Attention investors! Now that the key bond-rating agencies have signed off on the financing for Bruce Ratner’s Atlantic Yards arena, $500 million in tax-free notes are poised to go on the market any day now.
On Tuesday, Moody’s and Standard and Poor’s rated the state’s tax-free bonds as Baa3 — meaning that they are as risky an investment as previous New York 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 — is sure to provide fodder for those opposed to the project.
The $500 million figure is significant because it reflects the still-struggling economy and the project’s current viability.
Several years ago, Ratner and his partners at the Empire State Development Corporation believed they could issue up to $900 million in bonds because the project appeared more likely turn a handsome profit, and thus pay back investors with little risk.
But the ratings agencies are more skeptical of arena projects of this nature because Ratner is going to have more trouble selling his advertising and luxury boxes. Additionally, Ratner has far less equity in the project, having sold 80 percent of the team — at a huge loss — to Russian billionaire Mikhail Prokhorov earlier this year.
Friend and foe alike of the mega-project were anxiously awaiting the rating, which is the final step before the bonds go on the market. The state must sell all the bonds before the end of the year, when new IRS rules go into effect that would bar the use of such tax-free bonds for projects such as Ratner’s.
If the developer misses the deadline, the costs to finance his project would be prohibitively expensive.
Experts said that bonds of this type will easily sell out before that deadline.
As a result, Ratner will have the $500 million raised from the bond sale, plus the city and state’s long-promised contribution of $273 million to build his hardball Xanadu at the intersection of Atlantic and Flatbush avenues.
That leaves Ratner responsible for 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 week, New York State’s highest court ruled that developers could legally use eminent domain to seize the property of the remaining holdouts in the Atlantic Yards’ footprint.
