Goldman is in the process of having the bonds rated, and expects financing to be in place by the end of November 2008, according to the article.
[Update: What this means, a reader suggests, is not that the bonds would be sold in November, but that the deal would be worked out by then, with the sale in place for when litigation closes.]
Questions about pending lawsuits
The brief article, however, doesn't address some major outstanding questions. For one, how easy is it to rate bonds for risk when major lawsuits remain outstanding? Forest City Ratner executive Andrew Silberfein filed an affidavit in January in the state lawsuit challenging the AY environmental impact statement.
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.
Oral arguments in the appeal will be heard September 17. While it's plausible that the tenor of the discussion may offer clues to the court's decision, it's unlikely that a decision will be issued by November.
A separate state case challenging the use of eminent domain has been filed in state court after being dismissed in federal court and, though the case is a long shot, oral argument is not likely until 2009.
That's not to say that the market can't factor the risk into the cost of the bonds, but surely the cost would be lower should the lawsuits be resolved.
Questions about arena bonds
Will the $800 million in bonds be tax-exempt or taxable? If they are taxable, then Forest City Ratner need not worry about the scrutiny of tax-exempt bonds for sports facilities--specifically the scheme under which bonds for the Yankees and Mets stadiums were issued, and under which the AY arena would be financed--under way in Washington.
But surely the developer wants them to be tax-exempt bonds, given the significant savings--my rough estimate was $165 million--involved.
However, the strategy under which the Empire State Development Corporation (ESDC) and developer Forest City Ratner seek tax-exempt bonds for the Atlantic Yards arena has been acknowledged by the chief counsel of the Internal Revenue Service (IRS) as a “loophole” the agency moved quickly to eliminate.
Also, Rep. Dennis Kucinich (D-OH), who chairs the Domestic Policy Subcommittee of the House Committee on Oversight and Reform, has asked the IRS and Treasury Department to desist from approving any more sports facility deals based on payments-in-lieu-of-taxes, or PILOTs, pending further clarification of their policies.
Does Goldman Sachs believe that the IRS and Treasury Department will have clarified their policies by then?