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December 14, 2009
Brooklyn Arena to Lead Tax-Exempt Sales as Similar Bond Gets 7%
Bloomberg.com
by Jeremy R. Cooke
The Barclays Center in Brooklyn, New York, leads projects seeking municipal financing this week, as developer Forest City Ratner Cos. aims to meet a year-end deadline to sell tax-exempt bonds for the new basketball arena.
Brooklyn Arena Local Development Corp., a state arm created to help finance the anchor of a commercial and residential development known as Atlantic Yards, intends to issue $500 million of tax-exempt bonds rated at the lowest investment grades. The New Jersey Nets of the National Basketball Association plan to move into the new facility in 2012.
A toll-road project in Texas that also involves public financing and private investors found buyers last week for $400 million in similarly rated tax-exempt bonds at a top yield of 7 percent. The ability of the arena developer, led by Bruce Ratner, to sell bonds exempt from federal taxes expires in less than three weeks under Internal Revenue Service rule changes.
“If it’s structured right and priced right, there’s definitely demand,” said Dan Solender, who oversees about $12.5 billion as director of municipal bond management at Lord Abbett & Co. in Jersey City, New Jersey. “I think we saw that with the deal down in Texas.”
...The pending deal has required “a lot of analysis” by potential investors, Solender said.
NoLandGrab: Presumably, the Texas toll-road deal didn't involve significant overstatement of the number of vehicles that would be using the road, nor the notion that the road could potentially be retrofitted to accommodate Zamboni traffic.
Related coverage...
Field of Schemes, Nets bonds inch closer to sale
With 17 shopping days to go, the Atlantic Yards Nets arena bonds still haven't been sold, as bond issuers and buyers continue to haggle over the price. Bloomberg News speculates that $500 million in tax-free bonds could go for an interest rate of 7%, based on similarly rated bonds recently issued in Texas — this would qualify as worse than Bruce Ratner hoped, but better than he feared.
Meanwhile, the $147 million in taxable bonds that will accompany the tax-free bonds — trust me, you don't want to know why, but if you really need to, start here — have been assigned junk-bond status, which, Atlantic Yards Report notes, could carry interest rates as high as 14%. The interesting twist here is that the rumored buyer for these bonds is Nets soon-to-be co-owner Mikhail Prokhorov. Because Prokhorov would own 45% of the arena corporation that would be paying off the bonds to himself, he'd effectively be earning a 7.7% rate on his money — though given that, according to his deal with Ratner, he gets to take title to the whole arena if it defaults on the bonds, you could argue that he's effectively covered his risk in other ways.
I can't tell if this is brilliantly creative finance or a scam — but given the players involved here, that's probably about right.
Atlantic Yards Report, Municipal bond buyer on arena bonds: "there’s definitely demand" but "a lot of analysis" is required
A Bloomberg News article about the planned sale of $500 million in tax-exempt bonds for the Barclays Center arena suggests the interest rate would be 7%, the same as the interest rate for the second (and much smaller) phase of Yankee Stadium bonds and slightly above the 6.45% interest rate for the second phase of Mets stadium bonds.
(By contrast, the main bonds for both stadiums were sold in 2006 at interest rates of 4.57% and 4.7%.)
Noticing New York, To Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli: Investigate and Halt Issuance of Arena Bonds
Michael D.D. White enumerates the risky risks inherent in Bruce Ratner's arena bonds. Will the AG and the Comptroller open their mail?
The following an open letter from Noticing New York to Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli calling for an investigation and halt to the proposed issuance of ESDC’s Brooklyn Local Development Corporation PILOT Revenue Bonds for Forest City Ratner’s proposed Nets basketball arena.
Posted by eric at December 14, 2009 10:06 AM