CHICAGO - Minnesota delayed a $468 million bond sale for a Minnesota Vikings stadium after a last-minute legal challenge.
The state had planned take retail orders Monday on the general fund appropriation bonds for the National Football League stadium, with institutional pricing Tuesday.
Minnesota Management and Budget Commissioner Jim Schowalter put the sale on hold Sunday after State Attorney General Lori Swanson's office received notification late Friday that a
Bond proceeds would fund the share the state government and Minneapolis agreed to pay toward the $975 million stadium. Minnesota intended to sell two series of bonds including a $397.7 million tax-exempt tranche and a $70.3 million taxable tranche.
Former Minneapolis mayoral candidate Doug Mann and several other citizens filed a petition for a writ of prohibition against the Minnesota Sports Facilities Authority on Friday challenging the legality of the financing arrangement with the city. Minneapolis is to repay its $150 million share beginning in 2021 by redirecting a portion of its existing 0.5% convention sales taxes and hospitality taxes. The state is acting as issuer on the bonds.
The state believes previous court rulings support its position that the financing scheme is sound, but the filing's timing presented the state with disclosure and legal issues and negative headlines that could have generated investor questions. A Hennepin County judge late last year rejected similar arguments laid out by Mann challenging the city's contribution to the stadium.
"The lawsuit raises issues that have been previously dealt with during the long stadium debate," said a statement Sunday from MMB announcing the sale's delay. "However, Minnesota Management and Budget, with counsel from the underwriters, bond counsel, the State Attorney General's office, and the Stadium Authority Counsel, believes it is prudent to pause while the state seeks a swift resolution by the Minnesota Supreme Court of the issues raised."
The state is looking at financing options to keep the project on schedule such as raising funds through a short term financing and the attorney general's office is considering its options and is expected to ask the court for an expedited review.
"It is not yet determined if a delay will change the financial parameters of the bond sale," the statement said.
"This is not a long-term delay. This is a decision not to offer bonds on Monday," Schowalter said at a news conference Sunday.
Stadium officials warned that a lengthy delay could delay the project and plans for the team to play there for the 2016 season. "Major problems will result from any significant delay," said authority board chairman Michele Kelm-Helgen.
The challenge argues the financing is an unlawful use of public funds due to the city's dedication of sales taxes beginning in 2021 to repay its $150 million of the public tab. The petition argues the arrangement violates state constitutional language that says "the power of taxation shall never be surrendered, suspended or contracted away."
Court rulings have found "a tax cannot be imposed exclusively on any subdivision of the state, to pay an indebtedness or claim which is not peculiarly the debt of such subdivision of the state, or to raise money for any purpose not peculiarly for the benefit of such subdivision."
The petition argues that the financing arrangement was designed to "circumvent" the Minneapolis charter provision that requires a public referendum to incur debt that exceeds $15 million for a stadium.
The petitioners went directly to the state's high court due to language in the stadium legislation outlining that the high court shall determine all questions of law and fact regarding the bonds. The language was inserted should the state decide to undertake a validation process on the use of an appropriation. MMB opted not to validate after going through that process ahead of its first ever use of an appropriation pledge on its tobacco refunding bonds in late 2012. The court validated the state's use of an appropriation pledge in the case.
The state likely would stress that no specific funds are pledged to the bond. The state has carved a series of revenue sources to repay the bonds but earmarked revenues have proven tenuous and the state is stressing with investors that any general funds can go to repay the bonds.
"Given that debt service will be paid from the state's general fund, the performance of these offsetting revenues is not a rating factor," Fitch Ratings said in its report on the sale.
The state carries general obligation ratings in the high-double-A category from all three rating agencies and appropriation-backed ratings of AA from Fitch and Standard & Poor's.
RBC Capital Markets is bookrunner on the deal with JPMorgan and Wells Fargo Securities as co-senior managers. Public Financial Management Inc. is financial advisor and Kutak Rock is bond counsel.
The 65,000-seat stadium is being built adjacent to the team's current home, the 31-year-old Hubert H. Humphrey Metrodome. After years of political wrangling, a stadium financing package finally passed in 2012. The state had expected to sell the debt last summer but it was put off as the sports authority finalized various construction agreements with the Vikings, who signed a 30-year lease.
The state originally intended to repay its $350 million share of the borrowing through an expansion of charitable gambling. Revenues have fallen sharply short of expectations, so state lawmakers last year approved a backup plan that set aside funds from a cigarette tax increase and corporate tax changes approved earlier in the year.
