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March 23, 2008
And Then There Was One
Gumby Fresh is a must-read for those who want to know more about how the credit crisis really affects the project.
The financing picture is beginning to look trickier. First bit of good news for the developer - the bond insurers are still open. The bad news is that they're not that interested right now in the more speculative end of the market (that just above what the agencies describe as speculative grade, and what the rest of us call junk). The ones that are still standing are raking in high premiums for turning silver bonds into gold, rather than bronze into gold, which is a business that is a little more capital intensive.The alternative would be to turn to the banks to finance the arena, rather than the bond market. They've done this before, but interest on bank loans would not, as far as I know, be exempt from tax. The Times article suggests that if the arena loses its allocation of tax exempt bonds this might push up the "cost" of the arena. This is a little misleading. It won't push up the construction cost of the arena (in fact, banks might demand a less expensive set of insurance contracts for the contractors on the arena), and the upfront fees from banks and Goldman Sachs, as bond underwriter, would not be appreciably different.
But it would increase the debt burden on the project hugely, so much that Ratner, as team owner, would see even less of a return on his investment in the team because he's having to devote a higher proportion of team revenues to servicing the arena debt. I'm doubtful that the arena could go ahead with a bond financing without the bond insurers, unless Goldman can scare up a very highly-rated alternative insurer (Buffett?).
Posted by amy at March 23, 2008 4:03 PM