DALLAS — Faced with a weakening municipal debt market, Glendale, Ariz., is considering a private placement for up to $125 million of revenue bonds to keep the Phoenix Coyotes playing hockey in the city-owned Jobing.com arena.
The bond issue is a key element of Glendale’s plan to finance the sale of the National Hockey League team to Matthew Hulsizer, chief executive of Chicago-based options-trading firm PEAK6 Investments.
Under the arrangement approved in December by the City Council, Glendale would provide Hulsizer $197 million to buy the team from the National Hockey League for about $170 million. In exchange, Glendale would acquire parking rights to the arena for revenue to pay off the bonds.
Hulsizer would also manage the arena under a contract with the city. With interest, the city expects to pay about $250 million on the bond issue, officials said.
However, studies show conflicting scenarios as to whether parking revenue would be sufficient to service the debt. One study by Phoenix-based TL Hocking & Associates projected $195 million in parking fees over 25 years and about $250 million over 30 years. Another study, by Walker Parking Consultants, showed the city would collect less than needed to pay off the debt.
To make the bond deal work, officials are considering pledging sales tax revenue from shops and restaurants in the arena’s adjacent Westgate City Center.
The conservative Goldwater Institute has said it was considering a lawsuit over the bond deal because it appears to violate the state constitution’s “gift clause” concerning benefits to private companies or individuals. A lawsuit could delay any attempt to sell the bonds.
The Glendale council sought to sell the bonds as quickly as possible to take advantage of low rates that were available in December. Since then, the market has turned, with bond yields rising sharply as money flowed out of the market.
However Glendale does not face a deadline for issuing the bonds, said spokeswoman Julie Frisoni. The key deadline was reaching agreement with a team buyer by Dec. 31.
“I think everyone wants to get it done,” Frisoni of the financing. “They are working on this and want to make it happen as expeditiously as possible.”
Glendale Councilman Phil Lieberman said the city is considering a private placement of the debt if the open market is not accessible.
The tax status of the new bonds has not been determined. Typically, bonds benefiting a private business are taxable.
Under its current scenario, Glendale expects to pay about 6% interest on the debt that would mature in 25 to 30 years. However, the market has shown particular weakness in the long end after the termination of the federally subsidized taxable Build America Bond program.
Yields on $9.1 million of Glendale excise tax revenue bonds maturing in 2032 with 4.5% coupons have risen 22 basis points since they were issued in May 2008. With ratings of AA-plus from Standard & Poor’s and Aa2 from Moody’s Investors Service, the bonds are yielding 5.52%, or 55 basis points over the Municipal Market Data yield curve.
The arena, which opened in 2004, was financed with about $180 million of revenue bonds sold by the city under the issuer name Glendale Municipal Property Corp.
The senior-lien bonds are rated Aa2 with a negative outlook from Moody’s and AA with a stable outlook by Standard & Poor’s. Junior-lien bonds carry ratings of AA-minus from Standard & Poor’s and Aa3 from Moody’s.
Senior-lien arena bonds maturing in 2033 with 5% coupons have recently yielded 5.27%, or 26 basis points above the MMD curve.
The arena was the first sports facility at a site that later included the National Football League’s Arizona Cardinals stadium.