Sale
of Nets' Arena Debt Is Tough Shot
The Wall Street Journal. by Serena Ng and Matthew Futterman
As the long-running legal battle over the Atlantic Yards nears an end, developers
of the New Jersey Nets' Brooklyn arena project are gearing up for their next
big challenge -- selling the development to a skeptical bond market.
Right now, the planned sale of as much as $700 million in bonds to finance
the project's centerpiece -- a $900 million basketball arena to be called
the Barclays Center -- looks like a toss-up. The U.S. municipal-bond market,
while in much better shape than six months ago, has been in a rout since the
start of October. The Nets arena offering, expected to launch next month,
would be the largest bond sale tied to a sports venue in more than a year.
If developers of the Atlantic Yards project don't issue bonds by Dec. 31
to fund the arena's construction, the debt will lose tax-exempt status, which
would kill the project. This week, a New York state appeals court in Albany
heard oral arguments on a property-rights case brought by Brooklyn residents
who oppose the development. A final ruling is expected in several weeks.
Meantime, bankers arranging the financing are comparing the Nets arena to
Madison Square Garden, New York City's best-known arena, touting its location
and accessibility to public transportation as big crowd draws. But the bond
sale is coming at a time when consumers and corporations are cutting back
on sports spending and competition in the arena business in the metropolitan
New York region is as fierce as it has ever been.
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.
Revenue from the arena -- which includes ticket sales, advertising and naming
rights -- will pay off the debt. The past year has seen top sports teams including
the New York Yankees, New York Giants and New York Jets struggle to sell premium
seats and luxury suites in new stadiums. The Nets, meanwhile, are a struggling
franchise that lost more than $30 million last season playing at the Izod
Center in New Jersey.
...
Not all the parties looking at the bonds are on the same page. Bankers recently
balked at some of the terms that bond insurer Assured Guaranty wants before
it will guarantee interest and principal payments on the bonds, according
to a person familiar with the matter. Assured is effectively the only bond
insurer still actively writing new guarantees after its rivals ran into financial
trouble.
Analysts say a bond guarantee would help broaden the base of potential investors
that can buy the securities. "It would certainly be harder to sell the bonds
if they don't have insurance," says Matt Fabian, an analyst at Municipal Market
Advisors, but he adds that investor demand has improved and the bonds may
appeal to funds that invest mainly in municipal debt rated "junk."
When the Atlantic Yards development was envisioned several years ago, selling
bonds to finance the arena's construction was expected to be a cinch. In 2006,
$1.5 billion in insured bonds were issued to finance baseball stadiums for
the Yankees and New York Mets at rates as low as 4.5%. Earlier this year,
additional tax-exempt bonds tied to the stadiums were issued at yields ranging
from 3.5% to 7%.
...
On his 
