Thursday, September 17, 2009

You *Genius* Onexim

The country whose corporate finance market gave us the Aluminium Wars vomits forth a hunk of ill-informed conjecture on the Nets stadium financing so wacked-out I just have to say "bravo"! I'm almost envious.

Via nolandgrab, we hear that, like some low-rent London estate agent, the Atlantic Yards stadium finance coterie is hoping that mentioning a wealthy Russian in the same sentence will make their stinky Pimlico maisonette of a stadium financing look more appealing.

Mikhail Prokhorov, a nickel magnate, is apparently interested in a Nets bailout, though his recently-founded Onexim Group, whose website lists no financial information, and whose press release page is dominated by news of legal actions. I note, as nolandgrab notes, that his name often seems to be waved around near flailing sports franchises, and why the man wouldn't buy an equally crap team with a better balance sheet is beyond me.

I'm not even going to even start speculating about how this fantasy wormed its way into the cranium of Reuters' ace Moscow reporting duo. One can read, in this profile of the estimable finance blogger Felix Salmon, that Reuters, since its acquisition by Thomson, has regained some of its mojo of late.

Could be so, and its capital markets coverage has been much more prominent on the web the last few months. Its municipal finance coverage, however, has suffered from Thomson's disposal of the Bond Buyer some months before the Reuters purchase.

When one reads the following it's fairly apparent that there's no-one inside the Reuters brain trust to talk to any more about municipal finance:

Prokhorov is considering issuing a bond worth $700 million through Onexim to help fund the project, one source close to the deal said. The source said the bond must be issued before the end of 2009 so it is exempt from government taxes, adding: "This is a pure business story. The value potential of the club and arena are very high."

That said, any reporter that will allow the gibberish that is that final quote to make it into their story may have more immediate parts of their reporting toolbox in need of an upgrade.

But back to the first sentence. "Through" is the wrong preposition, pure and simple. The bonds would be issued through the Brooklyn Area Local Development Corporation as part of the hastily-approved corporate welfare package put together by the city and state for Atlantic Yards. The bonds can't be tax-exempt if they're issued by Onexim. I thought briefly that Onexim might borrow the money on a taxable basis and lend it on to the project, but that isn't what the article suggests in the sentence after.

So let's assume the Reuters guys aren't too hot at verbs or prepositions. Could they mean that Prokhorov is buying the bonds through Onexim? It would mean that Prokorov might decline to demand a prepayment penalty on the bonds, although I doubt that he would be able to avail himself of most municipal bond interest breaks, since he's not presumably paying much in the way of US tax.

He is far from the most suitable buyer for a tax-exempt bond, unless the arena bonds are Build America Bonds, where the tax subsidies are paid direct to the issuer, but I don't think they are.

They could have been told that Onexim is considering guaranteeing the bonds, by putting up a performance bond, in exchange for a substantial stake in the Nets or arena company, though I have no idea whether Onexim has the resources to make a $700 million contingent commitment like that, and whether the ratings agencies would believe them.

Still there must be a reason why someone close to Onexim or Ratner is babbling about bonds when no-one asked them to. I hope you will agree with me now when I say the Reuters reporters don't sound like capital markets vets. What we're hearing, via an elaborate and far from lucid chain of whispers, is that the bond financing is looking as hairy as the Net's team finances. This should be far from reassuring to Ratner's pals at the ESDC.

"Odd", Eric, ain't the half of it.


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