BRADENTON, Fla. – To keep the Atlanta Hawks playing at Philips Arena, the 17-year-old, multi-purpose downtown venue will undergo up to $192.5 million in interior renovations.
The city of Atlanta will contribute $142.5 million toward the project, backing it with $110 million of revenue bonds secured by an existing car rental tax, $12.5 million in cash from the city's $30 million sale of the Atlanta Braves' former Turner Field baseball site, and $20 million from the liquidation of other underused assets.
Atlanta Mayor Kasim Reed thanked the team for agreeing to the deal last week, emphasizing that no money would come from the city's general fund for the project.
Reed also said that no property taxes or new taxes will be paid by Atlanta residents or businesses to fund the improvements and the city will not provide a backstop for the debt as it has in the past.
Although a formal memorandum of understanding has yet to be finalized, the Hawks committed to keeping the National Basketball Association franchise in downtown Atlanta, agreeing to extend the team's arena lease to 2046.
"When our group became owners almost a year and a half ago, we pledged to work diligently with the city of Atlanta to ensure that the club remained downtown," said Tony Ressler, principal owner and chairman of the group that purchased the Atlanta Hawks Basketball Club in June 2015.
"We knew that a key part of producing a winning team, providing a superior fan experience and being a civic asset to the city of Atlanta required a renovation of our arena and a meaningful improvement to the downtown area of this city," Ressler said.
The Hawks ended the 2015-2016 season as the 4th-ranked team in the Eastern Conference, and had an overall record of 48 wins and 34 losses. They made the second round of the playoffs, where they were swept by the eventual champions, the Cleveland Cavaliers.
In the current season, the Hawks have a 5-2 record.
The new lease and a non-relocation clause will keep the team at Philips Arena through 2046, a 30-year period designed to match the maturity of the bonds that will be sold, said the team's attorneys, Robert Highsmith and Woody Vaughan, both partners at Holland & Knight.
No time frame was announced for finalizing the MOU, which will detail the renovation project and commitments by both sides.
The announcement of the term sheet was designed to inform the public about costs that Atlanta would incur and the source of the funds, as public financing for professional sports venues becomes more controversial.
The Hawks contribution to the project is unknown at this stage because the renovation design work is not done and the fixed cost for the improvements has not been determined, said Highsmith, who along with Vaughan negotiated terms of the deal for the Hawks.
The team will pay for renovation costs above $142.5 million.
Atlanta and the Hawks have been discussing renovations at Philips Arena since November, and have been in active negotiations since April, according to Highsmith.
The talks included developing a 30-year bond financing strategy and required the Legislature to extend an existing 3% car rental tax collected at Hartsfield-Jackson Atlanta International Airport and other facilities in the city.
The tax was due to sunset in 2038.
Lawmakers passed House Bill 937 extending the tax until 2047, and Gov. Nathan Deal signed it on May 3.
"Once the law became effective we entered serious discussions about car rental tax-backed bonds," Highsmith said. "The mayor had an ironclad commitment that these renovations would not be financed by new taxes, nor would they be financed by the city's general fund."
Parties to the transaction include the city of Atlanta, the Atlanta and Fulton County Recreation Authority, Atlanta Hawks LP, Arena Operations LLC, and the facility's developer, Arena Design and Development LLC.
Owned by the Atlanta and Fulton County Recreation Authority, the downtown arena opened in 1999 to serve as a multi-purpose entertainment and professional sports complex for basketball and hockey games as well as concerts.
Philips Electronics holds naming rights through 2019.
The facility cost $213 million to build, and is designed with all suites and club seats on one side of the building to improve customer service.
The "wall of suites" will be removed during the upcoming renovations to make way for more modern suits and club seats.
Currently, the team is obligated to play its regular season and playoff NBA home games at the arena through Nov. 9, 2017, but if the Hawks leave earlier they must pay off bonds issued in 2010, in addition to an early departure fee of $75 million.
In 2010, $124.5 million of taxable refunding and improvement bonds were issued to pay for upgrades.
The debt is secured by operator revenues with a general obligation backup pledge by Atlanta and Fulton County.
About $102.5 million is currently outstanding in a term bond due in 2028.
Under the recently negotiated term sheet, the 2010 bonds will remain outstanding.
However, $16.9 million of outstanding revenue refunding bonds issued in 2005, secured by a portion of the 3% car rental tax, would be refinanced or defeased in the upcoming transaction.
The plan of finance calls for taking out the 2005 bonds and structuring the deal to produce $110 million of net proceeds for arena renovations.
The new bonds would have a debt service reserve fund and mature in 2046.
"We expect the bonds to be backed by car rental taxes and issued by the city of Atlanta and Fulton County Recreation Authority," said Vaughan, who heads the public finance practice at Holland & Knight.
"The new car rental tax bonds will be secured solely by car rental taxes and without back-up pledges from the city or the county," he said.
The new debt is not expected to be issued before the MOU is finalized, said Vaughan, who has been actively working on Georgia sports deals, including as bond counsel for a $33 million borrowing in 2008 to finance a new ballpark when the Atlanta Braves AAA minor league team – the Gwinnett Braves - moved to Gwinnet County, Ga., from Richmond, Va.
Vaughan also was finance counsel to the Atlanta Falcons structuring the public financing component for the new $1.5 billion retractable roof Mercedes-Benz stadium under construction on the Georgia World Congress Center campus.
The Atlanta Development Authority issued $224.65 million of revenue bonds secured by a local hotel-motel tax in May 2015 as the public financing component of the project.
The Falcons' new venue, also in downtown Atlanta, is scheduled to open for the National Football League's 2017 season.
"Working on transactions that involve hometown professional sports franchises is very rewarding," Vaughan said, referring to the Hawks-Philips Arena deal. "I feel very fortunate to be a part of the team and look forward to finalizing the legal agreements and the issuance of the bonds in the near future."
Other details of the MOU to be finalized in coming weeks include an extension of the lease and operating agreement for the facility, including $5.9 million in lease payments the team will pay the city throughout the term of the agreement.
Ongoing capital repairs and maintenance costs will be covered by a new $2 facility charge on tickets. That charge will increase to $2.50 after five years and rises to $3 after 10 years.
In addition to arena repair, the ticket charge will include a formula for the city to retain a certain amount of the collections.
The renovations will include new amenities on each level of the building, 360-degree connected concourses at all levels, improved sightlines, and state-of-the-art video system.
Mayor Reed said he expects that the Philips Arena project will jump-start plans to "re-imagine downtown" by redeveloping an area called
"Going forward, the city will continue to work with Atlanta Hawks' ownership to transform the area known as the 'Gulch' into a prime destination for sports fans and visitors, a project that will require an estimated $1.5 billion in investment," Reed said.
Reed did not provide details about the $1.5 billion investment plan or how it would be funded.
