Get ’em while they’re hot! The tax-exempt bonds that are critical to financing the Atlantic Yards arena are set to go on the market next week — and they’re expected to sell faster than you can say “land grab.”
Earlier this month, Moody’s and Standard and Poor’s rated the state’s tax-free bonds as Baa3 and BBB–, respectively — meaning that the $500 million in bonds are as risky an investment as those used to finance previous sports projects like Yankee Stadium and Citi Field.
Still, the fact that the rating is just above junk-bond status — a term all too familiar from the economic crisis — provided ample fodder to those opposed to the project because it reflects a current economic climate that’s inhospitable to projects that rely so heavily on revenue sources like naming-rights deals, luxury boxes and advertising.
Indeed, several years ago, Ratner and his partners at the Empire State Development Corporation believed they could issue $900 million in bonds because the project appeared more likely turn a handsome profit, and thus pay back investors with less risk.
Additionally, Ratner will have far less equity in the project, once he completes the sale of 80 percent of the team — at a huge loss — to Russian billionaire Mikhail Prokhorov.
Still, there is little doubt that big institutions like hedge funds, banks, and insurance agencies will not hesitate to snatch up the bonds when they go on the market well before they lose their much-coveted tax-exempt status on Jan. 1, when an IRS rule change kicks in that bars such developer-friendly financing schemes.
With the $500 million raised from the bond sale, plus the city and state’s long-promised contribution of $273 million to build the hardcourt Xanadu at the intersection of Atlantic and Flatbush avenues, Ratner will still need to pony up anywhere from a few million to a few hundred million, depending on the final cost of constructing the arena, which is in the $800-million to $1-billion range.
The bond-rating announcement is yet another signal that the Atlantic Yards project is entering a new phase — one that the opposition has fought tooth and nail to avoid.
Last month, New York State’s highest court ruled that the state could legally use its eminent domain to seize the property of the remaining holdouts in the Atlantic Yards footprint.