Bruceski's Netskis

Dearie me, is there anything Russian money can't buy? New York has so far been less than welcoming to the richer and brasher type of new Russian. For sure, the southern reaches of Brooklyn have long been a home to working class Russian immigrants, many of them Jewish immigrants from the early nineties. Quick tip: if you ever have a yearning to head to the Russian baths in Midwood, do so on the Sabbath when they're less crowded, although regulars swear blind that the owners turn the heat waaaay down.

But New York, maybe because it has always preferred to nurture its own breed of unbelievably crass new rich, has lost out to London in attracting Russians. You can read more about London's, um, superior attractions in this column by Nick Cohen. And you can get a hint of how Uncle Sam reacts to Russians with wealth of clouded provenance here.

The US sports market has so far evidenced little desire to attract overseas cash, in stark contrast to the inexplicably popular brothel that is English football. Indeed, more than one US team owner has looked on enviously as football does what no US sport outside basketball has managed to do - expand into the growing parts of Asia. A few have even bought up English clubs.

US team owners are a strange bunch, cosseted by a wealth of legal exemptions, given to opaque finances, lovers of the taxpayer's largesse, and frequently at odds with their fans sentiment. But they're fairly keenly aware, normally, of the importance of good PR. It's one of the big reasons I'm a fan of the Mets - that management plainly cares what I think of them.

It's what makes Bruce Ratner's ill-starred ownership of the New Jersey Nets so fascinating. He's got no interest in basketball, has very little grounding in New Jersey politics, and has made no attempt, on a personal level, to connect with the fans. Sure, there's this Brett Yormark character, who seems to get sports marketing on a technical level, in much the same way as many baseball front offices have a stats wiz on staff these days.

But Bruce, if he had the faintest sense, would not have allowed the faintest hint of a rumour, true or not, that he planned to seek foreign capital to see the light of day. It's not so much that the sports fans of the Greater New York are not a xenophobic bunch (I'm thinking of you, drunken fans on the Mets' Loge level). But they're comforted by the idea that the extortionate seat and concession prices they bear are essentially being recycled within their community by local ownership.

There's appropriate symmetry to the move. Barclays Capital, which, at least for the next month or so, owns the naming rights to the arena, is also looking for Russian cash, and displaying a similar lack of tact when doing so. Barclays, see, wants to keep paying humungous bonuses to senior management, and cannot do so if it is forced to go to the UK taxpayer for more equity. But it needs to raise more equity so as to benefit from UK guarantees of its debt and deposits.

It's called having your cake and eating it, and while the man on the Clapham omnibus is less angry about this than Lloyds, which has taken government cash, paying such bonuses, such a posture does somewhat undermine the "we're all in this together narrative" that the financial services sector would like to prevail.

We probably don't need to worry too much about the prospect of either coming through. The commodities bust, and the spread of the credit crunch to Russian financial institutions, has severely hurt the wealth of many of the newly-rich Russians. Russia was much more frugal with its oil earnings than other countries, but will strain to keep its economic growth going using government cash. This linkage between commodity prices and interest in sports teams was pointed out, strangely enough, by NBA Commissioner Stern, who we wish displayed as much awareness of the linkage between the location of an All-Star Game and its traffic problems.

Still, I don't think that this was what the Gowanus Lounge's Mr Guskind had in mind when he compared Brooklyn pols' performance over term limits to the post-Putin political scene in Russia. You never know, though, handing over control of the Atlantic Yards project to strange oligarchs might even rouse that lot from their torpor. A blog that knows multiples more about sports than I seems to be thinking along similar lines.

But do teams need Russian cash to compete at the top level? Ladies and gentleman, I give you the mighty Hull City

I can't help but think that the end-game for Atlantic Yards is looming.

My Arena Bonds $1 billion's-Worth

Rikey. Time to post.

