Friday, August 11, 2006

"The New York Subway Bond Series" 8/10/6

The New York Subway Bond Series
Yankees, Mets try to raise hefty amounts of capital--via city-issued bonds--to help finance new stadiums.

Stephen Taub,

August 10, 2006

Locked in a tight battle for the bragging rights to the title of the best baseball team in New York City, the Yankees and Mets are taking their rivalry to the bond market.

Each of the teams is seeking to raise hefty amounts of capital via city-issued bonds to help finance new stadiums. To wit, the city’s industrial development authority is selling roughly $930 million of bonds for the Yankees and nearly $548 million for the Mets, according to Reuters.

Both deals have been rated BBB-minus by Standard & Poor's Ratings Services, or one notch above junk-bond status. But analysts for the credit rating agency indicated both teams were rated as junk, Reuters notes. Moody’s also rated the Yankee debt one notch above junk, at "Baa3.”

Said S&P analyst Jodi Hecht, according to Reuters: "In all cases, the credit-worthiness of the team [is] lower than the project." In addition, both issues are expected to be insured, which would boost their ratings to AAA, the highest rating.

Hecht reportedly elaborated that investors typically get special protection in stadium projects because the projects are legally separated from the teams.

Issued by New York City, the tax-exempt debt would be repaid by the teams with so-called payments in lieu of taxes (PILOTS)—payments made to reimburse local governments for tax revenue they lose because corporations or teams don't own the land they build on. Hecht reportedly said the Yankees plan to use just ticket revenue to make the payments, while the Mets plan to use “basically everything but ticket revenue."

Reportedly, failure to make the PILOT "would result in a foreclosure on the stadium," according to Moody's.


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