Oklahoma City to sell revenue bonds for NBA Thunder's arena

Oklahoma City heads to the municipal market this week with a $762.4 million revenue bond deal that will finance most of the cost of a new city-owned home for the National Basketball Association's Thunder.

The bonds, which are structured with serial maturities between 2029 and 2034 and will be issued through the Oklahoma City Public Property Authority, are backed by city sales and use tax revenue projected to total $1.18 billion, assuming 1.68% annual growth in sales tax revenue and no growth in use tax revenue, according to the deal's investor presentation. Estimated annual debt service coverage is pegged at 1.31 times.

A 2023 ballot measure to continue a Metropolitan Area Projects (MAPS 4) 1% sales tax for six years beyond its April 1, 2028, expiration to be used exclusively for an arena passed with an overwhelming 71% of the vote. The city council provided further revenue for the project, currently estimated to cost $1.016 billion, by approving a temporary 1% use tax in December.

"I think there's a big demand for this credit," said Brent Bryant, Oklahoma City's assistant city manager, pointing to the bonds' high rating.

Moody's Ratings assigned the bonds, which are exempt from federal and Oklahoma income taxes, its Aa1 rating ? a notch below the city's Aaa rating ? and a stable outlook, citing the debt's pledged broad revenue base that "has increased in most years with limited historical volatility."

"The bonds benefit from a stabilization fund, which will be funded with cash at the required $40 million, representing about 25% of projected (maximum annual debt service)," Moody's rating report said.

A revenue stabilization fund, which proved to be a fortuitous move for a prior hotel tax-backed city bond issue when the COVID-19 pandemic sank revenue from the tax, will help protect the upcoming deal against a potential "rainy day," according to Bryant.

"Our goal is to get the stabilization fund up to $40 million as soon as possible," he said. "We'll add to that (fund) each month as revenues come in that exceed the minimum requirements that we need to make to escrow the debt service payments."

He added the city is being "very conservative" in its revenue estimates for the pledged sales tax, noting collections are up 2.8% so far in fiscal 2026.

Moody's said while the tax revenue backing the bonds is subject to annual appropriation by the city council, "this risk is mitigated by the fact that voters approved the pledged revenues for the arena project and the commitment renews automatically each year unless the city council takes action to revoke the pledge."

The rating agency said the rating also considers the deal's "adequate legal provisions," including an open lien and a 1.25x additional bonds test. Bryant said while the city could issue additional bonds in the future, he does not see that happening.

Oklahoma City has allocated $90 million from 2025's voter-approved $2.7 billion of general obligation bond authorization for parking, streets, and team office projects related to the arena.

Additional funding sources for the project include $50 million from the Thunder and about $99 million in additional MAPS 4 money, according to Bryant.

MAPS financing began in 1993 with voter approval of a temporary 1% sales tax. City voters passed the debt-free, pay-as-you-go funding method in subsequent years, most recently MAPS 4 in 2019 to raise a projected $1.1 billion over eight years starting in 2020.

In a time of rising costs and elevated inflation, the city is prepared to sit down with the team to identify places to stay within the budget, Bryant said.

"From our perspective, we have a finite amount of money and we're going to have to value engineer if we do have cost increases," he said.

Howard Cure, director of municipal bond research at Evercore Wealth Management, said the deal's selling points include the team's long-term commitment to play in the arena and the "resounding" voter approval for the temporary sales tax hike for the project.

The issue's "big blocks of bonds" should provide some liquidity for investors, he added.

"And if you can make a little extra spread versus just buying city general obligation or lease bonds, then it may be more enticing." he said.

The Thunder is committed to stay in the new facility for at least 25 years, under a deal approved last year with the city, which is responsible for the arena's operation and maintenance.

The team, which has called Oklahoma City home since 2008, bringing it the NBA championship for the 2024-25 season, currently plays in the 586,000-square-foot Paycom Center ? the NBA's smallest arena by square footage. The 24-year-old venue seats 18,203 for basketball.

The new arena, slated to open no later than the start of the 2029-30 season, will have about 750,000 square feet with seating capacity of approximately 17,000.

In March, the team, which retained naming rights for the new arena, announced a deal with Continental Resources, an Oklahoma City-based oil and natural gas producer, to call the facility the Continental Coliseum.

The arena's groundbreaking was held in March at the site of the former city-owned Cox Convention Center, with the project hailed as a catalyst for Oklahoma City's ongoing economic and cultural renaissance.

The bonds, which are structured with gradually increasing principal amounts, carry a final maturity of April 1, 2034, a day after the March 31 expiration of the dedicated sales tax, according to the preliminary official statement.

The underwriting team is led by Goldman Sachs (GS) with BOK Financial Securities and Morgan Stanley (MS) as co-managers. PFM Financial Advisors is the municipal advisor and The Public Finance Law Group and Williams, Box, Forshee & Bullard are co-bond counsels. Kutak Rock is disclosure and special tax counsel.

Elsewhere in the Southwest region, bond financing is in the works for a new San Antonio Spurs NBA basketball arena and in Kansas for a stadium for the National Football League's Chiefs.

Both would have adjacent entertainment districts, while Oklahoma City's project includes Thunder Alley, a fan activation zone.

"Public funding for professional sports stadiums is never a good idea, and bond buyers should be deeply skeptical of any deal where future bond payments rely on projections of future tax revenue growth driven by the stadium itself," John C. Mozena, president of The Center for Economic Accountability, said in an email.

He pointed out that even with ancillary districts, some projects have failed to generate projected tax revenue.