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November 1, 2009
ESDC’s Bond Buyer Happy Talk About Restructuring and Refunding Arena Bonds
Noticing New York
Here's an item that was missed from Friday. This blog entry takes Frances Walton, ESDC’s chief financial officer, to task for statements made for an article in the Bond Buyer. It doesn't appear that the ESDC will meet IRS tax free bonds requirements in that way it is attempting to structure bonds for the proposed Atlantic Yards Project.
We are sure that Ms. Walton (who used to be in the habit of taking our legal advice when she joined us at the state agencies where she began in public finance) knows that a bond deal that is issued in order to be immediately “restructured” is pretty dead-on target to be exactly the kind of “black box” deal that the IRS has repeatedly found doesn’t meet its requirements for tax exemption (thus making bonds taxable). We also find curious the notion that if, as Ms. Walton suggests, the “court ruling went against you” (which is to say that no arena could be built) that ESDC would “just refund the bonds.” We can definitely understand Ms. Walton’s reference to an “early call” to redeem the bonds when for various reasons the arena can’t be built, but the phrase “refund the bonds” in general public finance parlance means keeping bonds outstanding (i.e. not it's not like “refunding” a ticket price and sending people home when your headline act doesn’t show up). Issue the bonds in order to immediately refund them and keep bonds outstanding with a different structure? The IRS surely ought to like that.- Not! (We refer once more to our comment about “black box” transactions.) Why talk about keeping bonds outstanding when you find out that the arena can’t, in fact, be financed? It wouldn’t be possible. The IRS would consider that an over-issuance prohibited by the tax code, making the bonds taxable (once again) as “arbitrage bonds” (retroactively to their date of issuance).
Posted by steve at November 1, 2009 8:20 AM