Wednesday, September 10, 2008

Karma Burns

Well, I probably need to say something about it, don't I? Even with a head full of gin and the knuckle on my left index finger missing rather a lot of skin (and a little flesh, too).

So. That New York Times article about how the Atlantic Yards arena is starting to look a bit ropey. It certainly explains why FCR and its underwriter are insisting the deal goes down in November. Because, according to the Times' Mr. Bagli, the arena's sponsor, Barclays, can walk if the arena doesn't reach financial close in November.

Barclays must be thinking they dodged a bullet on this one. Let's assume they really thought a speculative move by a basketball team was a good way to market exchange-traded funds. The advantages right now of trying to build a retail brokerage presence in the US are pretty limited.

And while Barclays hasn't had the poor run of form of its peers, but its balance sheet is still in need of a little TLC. $20 million is the amount that Barclays could earn from a single rights issue that isn't a massive cock-up, but it's still probably mutliples of the amount that it squanders on the entire New York financial publishing industry in a year.

And so, DDDB says that the litigation can't be cleared by November, and unless the residual risk from litigation is small enough for the ratings agencies to sign off on the financing package regardless (which can happen, though the residual litigation risk must be pretty trivial) the financing can't get doone then.

Now I'd be chuffed to the nuts (that's happy, if your vocabulary is feeling dreary right now) if the deal didn't go down, but none of these blows are fatal. Naming rights sponsors can be replaced, and in these recessionary times I'm betting it would be fairly easy to find a utility (hello, fellow Limeys National Grid) or junk food provider willing to go after Brooklyn eyeballs. Hell some of them might not even have links to racist regimes.

And then there's the financing. I reckon, leaving the litigation to one side, that FCR could get the financing done right now. Goldman Sachs closed a pretty solid, if somewhat subsidy-larded financing for the Louisville Arena the other day. The bond insurers seem to have stablised, and right now its easier to persuade bondholders of the utility of a new basketball arena in Kentucky than of the US housing system.

No, the Atlantic Yards project won't ever get the decisive stake to the heart. There will be a dozen cuts instead, not least among them higher financing costs, discounted naming rights, restrictions on tax-exemption, Brooklyn pols refusing to chuck any more subsidies at it, and mounting losses at the Nets. At some point, FCR's stock analysts are going to start suggesting that it goes back to nickel-and-diming government agencies on a smaller scale than through gargantuan sports-related boondoggles.

So let's recap. As soon as the financing picture looks better, the naming rights deal looks ropey, and the subsidy picture gets cloudy. I've never been totally convinced that the eminent domain case was going to drive the stake in the project's heart either, but dammit if it hasn't dragged things out long enough for the developer to start needing to fight fires in all sorts of places. To drag another helpless metaphor into the melee, looks like Forest City''s game of whack-a-mole is starting to turn bad.


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