Is the legal battle over Atlantic Yards having “a chilling affect” on Forest City Ratner’s ability to get financing? That's what a lawyer for the Metropolitan Transportation Authority said more than a week ago, according to lawyers for the 26 petitioners challenging the Atlantic Yards environmental review, though he denied it to the Brooklyn Paper.
Well, that kerfluffle is moot now that an FCR official has said essentially the same thing in legal papers, arguing for an expedited appeal of Supreme Court Justice Joan Madden's decision. (The New York Post has the story first today; the article's headlined COURT TROUBLE: RATNER ADMITS ARENA-FUNDING WOES.)
In an affidavit filed Thursday, Andrew Silberfein, FCR's Executive Vice President and Director of Finance, stated: As the Court surely is aware, the credit markets are in turmoil at this time. Many lenders and bond insurers are facing financial difficulties, and are becoming much more cautious. It is not clear what the financial climate will be in several months, when the arena bond financing is made available to the public.
Although the decision that was issued by Justice Madden in this case on January 11, 2008 should be helpful in providing comfort to potential investors that there is no significant risk that the courts will annul the approvals for the Atlantic Yards project, there is a serious question as to whether, given the current state of the debt market, the underwriters will be able to proceed with the financing for the arena while the appeal is pending before this Court.
(Emphasis added)
FCR wants the appellate arguments to be heard by May rather than held over until September; the developer would like to open the arena in 2010, even though the three-year bridge reconstruction clock, which started when the Carlton Avenue Bridge closed January 23, suggests that the earliest would be 2011.
Beyond the lawsuit
Of course, the general climate for financing isn't exactly that solid, even without a lawsuit. The stock of parent Forest City Enterprises rose steadily over the past two years, only to plunge last summer. In December, Goldman Sachs downgraded FCE stock from buy to neutral, three months after RBC Capital Markets analyst Rich Moore nudged the stock down from "outperform" to the middle ranking of "sector perform."
Other litigation
Silberfein acknowledged that other state litigation regarding Atlantic Yards "is a possibility" and acknowledged that "other litigation remains pending"--a reference to the appeal of the federal eminent domain lawsuit. He suggested, however, that this case is particularly significant: Nevertheless, an affirmance of Justice Madden's decision by this Court — which is, as I understand it, the only appellate court to which the petitioners have the absolute right to take an appeal — would help to allow the financing and long-delayed construction of the project to proceed.
As long as the state case remains pending, he predicted significant difficulties and cost increases in concluding the bond financing that is essential to the arena's completion.
Delay?
ESDC attorney Philip Karmel wrote that petitioners' attorney Jeffrey Baker had provisionally agreed to a schedule in which petitioners' briefs would have been submitted by February 19, but later disavowed it, stating that co-counsel had conflicts that required delay. Karmel opined that the delay represented "a strategy to string out this appeal" rather than a legitimate need for more time.
Final check?
In court documents, Baker acknowledged that the appellants recognize that agencies are afforded deference by the courts regarding decision-making on projects like these. However, he said that court review is the only protection for those aggrieved.
Moreover, he pointed to the 2006 case in which a trial court judge disqualified an ESDC lawyer, David Paget, for having previously advised Forest City Ratner on Atlantic Yards matters. That decision was reversed by an appellate court.
Baker wrote: With respect to petitioners claim that the close relationship between FCRC and ESDC and ESDC’s reliance upon an attorney employed by FCRC, this Court noted that the project was still undergoing governmental review and that petitioners would have the opportunity to comment during that process and seek judicial review if necessary...
This case demonstrates that the relationship between ESDC and FCRC was far too cozy and that rather than take an objective look at the various issues involved in the project, ESDC facilitated a sham process intended to grant FCRC the approvals for which it was not otherwise entitled. Appellants are counting on this Court to provide the meaningful judicial review that has otherwise been denied.
Irreparable injury?
In asking for a temporary restraining ordered (denied) and a stay (moot) on the closing of the Carlton Avenue Bridge, Baker wrote:
If the Court does not grant the within emergency stay, the Petitioners and residents of Brooklyn will be irreparably harmed. The closure of the Carlton Avenue Bridge, if it moves forward, would result in a permanent change in the environment of Brooklyn including significant impacts on traffic and significant delays for Fire Department emergency responders. Further, the closure and eventual demolishing of this bridge would irreparable harm, as Petitioners’ success on the merits of this Appeal would leave Petitioners and residents without a necessary bridge and without adequate funding to reconstruct the bridge.
The Empire State Development Corporation responded that, in light of the public benefits, the balance of equities weight heavily against granting such a preliminary injunction, since it change the status quo by disturbing existing construction contracts and interrupting the work taking place at the project site.
Well, that kerfluffle is moot now that an FCR official has said essentially the same thing in legal papers, arguing for an expedited appeal of Supreme Court Justice Joan Madden's decision. (The New York Post has the story first today; the article's headlined COURT TROUBLE: RATNER ADMITS ARENA-FUNDING WOES.)
