Tuesday, January 27, 2009

Hopefully some kind of nadir

God, as if today wasn't grim enough already. Another slew of lay-offs, a grim missive from my superiors about cost cutting,and more successful people saying silly things.

I learned today, in quick succession, that the creator of the doner kebab is dead, and that his delicious and nutritious invention is only one of those two things.

This news isn't even comfortingly grim, like listening to Earth 2. It's just a straight-up bummer

Monday, January 26, 2009

Cope's Corner

I had planned in the next couple of months to write a long old article about stoner rock, and how it really can be enjoyed by people who aren't stoners. But this morning I chanced upon this review of Sleep's "Dopesmoker" by Julian Cope. This has led me to two conclusions:

1) Maybe you do need to indulge to enjoy this music at its best
2) Maybe I don't need to buy a fancy old turntable right now.
3) Maybe I should stop trying to write about weird music at all

Here's an excerpt:

"Although the double vinyl artwork is huge, gatefold, magnificent, the CD version of DOPESMOKER is the best option overall because you can get utterly narnered once you’ve put it on and not have to get up for almost an hour and ten."

I was present during an interesting workplace conversation the other day. One of my colleagues swore blind that the long digressions into the history of 80s rock in American Psycho are not meant to be read at all, but skipped over my the reader, so long as they have absorbed sufficiently the idea that the narrator is an obsessive compulsive, although why the reader would not have picked up on that before then I do not know.

So, read Mr. Cope, listen at Mr. Robixxx' place, and death to false doomers

Saturday, January 24, 2009

They Bring Peace

Nah...surely...they couldn't be related?

I think they could. The covers of the majestic "Pilgrimage" from doom metal titans Om, and the "Little Bee Finger Puppet Book", sharing divine inspiration and a curious calming effect.

Wednesday, January 21, 2009

HM Yards

Nolandgrab has a post up today noting how badly Barclays shares have been performing of late, and speculates whether this might lead the UK government to become, unbidden, the sponsor of a Brooklyn sports arena (sounds like a sitcom waiting to happen). The performance is truly weird, because Barclays is still putting up reasonably good numbers. I mean, it's still a horrible bank, just not in as awful condition as most of its peers, bar HSBC.

So, what does deep financial distress do to a bank's appetite for sports sponsorship? If you're curious about Barclays' commitment to sponsorship of the Atlantic Yards arena, and read my epic post about how dependent the project's financing structure is on such revenue, there's one good indicator out there. It's called Royal Bank of Scotland.

RBS has fallen much farther and much faster than Barclays because, and it pains me to couch it so, it had less prestigious investment banking operations, among other factors. The UK now owns, by some calculations, 70% of its equity. So, what's RBS doing with its sports sponsorship? Yes to Rugby, no to Formula One, in short.

The first lesson seems to be that under government ownership a bank will need to be more highly attuned to the Great British Class System, only in reverse. Rugby has succeeded it dragging itself out of its upper-class niche to become a reasonably popular sport. So much so that its stars can support expensive drugs habits.

Formula One, on the other hand, caters to a clientele that not only thinks that the kingdom of Monaco should not be pushed into the sea, but that running a race through its streets might be an enjoyable experience. It would simply not be good politics to be spraying marketing pounds at such an audience.

Difficult to work out what Her Majesty thinks of marketing a US business. RBS, which you will now recall is the dim(mer) one, was throwing its money at golfing sponsorship, which made sense if you were chasing after investment and corporate banking business. It's always been rather difficult to tell what business Barclays was looking to develop by sponsoring a basketball arena. Maybe it assumed that net of underwriting fees on the arena's bond financing it would be a fairly trivial commitment.

I don't have much of an insight into the mind of Alistair Darling, the Chancellor of the Exchequer, and now, presumably, the Grand Vizier of All UK Banks. I mean I've tried to stare into his mind and the colour difference between his hair and eyebrows has freaked me out. We'll have to wait for Barclays to fall into the welcoming arms of the government to see how it will play out, but if I were Mister Ratner I'd try and get the funding agreement active before my compatriots start asking awkward questions.

