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October 27, 2008

My Arena Bonds $1 billion's-Worth

Gumby Fresh

It's one thing for the IRS to give the nod to Bruce Ratner to seek triple tax-exempt bond financing for a new arena, but where is an overdeveloper supposed get these bonds and what are his prospects in a marketplace where investors are sitting on their hands?

Here are excerpts from Gumby's menu options for Bruce:

Let's look at the appetite for the arena's debt.... Here the omens are still fairly horrible. Broadly speaking, Ratner and his dudes at Goldman Sachs have four financing options:

1) Borrow the money directly from a bank. Tricky. We're mostly talking about foreign banks that would be lending him money, the same ones that are still on their knees and trying not to keel over, and such an option would not involve the use of a tax exemption, which Ratner's pretty much got in the bag now.
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2) Go to a bond insurer to insure a tax-exempt bond issue. Things have been a wee bit quieter here.
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3) Get a bank to insure the bonds. The Beekman Tower option. See above. You would get the tax exemption in this instance, but the capacity of the banks to support such a foolhardy venture as moving a second-tier franchise to a horrendously expensive arena in a crowded market in the middle of a downturn would be limited.

4) Issue the bonds without any kind of enhancement. Or, could Goldman Sachs threaten enough of their municipal bond salesmen with firing to get the bonds to clear? Again, tricky. The universe of buyers for highly illiquid, low-investment grade infrastructure bonds is small and incestuous.

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Posted by lumi at October 27, 2008 5:52 AM