October 16, 2009

WSJ: Atlantic Yards bond sale a "toss-up"

The Wall Street Journal's Serena Ng and Matthew Futterman have weighed in on the question of whether New Jersey Nets owner Bruce Ratner will be able to sell bonds for his planned Brooklyn arena what with two lawsuits pending, and their verdict is: It "looks like a toss-up." The key, they write, is whether Ratner will be able to buy bond insurance, which would cover bond buyers in case the lawsuits are successful and the whole project has to be canceled:

Goldman Sachs Group and Barclays bankers have spent weeks in discussions with three credit-rating services and bond insurer Assured Guaranty Ltd. over ratings and terms on the bonds. The developers are hoping for an investment-grade credit rating on the bonds and to issue them at annual interest rates of roughly 6.5%. Whether the debt will be insured -- which could be key to selling the bonds -- remains uncertain, as debates continue about the arena's revenue-earning potential.

Assured, they note, is effectively the only bond insurer left in town after the financial meltdown, and cite a source as saying that the arena bankers "balked" at some of the demands Assured made in order to guarantee the bonds. It's unclear whether Ratner would be able to sell his planned $700 million worth of arena bonds — the largest sports venue bond sale since the economic crash — without insurance. "It would certainly be harder to sell the bonds if they don't have insurance," bond analyst Matt Fabian told the Journal, but added that the market has rebounded somewhat for junk-rated municipal debt.

Ratner could normally wait out Assured, as well as the turbulent bond market, but remember, he has a deadline: If the bonds aren't sold by December 31, his tax-exempt bond approval turns into a pumpkin, and the bonds really become unsellable. Assured, then, has Ratner over a barrel and surely knows it — that must be one fun negotiating table right about now.