Standard & Poor’s executives appear to be damned hard to please.

The New York-based rating entity lists two positive developments for every negative, yet still has lowered the long-term outlook on the Louisville Arena Aurthority’s bonds to “negative” from “stable.”

(The overall bond rating remains BBB-, an investment-grade rating one step above “junk.”)

Since it ‘s Friday, let’s look at the sunny side of this latest development on that burden we all share – the $348 million in bonds issued to build the KFC Yum! Center for the University of Louisville’s basketball program.

We just got the rebuttal from the Arena Authority, and they and Louisville-Jefferson County Metro Council members are predictably playing up the fact that S&P’s left the bond rating at investment-grade BBB- instead of lowering it to BB.

Oddly missing from this celebration of the outlook downgrade is any statement from the guy who actually picks up the tab for the arena bond-servicing shortfall this year.

Chris Poynter, spokesman for Louisville Metro Mayor Greg Fischer said city officials wish the S&P long-term outlook were positive, “but we believe the arena is on the right trajectory.”

However, Poynter noted 2012 will be the first year city government pays its full $9.8 million to cover the shortfall left after the Tax Increment Funding district and arena revenue failed to cover Louisville Arena Authority debt obligations to bond holders. (And, it should me mentioned here, the current payment structure is interest-only, with no payment on underlying principal.)

From the Arena Authority statement:

(S&P) cited improved venue operations, including the experience and financial guarantee AEG brings to the arena, a successful University of Louisville basketball program and strong government support as some of the reasons for the affirmation. Offsetting these strengths is the debt service’s dependence on TIF district revenue, which has increased but not at the projected levels. Louisville Arena Authority Chairman Larry Hayes, said, “I am pleased that S&P has recognized the positive steps we have taken to improve the operations of the KFC Yum! Center, including hiring AEG to manage its operations. The company has already proven its strength by exceeding budgeted expectations for the first four months it has managed the arena.” Authority Vice Chairman William Summers V noted that in addition to being home to University of Louisville basketball, the Arena has booked many first tier performers, including Bruce Springsteen, Taylor Swift, The Who and Dave Matthews Band. “Not only do they fill the Arena, the fans end up dining in the area, which helps the restaurants and increases TIF district revenue,” said Summers. “Moreover, local growth trends are encouraging. Louisville has added more than 17,000 jobs in the last year, placing it among the nation’s fastest-growing job markets.” Louisville Metro Council President Jim King said, “We appreciate Standard & Poor’s acknowledgement that one of the strengths of the project is strong support from Metro Government.”

A question here … doesn’t “strong support from Metro Government” translate to “taxpayers pick up the tab on this?”

Nowhere in their celebrating the outlook downgrade do Arena Authority execs or metro councilmen suggest that arena revenue sources – TIF revenue and KFC Yum! Center ticket sales – will ever be sufficient to cover the $348 million debt –more than $500 million over the life of the bonds, which runs to 30 years.

But going back to our first point, this is Friday, and who wants the gloom of a multi-million dollar public works project gone bad hanging over them during the weekend?

So, let’s look the upside of what Reuters is reporting about the positive signs S&P sees for the future of paying off the arena:

— Management by AEG, a large and experienced operator for stadiums and

event centers across the globe with a proven ability to book top concert

headliners. The management contract also includes a guaranteed minimum payment

from AEG, although we also anticipate that the arena will generate net

operating revenue (excluding Category A revenue) above the level of this


— The concessionaire’s guaranteed payments of about 37.5% of projected

operations and maintenance expenses.

— The arena’s success in meeting assumptions relating to revenue from

naming rights despite the recent economic downturn. However, the strategy

required a change to include cornerstone sponsors to gain larger sponsorship


— The existing fan base’s move to the new arena and the near sellout of

the facility under higher pricing compared with Freedom Hall. The men’s team

drew 21,832 people per game on average during its first season. High-end

seating, including suites, has been largely contracted, at pricing consistent

with base-case assumptions.

— A fully funded $14.93 million senior debt service reserve and $990,000

subordinated debt service reserve as of Sept. 30, 2012.

Buried deep, deep in the S & P analysis is this:

After exceeding the baseline in 2005 through 2008, the TIF sales tax base fell dramatically (by 8%) in 2009, underscoring the volatility of TIF revenue contributions to the project. Property taxes were less volatile, and income tax revenue was high that year because of the presence of construction contractors on the site. 

So, what happens when you have – during the next 30 years – a stretch that includes terrible U of L basketball teams, lower consumer spending and no construction in the TIF district?