Wednesday, September 23, 2009

Forget the $700 million; Russian tycoon investing $200M to bridge arena financing gap, gain most of team, part of arena; details slim; DDDB slams back

(Updated) Forget all the rumors that Russian billionaire Mikhail Prokhorov would invest $700 million in the Atlantic Yards arena.

Rather, he's putting up $200 million, crucial funding that will help bridge the gap between the cost of the approximately $800 million arena and tax-exempt bonds, and will gain--subject to some still-unclear details-- a controlling part of the team and nearly half of the arena, plus an opportunity to gain 20% the development as a whole.

Though the official announcement (bottom) claims that the "partnership will ensure the successful completion of a world-class entertainment venue in Brooklyn, the relocation of the NBA Nets basketball team and the economic and housing benefits of the Atlantic Yards Project," none are a lock.

It makes the completion of the arena and the team's relocation more likely, but there remain legal challenges.

Even more uncertain are the fulfillment of the economic and housing benefits.

Details thin

The key paragraph in the press release below is this:
In accordance with the agreement, entities to be formed by Onexim Group will invest $200 million and make certain contingent funding commitments to acquire 45% of the arena project and 80% of the NBA team, and the right to purchase up to 20% of the Atlantic Yards Development Company, which will develop the non-arena real estate.

(Emphasis added)

What those contingent funding commitments are remains unclear. Prokhorov sure can't get 80% of the team and 45% of the arena for $200 million. (Ratner bought the team for $300 million; Forbes said last December it was worth $295 million, though a new arena surely raises its value.)

Does the $200 million go only to buying out the other owners? That doesn't make sense, either.

The Times called it a "a tentative $200 million deal" and noted that Prokhorov "would also take on some of the team’s debts, executives said, reducing Ratner’s 23 percent stake as well as that of other investors."

Maybe taking on the team's debt is the contingent funding commitment.

Prokhorov promise

The Moscow Times pointed to statements on Prokhorov's blog:
Onexim Group will finance the construction of a new arena in Brooklyn with a “significant share” of the project serving as collateral, and in return it will get the right to buy a controlling stake in the club for a “symbolic amount.” To fund the project Onexim Group will take out a loan from Western banks, Prokhorov said.

As part of the deal, he said Russian basketball players and coaches must receive access to the team’s modern training techniques and the right to use them at home, Russian coaches and managers must get their own apprenticeship in the NBA, and student teams must be allowed to receive training in NBA schools.


With $200 million, Onexim is not financing the construction of the arena.

DDDB reaction

Develop Don't Destroy Brooklyn, obviously having done some research into Prokhorov, issued a long statement asserting:
Just when you thought the Atlantic Yards project couldn’t get more corrupt, developer Bruce Ratner has announced a partnership with Russia’s richest oligarch, Mikhail Prokhorov, in an attempt to rescue the floundering Atlantic Yards project."

“This has got to be a huge wake-up call for Ratner’s political supporters. The only reason Ratner would make this deal is because he is in dire financial trouble. If Ratner has to go overseas to get major funding for the arena, how on earth is he going to finance the rest of the project,” said Develop Don’t’ Destroy Brooklyn spokesman Daniel Goldstein.

Questions raised

DDDB continued:
There are many unanswered questions about Mr. Prokhorov's—a former nickel baron, now the chairman of Polyus Gold, Russia’s largest gold producer, and head of the Onexim investment group—wealth, his liquidity claims and where the money is coming from for his proposed investment in the Nets and Ratner’s arena.".

MProkhorov has been accused of asset stripping, abuse of corporate governance and violations of minority shareholder rights. He was arrested in France in 2007 on suspicion of involvement in a prostitution ring.

More ominous for Forest City Ratner is Prokhorov’s recent reneging on his deal to purchase the $643 million Villa Leopold, the most expensive mansion on the French Riviera.


DDDB also noted the reported link of the Russian aluminum giant, UC Rusal, with organized crime. Prokhorov owns 18.5% of UC Rusal

"So much for Ratner’s mantra that this project is ‘about Brooklyn,’" Goldstein said. "We don’t need to be Kremlinologists to know that Mr. Prokhorov doesn’t care one nickel about Brooklyn or know squat about Brooklyn."

The official statement

FOREST CITY RATNER COMPANIES AND ONEXIM GROUP ANNOUNCE PARTNERSHIP IN BROOKLYN

(Brooklyn, U.S.A. and Moscow, Russia) - September 23, 2009 - Forest City Ratner Companies (“FCRC”), Nets Sports and Entertainment (“NSE”) and Onexim Group announced today that they have signed a letter of intent to create a strategic partnership for the development of the Atlantic Yards Project, a 22-acre residential and commercial real estate project in Brooklyn and the Barclays Center, the future home for the NBA's Nets.

This partnership will ensure the successful completion of a world-class entertainment venue in Brooklyn, the relocation of the NBA Nets basketball team and the economic and housing benefits of the Atlantic Yards Project.

In accordance with the agreement, entities to be formed by Onexim Group will invest $200 million and make certain contingent funding commitments to acquire 45% of the arena project and 80% of the NBA team, and the right to purchase up to 20% of the Atlantic Yards Development Company, which will develop the non-arena real estate.

Bruce Ratner, the Chairman and CEO of FCRC, said, “Mikhail and Onexim will be great partners for this project. I am thrilled that smart global investors appreciate the exciting economic potential of Brooklyn. We are one step closer to achieving our goals of creating much needed jobs and economic development for Brooklyn and the city.”

Mikhail Prokhorov, President of Onexim Group, said “We are delighted to join in this exciting project and to participate in the landmark development of global sports in this entertainment arena in the heart of New York City. I have a long-standing passion for basketball and pursuing interests that forward the development of the sport in Russia. I look forward to becoming a member of the NBA and working with Bruce and his talented team to bring the Nets to Brooklyn.”

NBA Commissioner David Stern said, "We are looking forward to the Nets' move to a state-of-the-art facility in Brooklyn, with its rich sports heritage. Interest in basketball and the NBA is growing rapidly on a global basis and we are especially encouraged by Mr. Prokhorov's commitment to the Nets and the opportunity it presents to continue the growth of basketball in Russia."

The transaction is expected to close by the first quarter of next year upon certain conditions being fulfilled, including approval by the NBA's Board of Governors. The Raine Group and Goldman, Sachs & Co. advised FCRC and NSE. Simpson Thacher & Bartlett LLP acted as legal counsel to FCRC and NSE. Hogan & Hartson advised Onexim Group.

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