The Harris County-Houston Sports Authority is dealing with more financial issues that may require it to dip way into its cash reserves.
Lawyers for the authority and MBIA now are disputing whether Swiss bank UBS gave proper notice of its intent to terminate the interest-rate swap agreement that would require the $27 million payment. The deal was intended to control interest-rate spikes on the $125 million in variable-rate bonds the authority issued to help build Reliant Stadium. The authority’s other $875 million in debt is on a fixed rate.
The authority’s main reserve account today holds about $51 million, Executive Director Janis Schmees said; the payment to UBS would come from that account.
Schmees said neither the payment nor a default by the authority would affect the average citizen or sports fan. The authority, a quasi-governmental entity whose unpaid board members are appointed by the city and county, was created to finance the stadiums, in part, so the city and county’s credit ratings would not be at risk in the event of financial trouble.
Barton Smith, professor of economics emeritus at the University of Houston, said the situation presents, at worst, an “indirect risk” that would have an “almost not detectable” effect on taxpayers.
“If they default, who’s it going to hurt? Well, it’s going to hurt the bondholders if they’re stupid enough to let them default,” he said. “The risk to us Houstonians … is that they couldn’t continue to carry out their functions without some type of Harris County bailout.”
A potential default would have no spillover effects on other governments, Smith said, because the factors that would lead the city or county to default have nothing to do with the authority’s situation.
In case you’re wondering what the HCHSA’s functions are these days, their Chair J. Kent Friedman was kind enough to tell us all about them in this op-ed from a few months ago. Frankly, other than being the Dynamo’s landlord I don’t think there’s much that would need to be replaced. As long as they can’t do any damage to the city or the county in the event they do go down, I’m not terribly worried.