DALLAS - The St. Louis Industrial Development Authority has closed a $62.4 million tax-exempt issue that is the first publicly offered sports facility financing sold unrated, bond officials say.
Bond executives say the deal could become a model for other sports facilities, noting that it included a unique private-public investment that could become more common as financially strapped local governments try to fund or subsidize such big-dollar projects.
"This [structure] could certainly make other financings possible," said Sam Katz, co-chief executive officer of the financial adviser on the deal, Public Financial Management Inc., and an expert on stadium financings. "Ultimately, though, each project stands and falls on its own economics."
Underwritten by a Prudential Securities-led syndicate, officials said the St. Louis deal was sold to about 10 institutional investors as an unrated transaction after letter of credit banks declined the deal because of its 30-year amortization schedule.
Aaron Barman, managing director at Prudential, said that even if the backing had been available, the issuer saved something like 25 basis points by selling unrated debt rather than paying the 125 to 150 basis-point fee for credit enhancement.
"We estimated the authority saved at least $3.4 million over using an LOC bank," he said.
Issuers often seek letter of credit or other credit enhancement to improve marketability. However, officials said Fuji Bank Ltd. declined to back the issue because the bank sets a ceiling of 15 years for amortization.
Even though the deal was unrated, it was priced at an average yield of 7.79% when it was sold late last month to an undisclosed group of institutional investors.
The absence of credit enhancement was not the only unusual feature about the deal. The issue was sold tax-exempt because the downtown Kiel Center Arena project was among those grandfathered when the Tax Reform Act of 1986 banned such projects.
In December 1990, the authority sold a long-term variable-rate issue to beat the yearend expiration of the transition rule, which allowed the Kiel project to be funded with tax-exempt bonds. The most recent sale was a refunding of the original deal, which has a final maturity of 2024.
The deal was also different because it gives bondholders a senior mortgage on a $135 million project that included $35 million in city financings for parking and related facilities and $37 million in equity from the developers.
"The $62 million enjoys a senior position on the collateral and has coverage of two times," Katz said. "The investors really have a tremendous value when you consider the ratio of equity they have."
According to bond documents, the debt is secured by payments from the Kiel Partnership, a private group of 20 major local corporations behind the project, under a loan agreement with the authority.
The proceeds will be used to complete. development of the multipurpose arena, which will be located on Market Street. Besides being available for meetings and shows, the 19,500-seat facility will house the National Hockey League franchise St. Louis Blues and be suitable for other sporting events.
The arena is expected to be open for the start of the 1994-1995 hockey season.
The facility will be leased to the Kiel Partnership for 50 years with renewal options at a rate of $1 per year. The partnership, which also owns the Blues franchise, comprises 20 of the nation's largest companies, including Anheuser-Busch Companies, Wetterau Inc., and Monsanto. The companies have collectively invested $37 million in subordinated bank loans to the project.
Even though the securities are unrated, Boatmen's National Bank of St. Louis, one of the Kiel partners, will provide letters of credit, which may be drawn upon to pay debt service in the event construction is interrupted or halted. The arrangement will also cover a debt service reserve fund for the life of the issue.
As part of the $135 million project, the city recently sold $35 million in tax-exempt bonds to finance a parking garage for the Kiel Center Arena and other site improvements. Those bonds will be paid from parking revenues.
Katz said that such a mix of private and public capital could be tailored to other projects. For instance, both PFM and Prudential are working on a proposed $190 million taxable financing for a new stadium for the Portland Trail Blazers in Oregon.