CHICAGO — A bond issuer made up of the University of Nebraska and the city of Lincoln will take competitive bids Tuesday on $100 million of bonds that mark the last large financing for a new arena that is the largest project in state capital’s history.
The $344 million development features a 16,000-seat sports and entertainment arena as well as new roads and a parking structure built in a 40-acre area called the West Haymarket, whch until recently housed scrap metal, lumber yards and Burlington Northern Santa Fe Railway Co. tracks.
The privately financed part of the plan features a hotel, mixed-use office and residential space, and an ice hockey facility.
The bond issuer, the West Haymarket Joint Public Agency, issued two series of $200 million of taxable federal stimulus bonds last fall. A remaining $25 million of bonds will be issued in early 2013 as the arena nears completion, according to officials.
The bonds carry a AAA from Standard & Poor’s and a Aa1 from Moody’s Investors Service.
The debt is backed by the full faith and credit of triple-A-rated Lincoln. The JPA also has the ability to levy an unlimited property tax on the city if revenues fall short of debt-service payments. But officials expect to pay debt service from a new occupation tax that took effect this year.
The tax increase, which targets the city’s bars, restaurants, hotels, and car rentals, has generated 10% higher than expected revenue since its January implementation, according to Scott Keene, vice president and managing director at Ameritas Investment Corp., Lincoln’s long-time financial adviser. Lincoln-based Gilmore & Bell PC is bond counsel.
“That income stream is higher than we had projected, and our borrowing costs have been lower than we projected,” Keene said. That has allowed the agency to shorten the final maturity on the current offering to 31 years from 35 years on the taxable bonds, he said. Like the earlier bonds, the current bonds are structured with interest-only payments for the first 10 years to give the arena time to generate sufficient revenue.
“We’ve seen other arenas that have been forced to restructure anywhere from six to 10 years because they did not give themselves enough room,” Keene said. “Projections show that we could have started principal payments earlier, but we felt better off being a bit more conservative.”
The facilities agreement features several protections for bondholders, according to analysts. If pledged revenues fall short in any year, the city is required to loan the agency sufficient cash to make debt-service payments. The agency is then required to levy a property tax the following year to repay the loan.
If net revenues fall $500,000 or more below estimates, the JPA is required to hire a consultant, and if revenues fall $1 million or more below estimates, Lincoln is required to levy a tax the following year.
The agency expects to take bids on the bonds Tuesday morning.
“Obviously [the market] is uncertain, but supply isn’t very high and we expect to see a lot of good bids,” Keene said. “With the unlimited taxing authority of the agency, it’s hard to find a better credit out there.”
Construction on the project began last month and a groundbreaking is scheduled for September.