So, the US Treasury Department just handed down a ruling on the eligibility of PILOT facilities for tax-exempt treatment. I'm going to avoid going into how tax-exempt treatment is applied to such facilities' bonds, the inner workings of PILOT (or payments in lieu of taxes) and assume that this blog's remaining frivolous readers will move on and wait patiently for the next Brooklyn boutique discussion.

As has been noted elsewhere, the new regulations from the IRS contain a little bit of wiggle. The new regulations say that the old regulations, which have a rather generous view of how PILOT payments can be applied to servicing bonds used to financing projects, apply to projects "substantially in progress at the time of the promulgation of the Proposed Regulations." Which was October 19 2006.

As far as the developers of the Nets arena are concerned, this includes the Atlantic Yards project, since its preliminary approval came in July of that year. Norman Oder, as ever, has the best chronology. His reading of the rules is that even a rubber-stamping of the project's environmental impact statementgeneral project plan would probably count as "substantial progress".

But let's briefly cycle back to the Yankees and Mets stadiums, since the Yankees, in particular, want to issue some more bonds because their shipping-magnate owner has no idea how things get built in New York city. These stadiums are definitely grandfathered, and it's worth noting that they both closed their original financings in July 2006.

Now since the cut-off date was simply chosen because that was when the original rules came out, we can't try, as supporters of gun control try with the second amendment, to look at the intent of the writers. It looks as if a say-so from the right Pataki stooge is the important step, and not, you know, convincing an investor of the project's viability. In fact, as the Times notes it was the outcry over these deals that forced the Treasury to look at the rules again.

Still, I'm on shaky ground discussing tax law. Let's look at the appetite for the arena's debt, an area where the Gray Lady is forced to speculate. Here the omens are still fairly horrible. Broadly speaking, Ratner and his dudes at Goldman Sachs have four financing options:

1) Borrow the money directly from a bank. Tricky. We're mostly talking about foreign banks that would be lending him money, the same ones that are still on their knees and trying not to keel over, and such an option would not involve the use of a tax exemption, which Ratner's pretty much got in the bag now. I don't know enough about tax law to say whether the banks could lend the developer the money short-term, and he then be allowed to refinance this debt with tax-exempt bonds. Either way, he has till the end of 2009, and in any case, the banks would need a guarantee that FCR would make them good. I have to assume that FCR's shareholders would view assuming a $1 billion liability like this very dimly.

2) Go to a bond insurer to insure a tax-exempt bond issue. Things have been a wee bit quieter here. The good news includes Macquarie and Citadel getting a bond insurance licence, the bond insurers' scheming to get a piece of the federal bail-out and the lack of horrible earnings releases. The bad news includes a slew of looming corporate debt securitization downgrades that will hit the remaining standing ones hard.

3) Get a bank to insure the bonds. The Beekman Tower option. See above. You would get the tax exemption in this instance, but the capacity of the banks to support such a foolhardy venture as moving a second-tier franchise to a horrendously expensive arena in a crowded market in the middle of a downturn would be limited.

4) Issue the bonds without any kind of enhancement. Or, could Goldman Sachs threaten enough of their municipal bond salesmen with firing to get the bonds to clear? Again, tricky. The universe of buyers for highly illiquid, low-investment grade infrastructure bonds is small and incestuous. Like North Lincolnshire. If they tried this right now, it'd probably lend them the money at 10% or so, or roughly what a utility would borrow at. I'm assuming a very dirty calculation that the tax-exemption is worth about the same as the premium that the Nets would have paid over the guys that keep the lights on. I used to be much more confident that this was an option, but too many people are sitting on their hands right now.

The exception, of course, are those crazy guys at Barclays. Fresh from buying Lehman Brothers for a song, they're now set to issue about $1.2 billion in bonds with a UK government guarantee. Bet Ratner would like to get a similar deal. This is the same bank that refused to take any UK government equity as part of the bail-out in part so its executives could keep paying themselves fat bonuses without worrying about government regulation.