Rating Action: Moody's affirms all ratings on Harris County-Houston Sports Authority, TX's revenue bonds; outlook remains negativeGlobal Credit Research - 07 Sep 2022New York, September 07, 2022 -- Moody's Investors Service has affirmed all Harris County-Houston Sports Authority, TX's revenue bond ratings including the A3 on the senior lien, Baa1 on the second lien, Baa2 on the junior lien and Baa3 on the third lien. The authority has a total of $641.7 million in debt. The outlook remains negative.RATINGS RATIONALEThe affirmation reflects a strong recovery in pledged revenue which has allowed for continued and uninterrupted debt service payments since the pandemic began. The affirmation also incorporates the continued effect of the 2020 debt service restructuring which provided near term debt service payment relief and a new Revenue Recycling Account within the flow of funds to capture excess pledged revenue. This new fund with its added liquidity is available to repay debt service in the event of any revenue shortfall over the next two years, increasing bond holder protection. Negatively, the Revenue Recycling Account terminates on June 15, 2024. However, in 2024, several of the authority's bonds are callable providing flexibility for the authority to meet debt service obligations even though recent revenue trends indicate that coverage will likely be at least sum-sufficient in 2024 without the use of the Revenue Recycling Account. Additionally, available cash in the Revenue Recycling Account upon termination flows into the Debt Repayment Account and can be used to pursue a cash defeasance for later payments should pledged revenue recovery stall.The rating distinction between the senior lien, second lien, junior lien and third lien reflects the priority in the flow of funds with the third lien subordinate to the junior lien, the junior lien subordinate to the second lien and the second lien subordinate to the senior lien.The third lien bonds are deeply subordinated in the flow of funds, and together with the junior lien bonds will require revenue growth for sum sufficient coverage. However, junior lien debt service is relatively modest through 2023, and debt service repayment on the third lien does not begin until 2031; the two factors in the debt structure remain a key consideration. Also, some of these credit constraints regarding revenue growth are offset by legal provisions which allow for the early redemption of debt. The authority has used this early redemption provision in the past and maintains commitment to continue to use the provision once pledged revenue performance improves. This provision and the authority's demonstrated willingness to use it, also remains a key consideration in the rating.Fundamentally, the economic strength of the area is strong and diversified with solid recovery from the coronavirus pandemic. Harris County (Aaa stable), home to the City of Houston (Aa3 stable) enjoys a global economy anchored by the energy sector although healthcare, transportation and logistics and tourism are also key drivers. The economic strength has historically allowed pledged revenues to remain stable allowing debt service coverage to be satisfactory. Additional considerations include adequate legal covenants. The authority also continues to maintain a lien-by-lien debt service that is funded with a combination of cash and surety policies.RATING OUTLOOKThe negative outlook continues to reflect the need for revenue growth beyond 2019 levels to meet debt service payment as early as 2024, following the termination of the Revenue Recycling Account, holding all other variables constant. While recovery has been strong with year over year growth over the past four quarters per authority financial reports, the need for revenue growth will be key to meeting debt service obligations in outer years absent any additional debt restructuring or cash defeasance.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Growth in pledged revenueFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Inability of pledged revenue to recover further reducing the ability to pay debt serviceLEGAL SECURITYThe bonds are secured by the Trust Estate which receives revenues from a 2% city and county-wide hotel occupancy tax (HOT), 5% on short term motor vehicle rental tax (MVRT), and $4.6 million in annual payments received from the Houston Astros until 2029. USE OF PROCEEDS Not applicable. PROFILE The Harris County-Houston Sports Authority (the "Authority") was created by concurrent orders adopted in July 1997 by the Commissioners Court of Harris County, Texas (the "County"), and the City Council of the City of Houston, Texas, (the "City"), which, as amended, became effective September 1, 1997. The Authority is a political subdivision of the State of Texas, organized as a sport and community venue district under Chapters 334 and 335 of the Texas Local Government Code (the "Act"). The Authority was created for the public purpose of planning, acquiring, establishing, developing, marketing, constructing, or renovating one or more venue projects. The county's estimated population is about 4.7 million.METHODOLOGYThe principal methodology used in these ratings was US Public Finance Special Tax Methodology published in January 2021 and available at https://ratings.moodys.com/api/rmc-documents/70024. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Adebola Kushimo Lead Analyst REGIONAL_SOUTHWEST Moody's Investors Service, Inc. 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