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January 30, 2008
It's the crunch, stupid
Gumby Fresh gives a detailed explaination of how the credit crisis really does have an effect on Bruce Ratner's ability to secure financing for his Atlantic Yards arena and high-rise megaproject.
Here are some tidbits below, but you may want to surf on over to the original article to get the full picture of what Ratner's options are:
What happened when these stadiums became treated as bits of essential public infrastructure (with all the debatable claptrap about them being engines of economic development) was that they began to be eligible for tax-exempt treatment. Holders of bonds financing sports arenas stopped having to pay tax on the interest income, and the opportunities for financial engineering became much more interesting.
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The most obvious of these is the use of monoline bond insurance. I don't have the time or the inclination to explain bond insurance in detail, but its premise is that bond markets do not necessary charge a reasonable rate of interest, and that for a fee that is less than the excess rate that that the bond markets charge they will guarantee your bonds. The holders of these bonds are now basically relying on the bond insurer for payment if something happens to the stadium, and get a pretty low rate of interest based on what the presumed risk of the bond insurer is.
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Problem is, this system got all f*ed up. In another part of the market, for the insurance of bonds backed by subprime mortgages, the bond insurers priced risk pretty bloody badly, so monolines are now teetering on the verge of bankruptcy. Not only are bonds with a monoline guarantee now viewed as much more risky, and thus have a higher interest rate, but any financing might have to go ahead without any insurance at all, at which point lord knows what interest rate you'll get.
Posted by lumi at January 30, 2008 5:55 AM