Thursday, January 15, 2009

Tool time

Follows a slightly-misty eyed set of reminiscences of my time as a Grunge-child.

London's Astoria music venue is no more. It is to be demolished to make way for the worthy venture that is a functioning rail service for the capital. Just as the owners scramble to organise farewell events, a lot of music journalists are scrambling to try and put the venue in its proper context.

The Astoria was not one of those toilet venues where you could boast of seeing a band before they were famous, alongside 12 other people. It wasn't a legendary arena-like structure where you could witness a band's emergence to the big time.

No, it was the place where middling bands plied there trade, where US imports uncertain of their reception would try their chops, or where megastars that bloviated about "taking it back to the clubs" would go to search for nebulous indie cred.

I can't remember much of the club's interior - dark, awkward-shaped, smelled of (usually rather expensive) lager. I was, I'm afraid, a very drunken teenager during most of my visits, and since I had a hard curfew of about 11.00, so as to meet the last train to Lovejoy Country, I would drink with a certain aggressiveness, at the memory of which my present scotch-sipping self guiltily recoils.

It looks, though it's little comfort now, that Crossrail would reduce the number of stops between the West End and Liverpool Street to one, which would have been of benefit to my drunken teenage self. And there will be other venues to visit, even as the eternal struggle between North London and the West End for the indie soul of the city endures.

The first gig I ever saw was at the Astoria, and gathered together an Undertow-era Tool, Headswim, when they were aping Pearl Jam rather than Radiohead, and Paw, one of the unsung heroes of grunge. It was 'triffic, and I remember being especially taken with the way Paw's lead singer handed out a whisky bottle to the people in the front row.

I also saw Rocket From The Crypt play there, with Thee Headcoats supporting, though it was some time before I learned to love the punk-skiffle-rockabilly fusion of the Headcoats. Possibly because I got drunk enough to pass out a while during their set. What I'm getting at is that the Astoria was a fantastic place to see second-tier American imports during the mid-90s. And before you get sniffy, one of those was a bunch of no-marks called Mudhoney, and they had some band called Nirvana in tow...

By the time I moved back to London in the first year of this century I'd shifted my attention further North, to the Barfly, Scala (where I saw Royal Trux and some terrible band called Coldplay with a following composed exclusively of teenage Japanese fanzine writers). I'd learned to pace my drinking by then. It was much less fun.

Tuesday, January 13, 2009

I Wish I Could Quit You, Marty

I thought it was time to blog about something else. Maybe that wrong-headed story in the Wall Street Journal that wanted to pat Exxon on the back for ignoring global warning and alternative energy, but then overreached by suggesting that Exxon was therefore in a good enough cash position to dictate terms to state-owned oil companies (It isn't, even with lower oil prices).

And then Marty Markowitz said something witless, and I had a Michael Corleone moment.

[Obligatory digression. Top local cable news channel NY1 (Mrs. Cutesome won't allow News Channel 12 in the house, and I don't think that has anything to do with the channel's Dolan-ownership, but I digress within a digression) has a section of news designed for the viewer's particular Borough. For some reason I'm getting Queens News Now, from the delightfully ginger Jon Weinstein, despite living far in Brooklyn from Ridgewood or Greenpoint or some other disputed ground. I thought of complaining to Time Warner Cable, who I guess regulate this kind of thing before I realised that Brooklyn News Now would double my exposure to Marty Markowitz, and therefore triple my blood pressure. I'm learning to love Mr. Weinstein. Oh I see. there is no Brooklyn version. They've abandoned us to Cablevision. The bastards.]

Anyhow, as I'd predicted, leaking news of this proposed reduction in the size of the arena at Atlantic Yards served to warm up the local politicians rather nicely. Only Marty was shameless enough to pretend that this is all his idea. He did a similar thing in calling for the reduction in height of the project's largest tower after the decision to reduce it was probably made. Now THAT"S leadership, kids.

Here's part of the statement:

"To that end, I am asking Forest City Ratner and the Empire State Development Corporation to give Barclays’ design a second look, and conceptualize a sports and entertainment venue that is more economically feasible but provides the modern amenities our residents and visitors to Brooklyn demand and deserve."

