CHICAGO – The Wisconsin Center District is finalizing plans for a $203 million financing to cover much of the public tab of the new arena for basketball's Milwaukee Bucks.
The ink is dry on a lease agreement with the NBA franchise, and groundbreaking is set for June on the arena, which will cost more than $500 million.
The center district board at its April meeting gave finance officials approval to put together the financing and it is expected to review the borrowing plan and sign off on it at a May 20 meeting, said Wisconsin's capital finance director, David Erdman.
"Right now we are looking at selling in early to mid-June," Erdman said.
The board had previously named Morgan Stanley as the book-running senior manager with Robert W. Baird & Co. as financial advisor and Quarles & Brady LLP as bond and disclosure counsel.
The underwriting syndicate has been rounded out to include Stifel as a co-senior manager with Citi, Ramirez & Co., Siebert, Brandford Shank & Co., RBC Capital Markets and US Bancorp as co-managers.
The financing team was chosen after a request for qualifications process led by the Wisconsin Department of Administration at the request of the center district. Proposals were reviewed and firms ranked by special committees.
The financing will raise $203 million under terms of a financing package state lawmakers approved last year.
The 20-year bonds will be issued in multiple series backed by a variety of credits. The two primary revenue sources that will back several series in the deal include a state annual appropriation of $8 million and existing tax revenue streams now collected by the board, Erdman said. Those taxes currently go to retire other convention center debt.
Structural details are still being finalized, Erdman said.
The district receives revenue from a tax on hotel rooms, local food and beverages, and car rentals. Specifically, it collects a 2.5% on rooms, 3% on car rentals, and 0.5% on food and beverage sales in Milwaukee County. It also receives a 7% hotel room tax formerly collected by the city of Milwaukee. The taxes generated $29 million in 2014. The district's outstanding debt stood at $178 million in fiscal 2014 and is retired in 2032.
"We will have to structure this deal around the other obligations," Erdman said.
The district last sold debt in 2013 in a refunding. Moody's Investors Service rates the district's existing senior-lien debt A2 and a portion of outstanding junior debt Baa1.
The new deal will represent a new credit and the financing team is seeking ratings from Moody's and S&P Global Ratings.
The city of Milwaukee is contributing $47 million to cover the costs of a parking structure and convert existing space into a public plaza. The city also plans to be in the market next month with its arena borrowing.
The new venue will be just north of the arena it will replace – the BMO Bradley Center.
The city's contribution will come from tax-increment financing and a general obligation pledge will back the bonds. Comptroller Martin Matson's projections show the area TIF district generating sufficient revenue to repay any borrowing.
The National Basketball Association team's owners, Wes Edens and Marc Lasry, and its former owner, former Sen. Herb Kohl, will contribute the other $250 million needed to cover the full cost of the arena, and the team is responsible for cost overruns. The project's cost was recently raised from $500 million to $525 million.
Under the state financing legislation, the WCD's powers were expanded from managing the city's convention center to include the new arena. The district was created in 1994.
Both the Milwaukee and Wisconsin Center District deals will offer a rare double-tax exemption. Most Wisconsin bonds don't exempt interest from state income taxes, but the arena package offers the added boost.
The WCD deal will include a taxable piece because legal advisors are concerned some would not clear federal tax code rules on private payment/private use limitations, Erdman said.
The deal comes as the use of tax-exempt borrowing for professional sporting stadiums is under threat. One lawmaker and President Obama have proposed to halt such use.
Rep. Steve Russell, R-Okla., in March introduced a bill that would prohibit the use of tax-exempt bonds to build or subsidize professional sports stadiums and for-profit entertainment arenas. It was referred to the House Ways and Means Committee.
President Obama, in his fiscal 2016 and 2017 budget requests, also proposed prohibiting the use of tax-exempt bonds for private sports facilities by eliminating the private payment test for them. As a result, bonds would be taxable private-activity bonds if more than 10% of the facility was used by private parties.
Supporters of the tax exemption contend such projects have a public good and benefit local economies while critics counter that the benefits are overrated and the primary beneficiaries are the wealthy owners of sports teams.
Since 2006, 263 tax-exempt bond issues totaling $16.9 billion have been sold to finance stadiums and sports arenas, according to figures compiled in March by Thomson Reuters.
The center district recently finalized a 30-year lease agreement with the Bucks paving the way for the planned borrowing and groundbreaking. The team hopes to have stadium ready for use for the 2018-2019 season.
The 30-year lease calls for team payments of between $40 million and $47 million over the term and another $60 million for capital and maintenance work.
The team, which used relocation threats to help obtain the public subsidies for the new arena, faces financial penalties if it moves before the lease ends.
The penalties will be reduced annually but always exceed the amount of debt owed.
"In summary, this is a good deal for taxpayers, for the community, for the state, and for the Bucks," WCD board chairman and state Department of Administration Sec. Scott Neitzel said in a statement at the time.
A $2-per-ticket surcharge will be levied that is expected to raise $60 million over the lease's term. About 75% will go the district and 25% to the state. The Bucks keep revenue generated at games and any funds from a naming rights deal.
The state estimates that holding on to the team will generate more than $600 million in income tax revenue from players, visiting players, and team employees over the lease's term.
That was a key argument used by Gov. Scott Walker as he pressed lawmakers to support a financing package last year amid a threat from the NBA and the team's owners that the team could leave Milwaukee without a new arena.
