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November 28, 2009
What Next?
Nets Daily
This consolidation of reports from multiple sources includes a explanation of bond ratings for the proposed Nets arena and why the sale of bonds by a December 31st deadline is not a foregone conclusion.
Here’s why the ratings are crucial to the project. Ratings agencies review revenue projections and other factors provided by the bond issuers. In some cases, agencies will additional equity be put into a project in return for a lower interest rate. Think of bonds as the arena “mortgage” and the $282 million in equity the Nets have put down as the “down payment”. Not everyone in the front office is as positive as Yormark about the ratings. The Nets needed to get an “investment grade” rating for the arena bonds, something BBB- or better, or they wouldn’t have qualified for tax-exempt bonds. Reportedly, they succeeded, but just barely. Beyond the tax exempt bonds, there are other, taxable bonds, to construct surrounding infrastructure. Rates on those bonds are going to be significantly higher. Originally, the Nets had hoped for rates as low as those sold to finance Yankee Stadium and CitiField. The Barclays Center bond rates will not be close to the 6.5% rate the two baseball stadiums received. Also, Cablevision, the Knicks’ parent company, will soon be marketing $500 million in bonds to finance a massive refurbishing of the Garden. Those bonds will be a better investment. It’s uncertain when they will be marketed or what effect they will have the Nets’ efforts. Carey has said the most likely investors are funds who have previously invested in sports facility bonds.
In any event, Goldman’s Carey has said the bonds will go on sale December 7. He added that Goldman and Barclays expect to have them sold by “mid-December”, or around the time of the ESDC’s December 15 “master closing”. Of course, they have to get all arena financing in place by December 31, the IRS deadline. If by that date it’s not in place, the arena bonds lose their tax exempt status. That would lead to a significant increase in bonding costs and perhaps kill the project. (There’s been some speculation by the arena critics that the deadline can be moved back. A Nets’ insider said the deadline is indeed “real”.)
Posted by steve at November 28, 2009 5:21 AM