Back from the lavs? Good, I'll continue. So Marty, not normally known for his gum-chewing-and-walking-concurrently skills, has now set up stall as a value engineer. I'm absolutely sure that just as soon as he's put down his copy of the Very Hungry Caterpillar he'll be telling us where we can trim the costs from the project.

Now I've just put down my copy of the Very Hungry Caterpillar, which I was using to induce unconsciousness in Federico N. Corp. And some utterly brutal (in a good way) individual sent me a link to the financing plan for the project that Assemblyman James Brennan pried out of Forest City Ratner in 2007. Since I always complain that the inputs and outputs of the arena financing are rather opaque it behooves me to take a look at these.

So what do we find out?

1) The arena costs were estimated back then at $777 million. So, roughly halfway between the most recent Gehry estimate of $950 million, and $500 million price tag for the value engineered arena that the received wisdom is congealing around. But this "total cost" includes a bunch of things like legal and financing costs that are absolutely not going to be easy to scale back. The hard cost of the arena in the Brennan projections was about $537 million. Was the subsequent increase, which we'll generously assume to be all hard cost increases, just a result of costing in the Gehry Shiny? I doubt it. I'd love to know, thanks to Mr. Goldstein's efforts, whether they've kept within their $3.5 million legal budget, though.

2) Financing costs. Total debt on the project was forecast to be $672 million, and according to the projections the arena would be finding $43 million a year to pay that off. Which gives us 6% debt service. Unless the arena is just meeting interest, and not paying down principal on the loan, that's a ridiculously low figure, even for then. You could throw another 2% and still be hopelessly optimistic, and that takes your debt service to $60 million. That, right there, is your explanation as to why the arena's economics are so sensitive to debt market conditions. $60 million would be almost twice as much as the arena's projected operating costs.

3) What Ratner will use to pay back the arena debt. As far as I can tell, Ratner is not dedicating Nets ticket revenue to arena debt repayment. Can he? I've got no idea. NBA experts do chime in. He's throwing in luxury box revenue, revenue from non-basketball events, a ticket surcharge, and "sponsorship" revenue. Luxury box revenue and sponsorship (I'm guessing naming rights and other advertising) would account for roughly 2/3 of projected revenues. When we say the economic climate is necessitating a smaller arena, we're hearing that $40 million from box sales and $32 million from sponsorship couldn't be increased in the current climate to meet the debt service and operating costs of a $950 million arena. Can he even hold on to those figures, given how brutally the current climate is afflicting market conditions?

4) Fun fact. Do the projections really say that for three years the arena company would make contributions to the Nets to cover team losses? I think they do. That would be your tax subsidies going to help Ratner defray the costs of his ill-advised venture into the business of sports. He's already borrowed $60 million from hedge fund Fortress at above ten percent interest to help meet these losses, and unless Fortress wants to maybe convert that into an ownership stake we can't imagine that servicing the loan would do wonders for the amount of cash Ratner expects to get out of the Nets even if they did start losing less money. I even saw today that Fortress has stopped funding on a loan to the Winter Olympic Village in Whistler, British Columbia. That project has a pretty solid rationale and is coming in alongside direct government funding, so lord knows what they're making of Ratner's flounderings.

I am absolutely no expert in the economics of sports, and probably have no right, as I did the other day, to call sports consultants "sheisty". But going through those figures has been a revelation. Remember, the arena is apparently the bit that's most feasible in the current climate, and it looks well shaky to these eyes.

I dare say you read today about Barclays Capital, the saviour of Atlantic Yards and Lehman Brothers (an attachment to persisting in unforgiving circumstances that rivals St Jude's), is laying off another 2,100 workers. Do you think they'll waive their financing fees on the arena bonds if Bruce asks nicely? Fat lot it will probably do. It's been estimated that Lehman Brothers shelled out much more on luxury boxes on the Jets/Giants stadium than it could have made in underwriting fees on the stadium's debt, though the tax code might have left it out ahead on that one.

Wow. I need a lie-down. Coming up, a look at the queasy presence of children in cock-rock epics, and a salute to the return of Monsieur BonHomme, though not the circumstances of his return.

