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September 11, 2009
The Ratner Hat Syndrome
Gumby Fresh
Alongside the release of the new rendering, Ratner also granted Eliot Brown, the only professional journalist spending much time writing about the arena financing, an update on that end of things. There's not much new in here, more a sort of confirmation of some of the proposals that Ratner's been floating around the last few weeks and months.
He confirms that he does have a $200 million equity gap, but seems to indicate he's looking for outside providers to take equity in the project company, rather than pay Ratner for a stake in the Nets, which Ratner would then contribute to the project as equity. This could be smart, since there are a couple of private equity and real estate investors that might like a direct stake in an asset like this.
They'll only do it, though, I imagine, if the Nets sign a long and expensive lease on the arena, which would doom his chances of trying to sell the team for a while. Of course, Ratner says that FCE could meet this $200 million from its own resources, but I think a commitment that large would put its return on capital so far in the toilet it might as well go back to building strip malls in Cleveland.
Then there's this issue of issuing the bonds to finance the stadium and then holding them in escrow until the litigation can be resolved. Ratner has told Brown that he can do this. I'm still not sure how that will work. I'm fairly certain the tax consequences for investors of being made whole (paid back early) on these bonds would be horrible. But it might be possible, and FCE, in one final throw of the dice, might be able to put up the premium to prepay the bonds itself. Certainly it would be easier to find that kind of money than $200 million in equity.
But the process is likely to be hideously complex. Go look at this page to get an idea of how difficult refinancing municipal bond debt is.
Posted by eric at September 11, 2009 8:49 AM