The Maryland Stadium Authority plans to issue and market $413.4 million in tax-exempt revenue bonds to fund construction and renovation of Maryland schools.
“We expect strong demand from in-state individuals and separately managed account buyers, but we also expect interest from domestic investors,” said Patrick Ruby, senior municipal bond strategist at CreditSights.
“The new bonds will provide additional credit to many potential investors, as the previous bonds are widely held.”
“We expect strong demand from in-state individuals and separately managed account buyers, but we also expect interest from domestic investors,” said Patrick Ruby, senior municipal bond strategist at CreditSights. “The new bonds will provide additional credit to many potential investors, as the previous bonds are widely held.”
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The Built to Learn Revenue Bonds, designated as Serial Notes 2026-2044 and Term Notes 2049 and 2054, will be priced on Tuesday, are scheduled for delivery on October 30, and are subject to a 10-year par call.
BofA Securities is senior manager on the transaction, with Raymond James, RBC Capital Markets and Siebert Williams Shank & Co acting as co-managers.
The Built to Learn program was created in 2020 and authorizes MSA to issue up to $2.2 billion in bonds for the construction of public school facilities across the state.
The bonds are supported by annual deposits made by the state using revenue flowing into an appropriated loan fund. The financing is funded by video lottery terminal and table game revenues from six casinos spread across the state through the Exchange Trade Fund.
According to the authority’s roadshow, the balance in the loan fund account in 2023 is expected to be $60 million, increasing to $125 million in 2024 and further increasing to $127 million in 2025.
Of the $127 million, $100 million will be used to repay debt under the Act, and $27 million will be placed in Prince George’s Public-Private Partnership Fund.
Most of the funds will go to five counties and the city of Baltimore. The city, Baltimore County and Montgomery County will each receive 21% of the funding.
The bonds are secured by deposits into the Supplemental Public School Construction Loan Fund and “do not constitute an obligation of the state, county, city, or school governing board.”
The authority is responsible for contracting, managing, and overseeing the construction and improvement of school facilities financed by bond proceeds, but may authorize county boards of education to manage the work based on performance.
Prince George’s County is in P3 and therefore does not receive any bond revenue allocations.
According to CreditSights, the authority most recently issued parity bonds in October 2021, which were rated A1/AA/A+ (ICE composite AA3) at the time of pricing.
Year-to-date bond supply by Maryland issuers through the end of September was already 64% higher than the $4 billion total for all of 2023. Net supply was negative $1.6 billion in 2023 and negative $1.7 billion in 2022, for a year-to-date total of $687 million. Last month’s net supply was $558 million.
Moody’s has given the issue an Aa2 rating and a negative outlook.
According to Moody’s, “Maryland’s Constitution requires that gaming proceeds be used only for educational purposes, including debt repayment for the Build to Learn bond program. It is economically sensitive and the amount promised is narrow. This revenue is provided subject to annual debt financing’ services. ”
“Games have a narrow base due to their discretionary nature and also involve increased social risks given the vulnerabilities that have emerged during the pandemic.”
Moody’s upgraded the bond on September 30, along with an update to its methodology. A favorable transaction with Moody’s would require enacting legal provisions that limit the allocation of available gaming proceeds to other obligations or increasing limits on the leverage of available proceeds.
Showing a proven track record of additional promised revenue growth or other financial resources that mitigates the narrow-based risks posed by casino receipts may also change opinions.
Standard & Poor’s rated the issue “AA” with a stable outlook.
“The stable outlook reflects Maryland’s outlook as it actively manages emerging economic and budgetary risks and maintains structural balance,” said Joe Pezzimenti, credit analyst at S&P Global Ratings. “It reflects our view of the state’s ability to maintain.”
S&P will consider a rating downgrade “if we believe that the additional bond issuances would create additional credit risk, such as increasing annual debt service requirements that approach or exceed the amount of available funds that can be transferred to the loan fund each year.” There is a possibility that
Video lottery terminals are similar to traditional slot machines, but operate under a different regulatory framework. According to Verified Market Reports, “The video lottery terminal market is poised to witness significant growth in the coming years due to several key strategies and factors.”
U.S. commercial gaming revenue rose 3.1% in July compared to the same month in 2023, marking the industry’s 41st consecutive month of annual growth, according to the American Gaming Association.
“Through the first seven months of 2024, commercial gaming revenue exceeded last year’s record-setting pace by 7.2%, totaling $41.23 billion.Commercial gaming revenue reached $60.4 billion in 2022 and 2021 exceeded the previous record of $53 billion.
According to the Tax Policy Center, state and local governments collected about $35 billion from various forms of gambling in 2021, representing about 1% of state and local revenues.
The TPC also notes that there may be strict limits on the revenue states and local governments can expect from gambling as a source of income.
According to TPC, “One of the limitations of gambling revenue is that the abundance of gambling options can cannibalize a state’s collections. If a state builds a new casino, it has the ability to add new gamblers to the pool.” It is most likely to attract gamblers who were using existing casinos instead.
“Over the past decade, inflation-adjusted gambling revenues have increased by only 6% and decreased by 3% when measured per adult over the age of 18.”
With the Supreme Court legalizing sports betting in all states in 2018, it became a bonanza for states to use gambling as a revenue-boosting measure. Since then, 38 states and the District of Columbia have entered the gambling pool, bringing in $64 million in gambling tax revenue for Maryland.