In an affidavit filed Thursday, Andrew Silberfein, FCR's Executive Vice President and Director of Finance, stated: As the Court surely is aware, the credit markets are in turmoil at this time. Many lenders and bond insurers are facing financial difficulties, and are becoming much more cautious. It is not clear what the financial climate will be in several months, when the arena bond financing is made available to the public.
Although the decision that was issued by Justice Madden in this case on January 11, 2008 should be helpful in providing comfort to potential investors that there is no significant risk that the courts will annul the approvals for the Atlantic Yards project, there is a serious question as to whether, given the current state of the debt market, the underwriters will be able to proceed with the financing for the arena while the appeal is pending before this Court.
(Emphasis added)
FCR wants the appellate arguments to be heard by May rather than held over until September; the developer would like to open the arena in 2010, even though the three-year bridge reconstruction clock, which started when the Carlton Avenue Bridge closed January 23, suggests that the earliest would be 2011.
Beyond the lawsuit
Of course, the general climate for financing isn't exactly that solid, even without a lawsuit. The stock of parent Forest City Enterprises rose steadily over the past two years, only to plunge last summer. In December, Goldman Sachs downgraded FCE stock from buy to neutral, three months after RBC Capital Markets analyst Rich Moore nudged the stock down from "outperform" to the middle ranking of "sector perform."Other litigation
Silberfein acknowledged that other state litigation regarding Atlantic Yards "is a possibility" and acknowledged that "other litigation remains pending"--a reference to the appeal of the federal eminent domain lawsuit. He suggested, however, that this case is particularly significant: Nevertheless, an affirmance of Justice Madden's decision by this Court — which is, as I understand it, the only appellate court to which the petitioners have the absolute right to take an appeal — would help to allow the financing and long-delayed construction of the project to proceed.
As long as the state case remains pending, he predicted significant difficulties and cost increases in concluding the bond financing that is essential to the arena's completion.
Delay?
ESDC attorney Philip Karmel wrote that petitioners' attorney Jeffrey Baker had provisionally agreed to a schedule in which petitioners' briefs would have been submitted by February 19, but later disavowed it, stating that co-counsel had conflicts that required delay. Karmel opined that the delay represented "a strategy to string out this appeal" rather than a legitimate need for more time.
Final check?
In court documents, Baker acknowledged that the appellants recognize that agencies are afforded deference by the courts regarding decision-making on projects like these. However, he said that court review is the only protection for those aggrieved.
Moreover, he pointed to the 2006 case in which a trial court judge disqualified an ESDC lawyer, David Paget, for having previously advised Forest City Ratner on Atlantic Yards matters. That decision was reversed by an appellate court.
Baker wrote: With respect to petitioners claim that the close relationship between FCRC and ESDC and ESDC’s reliance upon an attorney employed by FCRC, this Court noted that the project was still undergoing governmental review and that petitioners would have the opportunity to comment during that process and seek judicial review if necessary...
This case demonstrates that the relationship between ESDC and FCRC was far too cozy and that rather than take an objective look at the various issues involved in the project, ESDC facilitated a sham process intended to grant FCRC the approvals for which it was not otherwise entitled. Appellants are counting on this Court to provide the meaningful judicial review that has otherwise been denied.
Irreparable injury?
In asking for a temporary restraining ordered (denied) and a stay (moot) on the closing of the Carlton Avenue Bridge, Baker wrote:
If the Court does not grant the within emergency stay, the Petitioners and residents of Brooklyn will be irreparably harmed. The closure of the Carlton Avenue Bridge, if it moves forward, would result in a permanent change in the environment of Brooklyn including significant impacts on traffic and significant delays for Fire Department emergency responders. Further, the closure and eventual demolishing of this bridge would irreparable harm, as Petitioners’ success on the merits of this Appeal would leave Petitioners and residents without a necessary bridge and without adequate funding to reconstruct the bridge.
The Empire State Development Corporation responded that, in light of the public benefits, the balance of equities weight heavily against granting such a preliminary injunction, since it change the status quo by disturbing existing construction contracts and interrupting the work taking place at the project site.
Don't worry about the stock price - that does not have any impact on FCR's ability to raise financing, though it might be said to reflect equity investors' views of FCR's ability to raise financing. But FCr is not likely, beyond its development costs, to be contributing a huge amount of its own cash to the project.
ReplyDeleteMUCH more significant is the uncertainty surrounding the bond insurers. All the recent NYC stadium financings (Yankees, Mets, Jets/Giants) have used bond insurance. The costs of this insurance are likely to increase hugely, especially for large complex projects like AY.
On the other hand, underlying interest rates are decreasing, so FCR sees some benefit there.
Some of the chilling effect for the lenders that they should consider is that people will be ultra-willing to sue them at the drop of hat and that they will lose business by generating extreme city-and-borough-wide community ill-will.
ReplyDelete