The New York City Industrial Development Agency yesterday issued $150 million of tax-exempt bonds to finance improvements to the National Tennis Center.
City officials said they had little knowledge of the transaction's details, including how it was doing in the municipal market. But executives at Bear, Stearns & Co., the issue's sole underwriter, said the deal's AAA rating and a shortage of New York paper helped it to sell well.
The deal will help the United States Tennis Association receive tax-exempt financing to expand and renovate the center, which hosts the U.S. Open.
The association saves money by issuing tax-exempt securities rather than taxable bonds through the city IDA. Debt service comes from the association's ticket sales and broadcast fees, with the city merely lending its tax exemption to the association. A spokeswoman for the city IDA said the agency is not involved in any other way with the transaction.
The spokeswoman said the deal is a result of a 25-year lease that former Mayor David N. Dinkins signed in December of last year to keep the association and the U.S. Open in the city.
She said that IDA officials representing Mayor Rudolph Giuliani, who defeated Dinkins last year, did not work on the transaction or choose underwriters.
The IDA offered the series 1994 bonds in two parts: $111,480,000 in serial bonds maturing from 1997 to 2011, and $38,135,000 in term bonds due Nov. 15,2014.
The transaction is insured by Financial Security Assurance, and received a AAA rating from Standard & Poor's Corp. In addition, ticket sales and broadcast revenues amount to about 3.38 times the total debt service on the bonds.
According to the preliminary offering statement, the Open is expected to generate gross ticket revenues of $19.6 million in 1994, 15.5% above last year's revenues, and $37.9 million in broadcast revenues in 1994, up 4.2% from 1993.
Michael Brooks, a municipal bond analyst at Sanford C. Bernstein & Co., is one of several buy-side sources who would have wanted the issue to be uninsured, so as to take advantage of higher rates. But Brooks said he liked the issue anyway and recommended it to fund managers at the firm.
"The history [of the tennis association] is very good," Brooks said. "The U.S. Open has a history of rapidly rising revenues: ticket sales keep increasing at $66 a piece average."
By midday yesterday, underwriters completely sold out of $37 million of the issue's long bond maturing in 2014. For every long bond available, seven buyers offered bids, underwriters said.
Investor interest in the issue was apparently strong enough for Bear Stearns to reprice the issue. Serial bond yields were dropped five basis points while the term bond yields were lowered 10 basis points. The term bonds maturing 2014 yielded 6.75%
Proceeds from the offering will be used for an overhaul of the National Tennis Center, including construction of new tennis courts and parking.
New York City leased the property to the National Tennis Center on Dec. 22, 1993, with the term of the lease lasting approximately 26 years. The lease includes options to renew for the next 73 years. The IDA has a sublease with the city and in turn leases the property to the tennis association.
When the center is not being used for the U.S. Open, it will be used for recreational tennis programs and other events.
According to the tennis association's preliminary offering statement, planning, designing, constructing, and furnishing the project will cost about $227 million.
As a stand-alone credit, Standard & Poor's rated the bonds BBB-plus, and upgraded the rating based on FSA's guarantee. In a report previewing the issue, Standard & Poor's analysts said the issue did not receive a higher rating because the tennis association must periodically renew the broadcast license. In addition, fan interest in tennis is unpredictable, the analysts said.
Even so, Charles Silberstein, chief underwriter at FSA, said public interest in the U.S. Open continues to grow. The bond insurer took longer than usual to review the credit, but only because the deal marked the first issue that the company provided insurance for the financing of a recreation facility, he said.