Friday, January 09, 2009

Bye-Bye Shiny Shiny

I bumped into Norman Oder quite a while back on the subway, and after he listened to my rantings about the way that financial markets interact with the Atlantic Yards project for a few minutes, he suggested that I write these down. I didn't, partly because travel, work, and family commitments intervened, and partly because most of what I'd have to say about market conditions would be very speculative.

But the news that Forest City Ratner is looking to scale back the size of the new Nets arena and possibly ditch a Frank Gehry design gives me a news hook you could hang a slab of beef on.

Norman wants to know who's responsible for the rather coordinated leaking of news about the scaling-back to three major news outlets. Robert Guskind of the Gowanus Lounge notes that he'd posited just such a future for the project, although he didn't lay down the mechanism by which it would happen.

Allow me to elaborate. What we are seeing here is the debt markets, usually viewed as a somewhat inert mass, biting back. My utterly frivolous guess is that someone involved in the financing process wants to prime city and state officials, as well as that buffoon Marty Markowitz, to realise that the only way for the arena to happen is for them to acquiesce in a big dump of ugliness. That's going to make concrete Bruce Ratner's dream of the Atlantic Terminal Mall looking more attractive than something.

The crowd of financial types surrounding the project - ratings agencies, potential bond investors, the underwriter Goldman Sachs, and whatever sheisty "sports consultant" they're using to produce revenue predictions - have produced a number for the cash they think the stadium will throw off, and it isn't the number FCR wants. Because this number is not anywhere close to the required debt service and return on equity for a $1 billion stadium.

Never mind that the Jets and Giants managed to borrow much more for their Jersey stadium (and their bondholders paid taxes on the interest) for a stadium that will see less use for sporting events. That was then. Required debt service was lower (maybe 1-2%), fans were richer and more devoted, and seat licenses were more lucrative, even if they did enrage the fans.

Maybe, as I've written about in the past but don't have the time to google, Ratner threw every single revenue stream he could think of into the mix, right down to the Jones Soda and Brooklyn Brewery concession takes. And it still didn't make it. Maybe the debt guys went back to Ratner and said "put in more equity" and Brucie's boys said "what f***in' equity? Our properties are mortgaged to the eyeballs and our stock's in the toilet. Where's more equity going to come from?"

At which point, the bankers and analysts and "sports consultants" come back to Brucie and say "weeeeeeell, if we don't think you're going to generate that much buzz, then why don't you slap down something cheap and ugly? There may be some squealing from the local pols but they have proved to be cheaper to pay off in the past than Mr. Gehry,"

Now, I'm not convinced that there is some cheap-ass off the peg stadium that can be slapped down in the middle of Prospect Heights at half the price, even in an economic downturn. I'd venture that NY's construction market is a tad more constrained than, say, Newark's, and there are quite a few condo projects that need to get to completion (and then go rental. Heh) before we see some downward pressure on labour costs. Without knowing anything about relative levels of unionisation, I'd also note that unions have proved a bit of a brake on cost decreases elsewhere.

Can they save some money by ditching Frank Gehry's Shiny Materials? Maybe, but I'd like you to recall that the Yankees and even the Mets stadiums went over budget, and they were basically pastiches of every single other ballpark that's gone up in the past few years. Not that much Shiny there.

So here we are now, observing a rather complex game of three-dimensional chess with ugly buildings as pieces. Aesthetic considerations never really loomed large in the politicians' considerations, certainly nowhere near as much as money and jobs. It probably helped sell the project to the public, at least initially, but Ratner's always been comfortable in foisting ugly and unpopular buildings on Brooklyn when the money's right.

So let's assume that the final tab on the new uglier stadium hits $800 million. Is that what the bond market wants, is it what the politicians can support with a straight face, and will it change the dynamics of the project's legal challenges? Mr. Oder's reporting, and my hunches don't give me any grounds for optimism.

