Brooklyn Nets owner Mikhail Prokhorov is refinancing Barclays Center debt issued in 2009 through a $482 million offering by the Brooklyn Area Local Development Corp.
Goldman, Sachs & Co. is lead manager for Tuesday's scheduled sale of the bonds backed by Pilots, or payments in lieu of taxes.
Low interest rates and a favorable environment for sports facility financing favor Prokhorov, said Randy Gerardes, a director at Wells Fargo Securities.
"A lot of issuers are taking advantage of the low-interest rate environment to refinance debt across all fixed-income sectors, especially in munis," he said.
Russian billionaire Prokhorov, 51, completed his full purchase of the National Basketball Association franchise and the arena last December from developer Bruce Ratner's Forest City Enterprises.
Tuesday's sale will involve about $460 million of Series 2016A tax-exempt bonds due 2043, and $20 million of Series 2016B federally taxable bonds due 2041. The Series 2009 offering was four times oversubscribed and sported a top yield of 6.48% in 2043.
S&P Global Ratings assigned a preliminary BBB-minus rating with a stable outlook. The underwriters expect Moody's Investors Service to affirm its Baa3 rating and stable outlook. The ratings are the lowest investment grade. The agencies expect to finalize their ratings after reviewing the transaction, scheduled to close Sept. 15.
According to S&P, debt-service savings would average $3.4 million annually over the debt term. "However, savings are front-loaded, averaging about $6.6 million annually within the first 10 years of the debt term followed by $1.6 million in average annual savings through 2044," S&P said in its presale report.
Barclays Center, which opened in September 2012 in downtown Brooklyn, sits above nine subway lines and the Long Island Rail Road's Atlantic Terminal. Arena construction cost nearly $900 million, including a $131 million contribution from New York City.
The Nets moved from East Rutherford, N.J., with the arena's opening. Barclays Center is also home to the National Hockey League's New York Islanders, numerous concerts and other events. Arena officials expect profits of roughly $46 million this year, according to an investor roadshow.
The Pilot bond trustee has debt service reserve fund of $39 million and a strike reserve fund at nearly $20 million.
Barclays opened amid a wave of new sports facilities in the region that included the latest iteration of Yankee Stadium; the Mets' Citi Field; MetLife Stadium in New Jersey's Meadowlands; the Prudential Center home of hockey's New Jersey Devils in Newark; and the Red Bull Arena soccer facility in Harrison, N.J. In addition, Madison Square Garden in midtown Manhattan underwent a $1 billion renovation.
"Certainly a lot of stadiums were financed around the same time. Barclays involved a team relocating, which is always a concern," said Gerardes. "We feel fairly positive about the stadium financing sector. The leagues have made long-term media commitments."
Gerardes, in a Wells Fargo infrastructure report, said that while governments are more reluctant to provide equity backing for sports facilities, pro sports leagues themselves are flush with media cash. That, he said, bodes well for sports stadiums.
The NBA's recent media contract boosted revenue by $24 million per team for the 2016-17 season, which generated a wave of free-agent signings.
Robert Boland, director of the master of sports administration program at Ohio University and a former sports agent, said Barclays Center symbolizes an ascendant borough. "Brooklyn became cool again."
The arena sits at Atlantic and Flatbush avenues, not far from a site Dodgers owner Walter O'Malley coveted for a stadium in the 1950s before relocating the baseball franchise to Los Angeles after frequent run-ins with city uber-commissioner Robert Moses.
Objections from several adjacent Brooklyn neighborhoods threatened to scuttle the arena project. "They had to go buy out a large number of apartment dwellers, not by eminent domain, but by private agreement," said Boland. "A number of them were at Manhattan prices with non-disclosure agreements."
Barclays Center, which has a Los Angeles office to boost its concert presence, benefited from concert bookings while Madison Square Garden phased in its renovation over three summers.
"While MSG's transformation was really well done, Barclays effectively served as a bridge," said Boland.
How long the Islanders stay is an open question. They moved to Barclays from Uniondale, N.Y., last season, but either party can terminate the agreement after Jan. 1, 2018. Fans have complained about poor sightlines stemming from the awkward fit of the 200-foot-long rink in an arena built around a 94-foot-long basketball court.
Prokhorov has reportedly been exploring an arena project with Mets' owners near Citi Field in Queens.
"Even if they get just a few years of high-end revenue from a second tenant, that may be one of the things that makes a bond package more attractive," said Boland.
S&P said its rating reflects "continued uncertainty regarding the ramp-up for the Islanders after their first season at the arena, and the potential risk associated with the Islanders relocation or contract modification within the next several years."
