December 14, 2009

Nets bonds inch closer to sale

With 17 shopping days to go, the Atlantic Yards Nets arena bonds still haven't been sold, as bond issuers and buyers continue to haggle over the price. Bloomberg News speculates that $500 million in tax-free bonds could go for an interest rate of 7%, based on similarly rated bonds recently issued in Texas — this would qualify as worse than Bruce Ratner hoped, but better than he feared.

Meanwhile, the $147 million in taxable bonds that will accompany the tax-free bonds — trust me, you don't want to know why, but if you really need to, start here — have been assigned junk-bond status, which, Atlantic Yards Report notes, could carry interest rates as high as 14%. The interesting twist here is that the rumored buyer for these bonds is Nets soon-to-be co-owner Mikhail Prokhorov. Because Prokhorov would own 45% of the arena corporation that would be paying off the bonds to himself, he'd effectively be earning a 7.7% rate on his money — though given that, according to his deal with Ratner, he gets to take title to the whole arena if it defaults on the bonds, you could argue that he's effectively covered his risk in other ways.

I can't tell if this is brilliantly creative finance or a scam — but given the players involved here, that's probably about right.