Friday, October 16, 2009

Wall Street Journal calls arena debt "a toss-up," given market for sports and apparent tension between bankers and bond insurers

While the eminent domain case may pose the only formal challenge to the Atlantic Yards project, it looks like the bond market is hardly certain.

The Wall Street Journal suggests that Sale of Nets' Arena Debt Is Tough Shot, partly because of the market for sports has receded:
Right now, the planned sale of as much as $700 million in bonds to finance the project's centerpiece -- a $900 million basketball arena to be called the Barclays Center -- looks like a toss-up. The U.S. municipal-bond market, while in much better shape than six months ago, has been in a rout since the start of October. The Nets arena offering, expected to launch next month, would be the largest bond sale tied to a sports venue in more than a year.

If developers of the Atlantic Yards project don't issue bonds by Dec. 31 to fund the arena's construction, the debt will lose tax-exempt status, which would kill the project....

Meantime, bankers arranging the financing are comparing the Nets arena to Madison Square Garden, New York City's best-known arena, touting its location and accessibility to public transportation as big crowd draws. But the bond sale is coming at a time when consumers and corporations are cutting back on sports spending and competition in the arena business in the metropolitan New York region is as fierce as it has ever been.


Bankers vs. insurers

The newspaper suggests that bond insurance remains uncertain:
Goldman Sachs Group and Barclays bankers have spent weeks in discussions with three credit-rating services and bond insurer Assured Guaranty Ltd. over ratings and terms on the bonds. The developers are hoping for an investment-grade credit rating on the bonds and to issue them at annual interest rates of roughly 6.5%. Whether the debt will be insured -- which could be key to selling the bonds -- remains uncertain, as debates continue about the arena's revenue-earning potential.
...

Not all the parties looking at the bonds are on the same page. Bankers recently balked at some of the terms that bond insurer Assured Guaranty wants before it will guarantee interest and principal payments on the bonds, according to a person familiar with the matter. Assured is effectively the only bond insurer still actively writing new guarantees after its rivals ran into financial trouble.

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