In a conference call today (webcast) with investment analysts, Chuck Ratner, CEO of Forest City Enterprises, parent of Forest City Ratner, expressed optimism about the Atlantic Yards project and said more details on the terms for the arena bonds would emerge “by the end of next week.” Another executive said bonds would be sold by early next week.
“In summary, we have several things yet to accomplish, and we fully expect to close this project by the end of the year,” Ratner said. “We are in a position to close because we have achieved some major milestones. The first was a letter of intent with an affiliate of Onexim Group, an affiliate of an international private investment fund, to create a strategic partnership for the ownership of the Nets and the development of the Barclays Center arena. This influx of new global capital is strong sign that others also see a value creation opportunity that we see in this great project.”
Others might say that Russian tycoon Mikhail Prokhorov—a big basketball fan--got a very good deal.
“The second major milestone is the favorable ruling by New York State Court of Appeals rejecting a challenge to the state’s use of eminent domain, clearing a major legal hurdle for the project,” Ratner added. “Then, early last week, the major rating agencies issued investment grade ratings on 500 million dollars of tax-exempt bonds to finance part of the construction of the Barclays Center arena. As some of you may know, we’re out marketing the bonds at this point and we’ll have a picture of the specifics of the bond terms by the end of next week. In summary, we fully expect to close by the end of the year."
Capital investment
FCE CFO Bob O’Brien at one point acknowledged that there is a significant investment that needs to go into Atlantic Yards as it goes forward.
An analyst asked, "Can you give an update on the arena... and expectations of capital investment in the project?"
Forest City Ratner President Joanne Minieri responded, “As Chuck mentioned, we are anticipating to close on the Atlantic Yards and the Brooklyn arena by the end of this year. We had always anticipated the necessary equity, which would in the neighborhood of around 200 million dollars, primarily in connection of the land and infrastructure… I think, overall, all of our targets are being met, and we continue to proceed accordingly for the year-end close. We’re out in the market, as you probably heard, on the bonds… and we expect to have them sold early next week. So, with that, I think, overall, the project is pretty much moving as we planned.”
"So the 200 is what you expect to invest or is that what's been invested to date?" she was asked.
"It’s what we expect to invest," Minieri responded. "It's what's in the company's sources and uses for the project."
She was asked if FCR would put in 55% of that, given its 55% ownership in the company running the arena.
"That is Forest City's expected share," she responded. "Our partners will put in their share in accordance with the sale we announced with respect to the sale to Mr. Prokhorov of 80% of the team and 45% of the arena."
Delayed mortgage payment
Forest City officials were asked why they had delayed a $5 million payment on a loan for land in the Atlantic Yards footprint: “I’m wondering what your negotiations are with the lender. Are you trying to get a lower interest rate? Are you trying to get them reduce the size of the mortgage? And how does that impact the potential close of the project?”
Ratner said they didn’t want to discuss a specific negotiation
Minieri added, “The lender group on our land loan has been very supportive and has been working with us in connection with making sure that this project occurs as planned.”
Is that supportive or is that in a weak negotiating position?
Naming rights
They were asked if the Barclays Center naming rights situation is secure.
“That is secure,” Minieri responded. “Barclays remains committed. We've fulfilled with the requirements that allowed for passage of the termination date."
Were those requirements cutting the value of the deal from $20 million a year to $10 million and change?
“In summary, we have several things yet to accomplish, and we fully expect to close this project by the end of the year,” Ratner said. “We are in a position to close because we have achieved some major milestones. The first was a letter of intent with an affiliate of Onexim Group, an affiliate of an international private investment fund, to create a strategic partnership for the ownership of the Nets and the development of the Barclays Center arena. This influx of new global capital is strong sign that others also see a value creation opportunity that we see in this great project.”
Others might say that Russian tycoon Mikhail Prokhorov—a big basketball fan--got a very good deal.
“The second major milestone is the favorable ruling by New York State Court of Appeals rejecting a challenge to the state’s use of eminent domain, clearing a major legal hurdle for the project,” Ratner added. “Then, early last week, the major rating agencies issued investment grade ratings on 500 million dollars of tax-exempt bonds to finance part of the construction of the Barclays Center arena. As some of you may know, we’re out marketing the bonds at this point and we’ll have a picture of the specifics of the bond terms by the end of next week. In summary, we fully expect to close by the end of the year."
Capital investment
FCE CFO Bob O’Brien at one point acknowledged that there is a significant investment that needs to go into Atlantic Yards as it goes forward.
An analyst asked, "Can you give an update on the arena... and expectations of capital investment in the project?"
Forest City Ratner President Joanne Minieri responded, “As Chuck mentioned, we are anticipating to close on the Atlantic Yards and the Brooklyn arena by the end of this year. We had always anticipated the necessary equity, which would in the neighborhood of around 200 million dollars, primarily in connection of the land and infrastructure… I think, overall, all of our targets are being met, and we continue to proceed accordingly for the year-end close. We’re out in the market, as you probably heard, on the bonds… and we expect to have them sold early next week. So, with that, I think, overall, the project is pretty much moving as we planned.”
"So the 200 is what you expect to invest or is that what's been invested to date?" she was asked.
"It’s what we expect to invest," Minieri responded. "It's what's in the company's sources and uses for the project."
She was asked if FCR would put in 55% of that, given its 55% ownership in the company running the arena.
"That is Forest City's expected share," she responded. "Our partners will put in their share in accordance with the sale we announced with respect to the sale to Mr. Prokhorov of 80% of the team and 45% of the arena."
Delayed mortgage payment
Forest City officials were asked why they had delayed a $5 million payment on a loan for land in the Atlantic Yards footprint: “I’m wondering what your negotiations are with the lender. Are you trying to get a lower interest rate? Are you trying to get them reduce the size of the mortgage? And how does that impact the potential close of the project?”
Ratner said they didn’t want to discuss a specific negotiation
Minieri added, “The lender group on our land loan has been very supportive and has been working with us in connection with making sure that this project occurs as planned.”
Is that supportive or is that in a weak negotiating position?
Naming rights
They were asked if the Barclays Center naming rights situation is secure.
“That is secure,” Minieri responded. “Barclays remains committed. We've fulfilled with the requirements that allowed for passage of the termination date."
Were those requirements cutting the value of the deal from $20 million a year to $10 million and change?
Remember no matter the terms set by FCR and their offering partners, the actual interest rate will be set by the market. So lets say they set 6% and then the bonds only sell for 90% the effective interest rate is higher. The market will say what the perceived risk is. My personal expectation(this is an opinion) is that they will be above 6% a very high rate for tax exempt bonds.
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