Parking garages serving the new Yankee Stadium in the Bronx are headed for default on $237.6 million of tax-exempt bonds due to low usage in the face of cheaper alternatives, the borrower disclosed last month.
Bronx Parking Development Co. said in a letter to bondholders that it expects to tap a debt-service reserve fund to make its next two interest payments and may not be able to replenish it in time to prevent an event of default. BPDC is caught in a bind because raising parking rates would only prompt more customers to seek less expensive alternatives in the working-class neighborhood around the stadium, which is a far cry from the affluent Manhattan neighborhoods where such prices are common.
The New York City Industrial Development Agency issued the unrated and uninsured bonds in 2007 on behalf of the parking company, which was formed by the Hudson, N.Y., nonprofit Community Initiatives Development Corp. The bond proceeds, along with $70 million of state subsidies, were used to develop and construct three parking garages and renovate other parking facilities around the new Major League Baseball stadium.
The disclosure was first reported in the New York Daily News.
Debt-service payments in October and April will bring the debt-service reserve to $4.5 million below the $16.6 million required under its indenture, which would trigger a default if not cured by Oct. 31, 2011. In an event of default, the trustee or the holders of $25% of the aggregate outstanding principal can force the acceleration of principal and interest payments.
The borrower disclosed that though it can raise parking rates, “it may not be feasible to replenish the debt-service reserve fund to meet the debt-service fund requirement by Oct. 31, 2011, without resulting parking rates that will negatively impact parking facility usage.”
One reason for the lower usage, the borrower said, was that an average of 800 cars that would have utilized its parking facilities on game day have been parking at the nearby Gateway Center at Bronx Terminal Market. Parking at the shopping complex, which was developed and is operated by the Related Cos., costs $21 on game days. That compares with $23 for self-parkers at BPDC facilities, which have 9,179 stadium parking spots.
Cathryn Steeves, a portfolio manager at Nuveen Asset Management Inc., which holds some of the bonds, said her firm has been talking to its counsel about possible remedies, including foreclosure.
“We would have the right to take legal action,” Steeves said. “Normally under those situations we would negotiate some sort of agreement.”
Steeves said they expect BPDC to continue making debt-service payments, noting that the company still has “some room to increase rates and have higher utilization.” Nuveen has already spoken to the company about its performance, she said.
BPDC budgeted for revenue of $18.9 million in 2010. By midyear the parking facilities had only generated $4.8 million, less than half the projected amount of $9.8 million.
The bonds traded at a steep discount last week. On Friday, trades on $2 million of the bonds maturing in 2046 with a 5.875 coupon yielded 9.344, according to Thomson Reuters.
Calls to Community Initiatives Development Corp. and its president, William Lowenstein, were not returned by press time. The nonprofit defaulted on two previous tax-exempt bond financed projects which resulted in property interests being transferred and sold to satisfy bondholders, according to the official statement.
The development agreement also included $32 million of funding from the city for infrastructure and the cost of building a city park atop one of the five garages.
According to BPDC financial statements, the New York City Economic Development Corp. has given it grants totaling $38 million. EDC spokesman David Lombino said the funds were not grants but rather part of a 2007 funding agreement to build the parks and a retaining wall that was amended in 2008 due to increased costs.
“NYCEDC has not increased its financial support of BPDC,” Lombino said in an e-mail. “No money from this funding agreement has anything to do with the garages’ current shortfalls. The EDC is not providing, or considering to provide, additional revenue support to BPDC.”