Wednesday, January 07, 2009

Doom On Wheels

I have a very quick question about the loans that the US Treasury has provided to GM and Chrysler. I was a little bored this afternoon, and mosied over to The Big Money, where the loan agreement, or at least the draft that was released to the public was described as:

"written in a strange dialect that combines corporate-speak with legalese. Like Latin, it is only written, never spoken, and people go to school to study how best to write it"

Well I like a challenge as much as the next man, although I should note that I spend certain amounts of time on EDGAR poring over such agreements, and am married to someone who has a fair bit of experience assembling such agreements. So the next man is probably GOING DOWN.

Still, the text is reasonably lucid by comparison with other term sheets I've read, possibly because it was designed for public consumption. It's only 14 pages long for each term sheet, which is fairly svelte for a document that purports to bring about the rescue and transformation of American heavy industry. There are also really prominent references to aircraft disposals and executive compensation, which most bankers really don't care that much about.

There's a fair amount of stuff about notifying the President's representatives about any major disposals, and reporting requirements, and providing a restructuring plan, and making sure that auto workers never again aspire to being anything more than lower middle-class. And then there's this line in Appendix A, where all the juicy stuff about the interest rate on the debt and the collateral for the loan is:

Financial covenants: TBD

Now to be fair to the Treasury, there's also a fat "TBD" next to the "Due Diligence Items and Closing Checklist" line. But financial covenants are important. The loans do have regular covenants that the term sheets describe as standard, to make sure that the borrower does not come up with inventive ways to channel cash (in an auto company? Preposterous!) out of the company.

Financial covenants are undertakings that the borrower will be producing enough cash to meet its obligations under a loan agreement. They're usually expressed as a figure for Earnings Before Interest Taxation Depreciation and Amortization (Ebitda), sometimes as a ratio of Ebitda or some other measure of earnings to debt or enterprise value (I dare say Mrs. Cutesome might pop up in the comments and correct me).

Still, it's a little worrying that the Treasury did not venture any kind of number, even a negative one, in putting together the term sheet. It's as near to saying there's a blank checkbook as Paulson and Co were prepared to go. But what sort of number can ever be determined that isn't hopelessly speculative and politically freighted?

Saturday, January 03, 2009

A New Year Nugget

Well hello hello. Been a while, I know. Should be back to speed shortly. I'll note, however, that November 2008 was the first month I ever went without posting. You even got a tiny post in December, you lucky half a person that wandered over because you were looking for Fresh slash fiction involving Gumby.

I visited Sarasota for Christmas. Surreal would be much too strong a word, although the lack of coldness and dampness made it hard for me to think festively. I liked the 80-degree weather, as well as the local rock station, which is known, charmingly, as The Bone. I liked the reassuring presence of AC~DC's Brian Johnson, who lives a mere mile from the rental where we were staying.

But what I found particularly entertaining was this nugget I picked up while watching a couple of Tampa sportscasters discuss the acquisition of baseball player Mark Teixeira by the New York Yankees. It went like this:

Sportsdude 1: "Can you believe that the Yankees paid that much [$180 million over eight years] for him]?"
Sportsdude 2: "Well you can afford it if the taxpayers pay for your new stadium."

Now let's leave aside for a moment the fact that the taxpayers subsidised the new Yankee stadium lavishly rather than actually paid for it, and the same rich fans that allow the Yankees to wallow in high merchandise and TV revenues will pay off the stadium debt. Let's also note that New York is not alone in subsidising its sports facilities, that at some point in the last 15 years government internalised the idea that new sports facilities was its problem, and its to take credit for.

Most New Yorkers assume deep down that the rest of the country hates them for their wealth, and maybe their lax social mores. None of this is sufficient to prevent us from indulging in Big Sports Market Smugness. What we don't always get is how there's also a suspicion that New Yorkers get ahead, and sometimes come a cropper, through old-style socialism. Now most of the time this can be safely ignored, and this doesn't get in the way of occasional sympathy, as 9-11 evidenced.

But in sports, the level playing field is very important to fans. The NFL reigns supreme because it spends a lot of time and energy trying to keep Buffalo and Green Bay and so on competitive. To mixed results. In the long run, the ability of the city's local government to fling money at its clubs on a scale that others cannot match will come back to bite local franchises in the arse. Hard.