« Another push to turn luxury condos into affordable housing, but cost is unclear; report proposes eminent domain for condos but slams it for AY | Main | PRESS RELEASE: Prokhorov and FCRC Announce Closing on Partnership »

May 12, 2010

Ratings agency may downgrade tax-free arena bonds, cites uncertainty regarding taxable junk bonds; Prokhorov could still fill the gap

Atlantic Yards Report

Update: the Star-Ledger reports that Prokhorov is buying the bonds.

One day after the Atlantic Yards arena groundbreaking in March, ratings agency Standard & Poor’s (S&P), citing “uncertainty” about the plan for arena financing, withdrew its rating (of junk) for $106 million in taxable bonds needed for the arena financing structure. Because of that, S&P warned that it could lower the ratings on the tax-free bonds “in the next few months.”

Should that occur, that would push the $511 million tax-free bonds issued by the Brooklyn Arena Local Development Corporation (BALDC) into a rating below investment grade, the level that was needed to market the bonds in the first place.

However, that wouldn't scotch the deal; the bonds have already been sold to investors. And, given that Russian billionaire Mikhail Prokhorov now has bought 80% of the team and 45% of the arena, he surely has an incentive to fill the gap either with equity or by buying the taxable bonds, as he had been rumored to do months ago, thus restoring the rating.

Still, it's a curious situation--why haven't Prokhorov and Forest City Ratner resolved this?--and it was curious timing.
...

Rating withdrawn

The March 12 revision by S&P drew little attention, though Reuters reported the ratings agency's statement, "At this point, there is uncertainty as to the final terms and conditions of any new funding approach."

The full report (which I got yesterday, after learning of it belatedly) is fairly cryptic, stating that the rating for the taxable bonds was withdrawn “because the sponsors decided to pursue an alternative financing strategy to that originally presented to Standard & Poor's.”

The rating on the tax-exempt bonds “was predicated on a capital structure that assumed issuance of debt at BAHC.”

“At this point, there is uncertainty as to the final terms and conditions of the new funding approach,” S&P said. “We are placing LDC's 'BBB-' rating on CreditWatch with negative implications. The negative CreditWatch indicates that we could lower the ratings in the next few months."

article

NoLandGrab: Might holders of Atlantic Yards bonds be wishing they'd instead invested in Greek debt?

Posted by eric at May 12, 2010 11:31 AM