Trend in the Region

Santa Clara Rolls Out Red Carpet

SAN FRANCISCO — Santa Clara, Calif., is considering using one of the largest public subsidies ever to help finance a $1.02 billion stadium for the National Football League’s San Francisco 49ers.

The proposed stadium would incur up to $850 million of debt to fund construction in the form of a loan or a senior-secured facility from Goldman Sachs & Co., U.S. Bank and Merrill Lynch, Pierce, Fenner & Smith.

The loan would be split into $450 million borrowed by city’s Santa Clara Stadium Authority and $400 million borrowed by the team, according to the preliminary financing plan released this week.

“The size of the public subsidy is just mind-boggling,” said Robert Baade, a sports economist at Lake Forest College in Illinois. “Professional sports do not like to assume any risk at all where some many things are concerned.”

The Silicon Valley city of around 116,000 wants to bring the 49ers 35 miles south from their longtime home in San Francisco.

The loans would mature in September 2015 and carry an interest rate of either a base rate plus 2.25% per year or a reserve adjusted eurodollar rate plus 3.25% annually.

The banks also get a fee from 0.75% to 1.25% depending on the amount borrowed, according to the terms of the proposed agreement.

A Santa Clara city official said the short-term loans would likely be spun into long-term financing backed by stadium revenues — which would come from such things as seat licenses and naming rights — during construction of the 68,500-seat facility.

“On our behalf, Goldman Sachs will be looking at the various refinancing markets, including the bond markets, and we will be looking to do whatever makes the most sense for our long-term financing,” said Pam Morrison, a city administrative analyst handling day-to-day work on the project.

“We do expect it to be partly bonds and through banks,” she added.

The 49ers hired Goldman Sachs to help them with the deal and the city has retained KNN as advisors, as well as bond counsel Jones Hall.

According to the plan, money from the NFL, contributions from the Santa Clara Redevelopment Agency and “other revenues generated during construction” are expected to cover $170 million, or 17% of the building costs.

The rest of the remaining $850 million will come from the loan or from other revenues.

The $450 million loan will be secured by the Stadium Authority’s lease on the new site and its share of the seat licenses, naming rights and other revenues.

The Stadium Authority is a joint-powers agency created by the city and its own RDA.

The $400 million loan from the 49ers would be subordinate to most of the other financing under similar terms as the authority’s loan.

In addition, ticket surcharges, hotel taxes from a recently formed community facilities district, a portion of non-NFL event net revenues, and rent would be used to pay debt service.

Santa Clara officials expect to make $30 million a year just from renting the facility.

Baade said he was surprised to see the 49ers agreeing to an excise tax on tickets since it’s unusual and has caused controversy in other projects.

Morrison said the city has so far spent $3 million of the project, mostly on staff and consultants.

Santa Clara officials say neither city funds nor city land will back the debt service payments, and that the 49ers have agreed to pay any construction cost overruns.

The city and the team held public meetings this week to discuss the plan and the City Council will likely consider it on Dec. 13.

Santa Clara has been working for several years on the plans to build a new facility for the NFL team, which currently plays its games in San Francisco’s wind-swept Candlestick Park and which has long been widely derided as functionally obsolete.

The 49ers reportedly spent millions of dollars campaigning to  pass a city ballot measure in June 2010 that allowed Santa Clara to subsidize the stadium to the tune of $444 million.

Earlier this year, the City Council voted to pledge tax increment from its redevelopment agency to the stadium project to make sure the commitment would be in place before the RDA was potentially shut down by new California legislation.

The redevelopment agency is expected to make an up-front payment of $10 million toward the stadium out of its original $40 million, with the rest being made up by the 49ers, which would be paid back by the recently formed community facilities district.

The district would collect the new hotel tax, adding $35 million.

The city’s redevelopment agency issued $31.5 million of tax-allocation bonds in May, of which $2.7 million was set aside to pay for construction of the new stadium.

The fate of the California’s RDAs is tied up in the state Supreme Court after the Legislature passed two measures that force the agencies to either shut down or hand over a major part of their tax revenue.

At the moment, they are prevented from entering into any new financing agreements.

“Until we know what is happening, it just calls into question how much we can provide,” Morrison said. “The 49ers knew that going into it.”

The court is expected to rule before Jan. 15.

Santa Clara’s project isn’t the first NFL stadium to cross the billion-dollar threshold.

The Dallas Cowboys in 2009 moved to their new, $1 billion Cowboys Stadium in Arlington, which provided $325 million in bonds backed a sales tax for the project.

In 2010, the New York Jets and Giants moved into the $1.6 billion MetLife Stadium in New Jersey.

Atlanta, Los Angeles and Minneapolis are also moving forward on plans to build new stadiums.

San Francisco officials have lobbied to keep the team in the city, but various stadium plans in the city never gained traction.



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