Virginia Beach Development Authority officials voiced cautious support this week for the Oceanfront arena’s new financing plan.
Deputy City Manager Doug Smith briefed the Authority Tuesday on changes to the arena’s financing plan approved by the city council last week. The new plan requires the Authority to serve as a conduit issuer of bonds the developer, United States Management LLC (USM), would use to finance construction. USM is a special purpose entity and affiliate of the ESG Companies, which is based in Virginia Beach, according to ESG’s website.
The bonds would be “no obligation of the Authority,” City Finance Director Patti Phillips said in a phone interview. According to the city council resolution endorsing the plan on July 12, the city, the commonwealth and the Authority would take on no debt in the bond issuance and would have no “legal obligation to cure a default or pay any sums owing under the bonds.” Also, the bonds are to be repaid from revenue generated by the project.
Still, a few pieces need to fall into place before the plan is finalized.
During the Authority meeting Tuesday, Andrea Kilmer, president of USM, said the company is currently conducting an independent revenue feasibility study and bond rating study for the Oceanfront arena. The results will be delivered to Phillips in the next couple of weeks.
The feasibility study will assess whether or not the estimated value of the arena and its revenue projections are fair and accurate, Smith said.
Council’s approval of the new financing plan is contingent upon the results of these studies, Phillips said. USM will present the study results to the Authority in about a month, Kilmer said. Phillips, who would opine about whether the feasibility study supports the bonds, will also be present to answer questions.
There is some “due diligence” that needs to be done before Council approves the final plan, Phillips said.
“We just want to make sure the bond is a good bond to protect our citizens,” Dot Wood, Chair of the Authority, said in a phone interview.
Under the original financing plan, approved by the City Council in December, USM had 10 months to secure a $170 million loan from a Chinese lender. Under the plan approved last week, USM will borrow $200 million from B.C. Ziegler and Company, a Chicago investment bank that will serve as underwriter. In addition, USM is slated to decrease its own equity investment from $40 million to $10 million.
Authority Commissioner Jerrold Miller questioned in the meeting why USM chose to lower its investment from $40 million to $10 million. The decrease could suggest less commitment from USM, he said.
George L. Consolvo, a partner at Kaufman & Canoles in Norfolk who is bond counsel to USM, said in the meeting Ziegler agreed to finance the project if there were debt reserves in place, like the bonds. In a later phone interview, Consolvo said Ziegler’s proposal doesn’t require a specific equity requirement, only that there be debt reserves in place as well as capital repair and maintenance reserves.
After the meeting, Kilmer said USM’s reduced investment in the arena would free the company up for other projects.
Kilmer hopes to begin construction in September.
After it opens, the arena is expected to create about 400 new jobs, $15 million in annual salaries, 65,500 annual room nights in local hotels and $11 million annually in net new spending, according to the city.