Monday, August 08, 2016

Today, state entity poised to approve refinancing of Barclays Center bonds, saving Prokhorov millions

Today, at an 11 am meeting (which will be webcast), the "dummy not-for-profit" Brooklyn Arena Local Development Corporation (BALDC) is expected to approve a refinancing of a "all or substantially all" of the remaining portion of the $511 million tax-exempt bonds used to pay off construction of the Barclays Center.

(The overall total of payments, given interest, is far more than $511 million.)

Details on the amount and interest rate are unavailable in the board materials (also below), but surely the decision, which aims to take advantage of today's local interest rates (versus the original 2009 bonds), will save arena operator Mikhail Prokhorov's Onexim Sports & Entertainment tens of millions of dollars. Prokhorov, who owned 45% of the arena operating company, bought the majority from Forest City Ratner/Forest City Enterprises around the end of last year.

The fig leaf of state ownership of the arena--which is then leased for a song to the arena operator--allows for tax-exempt bonds and lower interest rates. Bonds are repaid out of arena revenues, which are considered payments in lieu of taxes, or PILOTs.

Also planned is approval of an unspecified amount of first-ever taxable bonds, which presumably will have a higher interest rate, but--despite no guarantees of public backing--will benefit from the association with a governmental entity.

(The BALDC, which has no dedicated staff or budget, is a creation of an Empire State Development alter ego/affiliate, the Job Development Authority, or JDA, but is essentially an ESD alter ego. The use of the BALDC meant the bonds avoided the scrutiny of the Public Authorities Control Board.)

Limited details

Limited information on the bond issuance appears beginning on p. 52 of the 61-page of the board materials. The document indicates that some bonds may not be refunded, and also points to "any additional PILOT bonds issued in the future."

Attachments (see. p. 56) include exhibits, such as a Preliminary Official Statement, which are being provided to the Directors only. (The BALDC directors are various state officials.) So much for transparency.

Underwriters = bonus for felon Barclays

The underwriters are Goldman Sachs as "book running Senior Manager," with the participation of Siebert Brandford Shank, a MWBE firm, and Barclays Capital as Senior Managers.

Barclays was chosen (see p. 55) for its "experience with and support for the project." In other words, because Barclays bought naming rights, it gets bond issuance fees. Sweet!

As I've argued, Barclays should not be doing business with New York State, and should lose the naming rights deal, because the company's plea to a felony--for rigging the foreign exchange market--should make it a "prohibited person" under state rules.

Counsel appointment and fees

Most of the board materials related to hiring special counsel and adopting board resolutions.

Counsel fees--see p. 31 of the board materials--can equal up to 2% of overall bond proceeds. Bizarrely enough--see for example p. 31 and p. 38--another entity, the New York Transportation Development Corporation (which has issued bonds for JFK airport work) is also involved in the process. This other development corporation is also a JDA affiliate.

State assistance and the opportunity for leverage

The move today, on the one hand, seems understandable. Who wouldn't want to refinance at a lower interest rate?

However, it should serve as a reminder that New York State actions are now in service to a Russian billionaire and, as I've written, it's unlikely governmental leaders would have been as generous had the applicant been a Russian oligarch.

Also, it could be an opportunity for New York State to exercise leverage.

After all, as I suggested in October 2014, a nonbinding clause in a state document (right) says the arena operator and/or team would pay additional fees to Empire State Development, the public agency that formally owns and leases the arena, for the right to have a second professional sports team.

That clause was in the 2/18/05 Memorandum of Understanding that original arena developer Forest City Ratner signed with New York City and New York State, public parties involved in the Atlantic Yards deal.

But it was nonbinding. And ESD refused to answer my queries about it. It was plausible for the public parties to ask for more, because it implies that the arena would gain additional revenue from another team, eased by the significant public contribution--direct subsidies, tax breaks, giveaway of naming rights, override of zoning, inside deal on railyard development rights--that allowed arena construction.

BALDC Board Materials Aug. 8, 2016

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