Thursday, December 03, 2009

Could Prokhorov become majority owner of the arena, too? If he buys the subordinated bonds and they fail, so it seems

Could Russian billionaire Mikhail Prokhorov control not just the majority of the Nets (of which he would buy 80%) but also the Atlantic Yards arena (of which he's slated to own a 45% stake)?

Maybe, but two not-at-all assured things have to happen: 1) he buys the riskier subordinated bonds and 2) there's not enough revenue from the project to make the bond payments.

(Remember, there would be $500 million in tax-exempt bonds, which were rated by the ratings agencies, and $146.8 million in unrated taxable bonds, likely at junk bond interest rates.)

Prokhorov's role

An article headlined Nets Arena gambles on subordinated tranche, in the subscription-only Project Finance magazine, suggests, without a named source, that Prokhorov will be buying the bonds:
But the new Russian investor is set to have a majority position in the team's equity, and the subordinated bonds, as well as a substantial minority position in the project company's equity. If Prokhorov buys the subordinated bonds, which are serviced through lower quality and more uncertain cashflows, and the project experiences a sustained period of weak financial performance, then in the event of a default on the subdebt, he would take control of the project. Nevertheless, the likely overlap in ownership between the team, project company and subordinated bonds minimises the potential for conflict between these parties.
The upshot, though, is that the enormous state effort to get the project going--the Blight Study, the use of eminent domain, the tax-exempt bonds, etc.--could turn out to provide the most significant benefits to Russia's richest man.

1 comment:

  1. This was my thought from a few weeks ago, sir - that Prokhorov buys all the leftover bonds, and voila - Ratner "successfully" completes financing by 12/31/09.

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