Less than two weeks ago, Forest City Enterprises (FCE), parent company of Atlantic Yards developer Forest City Ratner, saw its stock price close at $19.79, less than a dollar over the low point of its 52-week range. (Five-year chart at right from Oct. 11 post.)At that point, a commentator on this blog observed, "Stock prices never have too much of an impact on a project's financing, unless one can make the case that the price reflects investors' opinion on the project, rather than their worries about the business' outlook in general. As far as I can tell, the cash equity that FCR will need to contribute to the financing is fairly small."
Well, it's relatively small--$250 million, with partners--compared to a project estimated at $4 billion (and certainly more). Curiously enough, that's less than the direct public contribution of $305 million
A 40% drop
Now the stock has declined nearly 40%, to $11.91--note that the lowest level of the chart at right, as opposed to the one at top, is $10.At the same time, rating company Standard & Poor's has cut Forest City's credit rating, citing "concerns about Forest City's debt load and the company's ambitious development plans in a weak economy," according to the Cleveland Plain Dealer.
"Standard & Poor's analysts expressed concern about projects including Forest City's high-profile and controversial Atlantic Yards development in Brooklyn," the newspaper noted. The AP added, "S&P lowered Forest City's corporate credit rating and its rating on senior unsecured notes further into junk, or non-investment grade, status."
FCE responds
Forest City Enterprises CEO Chuck Ratner released a statement, "We have already taken a number of steps to enhance liquidity and we continue to effectively manage debt maturities for the balance of 2008 and 2009. We have also demonstrated repeatedly in recent months that we continue to have access to non-recourse financing to fund our development pipeline projects."
That may well be. And it's not clear whether S&P issued its statement before or after the news--certainly heartening to the company--that the Internal Revenue Service would allow triple tax-free bonds for the Atlantic Yards arena.
But the declining stock price certainly indicates a lack of investor confidence, and at some point, companies must take action to restore confidence.
Ratner suggested, as have some other investment analysts, that it may even be time to buy: "Further, we still believe that current conditions create opportunity for Forest City, given market dislocations, and we intend to selectively and strategically take advantage of such opportunities."
The rating action was dated October 23rd, so the exemption may have been factored in. To be honest, though, while losing the tax exemption might have depressed FCE's return on the arena deal, the agencies are probably more concerned about the deal happening at all, right now, which suggests a little nervousness at the amount of spending that has gone into AY already.
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