the proportion of 33 1/3% for the West Sacramento and 66 2/3% for Sacramento County. With no season expected to be open to the public for the foreseeable future due to state and local orders, revenues are not currently being generated at the amount necessary to fund the November 2020 principal and interest payment of $2.6 million. Staff continues to work with representatives of the River City Companies to understand impacts, identify options, and coordinate debt repayment. Evaluation of Options Both City and ballpark staff are evaluating all available options to ensure the debt service obligations are met without having to lean on the backstop provided by the City of West Sacramento and the County of Sacramento. Various options being evaluated include analysis of debt refinancing (which at this point has been determined to be infeasible given the long escrow period required for advance refunding), restructuring of the debt to result in savings on annual debt obligations, potential use of the reserve fund without default, review of potential lot line adjustments to allow for additional financing options, relief under federal stimulus packages, etc. Staff is evaluating these options in coordination with River City staff. COVID-19 Update June 8, 2020 Page 3 Based on an initial analysis by the City’s legal counsel, a draw on the Revenue Fund for debt service would not trigger a default under the financing documents. A failure to make a Base Rental Payment under the Stadium Lease results in an Event of Default under the Stadium Lease which would then authorize a draw on the Supplemental Reserve Fund. Once the draw on the Supplemental Reserve Fund is made, the Event of Default is cured. Not replenishing draws on the reserve funds (including the draw on the Supplemental Reserve Fund) will result in a default under the documents if not remedied by the deadlines specified therein. If a draw on any reserve fund is required, additional disclosure filings must be made under the City and County disclosure certificates. As there are still several months before the November debt service obligations of $2.6 million become due and payable, there is still time for the ballpark to raise revenues sufficient to cover the obligations, and for additional options to be fully analyzed, including potential restructuring of the debt in advance of the debt due date. Over the next few months, City staff will continue working with ballpark staff and the City’s financial and legal consultants to understand and evaluate all options available to make the November 1st debt service payment without significant harm to any of the parties involved. Coordination and Review Preparation of this report was coordinated with RCSM and the Ballpark update was provided by Jeff Savage, River Cats President. Budget/Cost Impact In the case the City would have to cover its portion of the backstopped obligation in November, the City’s portion would be $867,000.