A default by Graceland, Elvis Presley’s mansion turned tourist attraction, shows why investors in other city-funded venues may one day sing the blues.
For years, I’ve used Graceland attendance as the standard by which museums and other projects hoping to tap into the bond market should be judged.
Although the king of rock and roll died on August 16, 1977, he has active fan clubs and buyers of his music around the world and a new biopic in theaters. That’s why his Memphis home still draws around 500,000 visitors a year, down about a third from the crowds of 25 years ago.
And yet officials across the country are coming up with attractions that one way or another are going to attract 800,000 or a million or more? The Graceland Standard has worked for me in unearthing overly optimistic offers, and was even endorsed once by a speaker at a meeting of the National Federation of Municipal Analysts.
Now it is broken, as evidenced by the notice sent by the trustee US Bank to the holders of the $88 million in 2017 Economic Development Growth Engine Industrial Board of the City of Memphis and Shelby County, Tennessee Graceland project bonds. The trustee dipped into reserves – which it has been doing since July 2020 – to pay two sets of bonds and defaulted on three other sets of bonds used to pay for the renovation and expansion of the site.
Among the risk factors listed in the bond offering documents was “the continued interest of tourists visiting Memphis to experience the life, legacy and music of Elvis.” It probably hasn’t been reported, but where is everyone?
Blame COVID-19. Graceland in 2019 said attendance was 534,488. It fell to 158,182 in the first year of the pandemic, and rebounded to 272,708 in 2021, according to Randy Layman, senior issuer credit analyst at S&P Global Ratings. S&P is only valuing the $24.4 million Series B Graceland taxable bonds, which remain current on debt payments because they are secured by a first lien on a 5% tourist property surcharge. purchased as part of the Graceland development project.
“The latest disclosure highlights an attendance of 56,703 people in the first quarter of 2022,” Layman said in an email Monday. “This is 37% below the first quarter of 2019, the most recent pre-pandemic first quarter. , recent figures indicate that a structural return to pre-pandemic numbers will continue to take some time.
S&P rates Series B bonds BB with a negative outlook, which is, yes, below investment grade. Elvis sucks. I never thought I would see the light of day.
Asked if Baz Luhrmann’s new movie ‘Elvis’ (which premiered at Graceland on June 11) could have a positive influence on attendance, Layman said he had no information to comment on. directly.
“We have indicated in previous reports that attendance fluctuates around events such as the anniversary of Elvis’ death and the release of Elvis and Graceland documentaries,” the S&P analyst said. “With this in mind, it is plausible that the film will have a positive impact on attendance.”
But perhaps more worrying is the drop in incremental sales tax revenue in the tourism development area, which is responsible for defaults and drawdowns in the reserve fund. As Layman explains, as taxable activity at Graceland has declined, the base year values (which are used to calculate the amount of additional sales tax revenue available to service the debt) have continued to grow due to the strong performance of countywide sales tax collections.
“This discrepancy between taxable activity at Graceland and the county as a whole has led to the complete erosion of the increment on which TDZ earnings are calculated,” Layman wrote. In other words, Graceland’s sales tax activity declined in such a way relative to the county that no additional sales tax revenue was available for recent debt service payments. “For TDZ revenue to be generated in the future, taxable activity at Graceland will need to grow exponentially and consistently outpace activity in Shelby County as a whole.”
Which suggests that Graceland, once the gold standard of tourist attractions, has had its stay on the default list extended. Elvis Presley Enterprises, which runs Graceland, did not respond to a request for comment.
Perhaps the big question before city analysts assess any visitor credit has to be: if Elvis can’t attract fans, who can?
Joe Mysak is a Municipal Market columnist who writes for Bloomberg. His comments are not intended as investment advice.
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