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November 25, 2009
Gov. Paterson should tell potential bondholders that Atlantic Yards isn’t too big to fail
NY Fiscal Watch
by Nicole Gelinas
Fresh from a key court victory, Albany’s Empire State Development Corporation (ESDC), via its subsidiary, the Brooklyn Arena Local Development Corporation (BALDC), yesterday approved the issuance of up to $800 million in bonds for the construction of the Atlantic Yards basketball venue, sponsored by developer Bruce Ratner.
What is state and city taxpayers’ obligation here?
As A/Y blogger Norman Oder reports, up to $650 million of the financing would be tax-exempt (meaning that the state and city, as well as the feds, are losing the value of the taxes). The rest would come in taxable bonds.
Technically, the bonds don’t enjoy state backing or ESDC backing. They will rely on revenues for their repayment. Ratner will make “payments in lieu of taxes” for the tax-exempt bonds, and he’ll use money from other arena-related revenues (not well-defined at the moment) to pay back the junior, taxable portion.
ESDC officials said yesterday that the arena will garner investment-grade ratings, but none of the three major ratings agencies has released a report yet.
Are potential investors really counting on the arena’s revenue to be enough?
...It’s unclear how much due diligence potential investors can do in a month on a complex financing in an uncertain investment environment that doesn’t offer many comparable benchmarks.
So, perhaps potential investors are counting on something else instead.
The possibility is that bond investors will simply rely on Atlantic Yards being “too big to fail” — that is, they’ll figure that New York State and City have invested so much political capital in the project that they’ll step in to make up for any revenue shortfalls.
Yesterday, ESDC officials didn’t exactly disabuse anyone of this notion, according to Oder’s account.
When a WNYC reporter asked if ESDC would let the bonds default “if Ratner can’t make these payments,” ESDC lawyer Jonathan Beyer said coyly, “I don’t know if I’d characterize it as willing. It’s just that the documents do not require us to make any payments.”
NoLandGrab: Caveat emptor.
Posted by eric at November 25, 2009 1:29 PM