DALLAS – In a change of course, a Detroit authority will issue new bonds to finance the $34 million cost of adapting the under-construction Little Caesars Arena to house the Detroit Pistons basketball team.
The Detroit Development Authority previously planned to cover the cost by refinancing outstanding bonds for savings.
Bank of America Merrill Lynch will underwrite the deal.
"The Detroit Development Authority intends to issue additional tax increment bonds in an aggregate principal amount sufficient to enable the DDA to finance $34.5 million of additional improvements to the Events Center (Little Caesars Arena)," said John Naglick, Treasurer of the DDA. Naglick is also finance director for the city of Detroit. The DDA is the city of Detroit's economic development agency.
The deal team was approved Wednesday.
"The DDA Board unanimously voted to authorize staff, including the engagement of FirstSouthwest, bond counsel and other necessary or appropriate professionals to commence negotiating terms of the 2017A Bonds with BAML," said Naglick.
FirstSouthwest is financial advisor; no bond counsel has been chosen yet.
Naglick said that terms of the 2017A bonds will be presented to the DDA board for further review and approval, together with corresponding bond authorizing resolutions and material transaction documents.
The relocation of the NBA team from its current home in the Detroit suburbs to the new Little Caesars Arena downtown was announced last November.
At the time Detroit Mayor Mike Duggan said that the DDA planned to contribute to the $34 million cost of adapting the arena to include the basketball franchise with the savings achieved from a refinancing of the 2014, $250 million tax-exempt bond deal issued by the Michigan Strategic Fund on behalf of the DDA to help finance the arena. The debt is repaid using tax increment financing revenues collected by the DDA.
The plan for funding the adaption of the arena for the NBA team now includes issuing new bonds and eventually refinancing both the 2017 and 2014 bonds. The financing structure will call for the repayment of the 2017A Bonds to be subordinated to the Series 2014A Bonds, said Naglick.
"We anticipate that both the Series 2014 Bonds and the Series 2017 Bonds will be refinanced in 2018, when the Events Center is up and running," said Naglick.
The arena, developed for the Detroit Red Wings hockey team and named after the pizza chain founded by Red Wings owner Mike Ilitch, will open in September with a series of Kid Rock concerts. Ilitch died earlier this month at 87.
Naglick declined to offer more details on the bond structure because the terms are still being negotiated with BofAML.
Relocating the Pistons and building a new practice facility and corporate offices at the Little Caesars location will generate an additional $596.2 million in estimated total economic impact in Metro Detroit and create more than 2,100 jobs, according to a study by the University of Michigan Center for Sport and Policy, which was commissioned by Pistons owners Palace Sports & Entertainment. That includes an estimated 1,722 construction and construction-related jobs, and 442 permanent positions.