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October 15, 2009

Sale of Nets' Arena Debt Is Tough Shot

The Wall Street Journal
by Serena Ng and Matthew Futterman

The world's leading business publication says the sale of Atlantic Yards arena bonds is anything but a slam dunk.

As the long-running legal battle over the Atlantic Yards nears an end, developers of the New Jersey Nets' Brooklyn arena project are gearing up for their next big challenge -- selling the development to a skeptical bond market.

Right now, the planned sale of as much as $700 million in bonds to finance the project's centerpiece -- a $900 million basketball arena to be called the Barclays Center -- looks like a toss-up. The U.S. municipal-bond market, while in much better shape than six months ago, has been in a rout since the start of October. The Nets arena offering, expected to launch next month, would be the largest bond sale tied to a sports venue in more than a year.

If developers of the Atlantic Yards project don't issue bonds by Dec. 31 to fund the arena's construction, the debt will lose tax-exempt status, which would kill the project.
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Goldman Sachs Group and Barclays bankers have spent weeks in discussions with three credit-rating services and bond insurer Assured Guaranty Ltd. over ratings and terms on the bonds. The developers are hoping for an investment-grade credit rating on the bonds and to issue them at annual interest rates of roughly 6.5%. Whether the debt will be insured -- which could be key to selling the bonds -- remains uncertain, as debates continue about the arena's revenue-earning potential.
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Not all the parties looking at the bonds are on the same page. Bankers recently balked at some of the terms that bond insurer Assured Guaranty wants before it will guarantee interest and principal payments on the bonds, according to a person familiar with the matter. Assured is effectively the only bond insurer still actively writing new guarantees after its rivals ran into financial trouble.

Analysts say a bond guarantee would help broaden the base of potential investors that can buy the securities. "It would certainly be harder to sell the bonds if they don't have insurance," says Matt Fabian, an analyst at Municipal Market Advisors, but he adds that investor demand has improved and the bonds may appeal to funds that invest mainly in municipal debt rated "junk."

article

Atlantic Yards Report, Wall Street Journal calls arena debt "a toss-up," given market for sports and apparent tension between bankers and bond insurers

Nets Daily, WSJ: Arena Financing a “Toss-Up”

Posted by eric at October 15, 2009 10:35 PM