United States Management LLC (USM), hasn’t provided an investment-grade bond rating letter from a major bond rating agency for the planned $210 million Oceanfront arena, according to City Manager Dave Hansen.
The rating letter is one of seven conditions City Council imposed in July, as a requirement for approving a new financing agreement for the arena.
“The conversation that’s taking place is really awaiting the indicative rating letter,” Hansen said in an interview after a council retreat Wednesday. “And to determine whether or not we want to pursue a rated instrument or not.”
The developer has proposed an alternative approach, according to Andrea Kilmer, president of USM.
“Given the private placement nature of our bond proposal, we have offered an alternative to the requested rating letter that we believe should satisfy any related concerns of the City,” Kilmer said by email Thursday. “The City discussed our offer in closed session, and we are providing additional detailed information as requested so they can make a public presentation on Tuesday.”
During a July meeting of the Virginia Beach Development Authority, Kilmer said the company was conducting an independent revenue-feasibility study and bond rating study for the Oceanfront arena. The results would be delivered to the city’s finance director, Patti Phillips, in the next couple of weeks, she said. Earlier this month, Deputy City Manager Doug Smith told council he and Phillips had seen a draft of the feasibility study, which assesses whether or not the estimated value of the arena and its revenue projections are fair and accurate.
Smith, who is leaving his position this week, told City Council on Tuesday the developers hadn’t met one of the seven conditions required by council in July for approving USM’s finance plan. The seventh and still outstanding one requires USM to provide an investment-grade letter from one of the three national rating agencies. The bond rating must be at least Baa3 from Moody’s or BBB- from Fitch or Standard & Poor’s, Hansen said.
The city is determining whether to allow USM to move forward anyway, so it can pursue financing, Hansen said. The developers have until Nov. 8 to obtain a commitment letter for outside financing.
USM has said it plans to borrow $200 million from B.C. Ziegler and Company, a Chicago investment bank, which will serve as underwriter. This plan requires the Development Authority to serve as a conduit issuer of bonds USM would use to finance construction.
Under the original financing plan, approved by City Council in December, USM had 10 months to secure a $170 million loan from a Chinese lender.
The city will have some more closed discussions on the subject and a public briefing is scheduled for Sept. 27. A public hearing is scheduled for Oct. 4, as well as a City Council vote on the finance plan.
This story has been updated to include a comment from Andrea Kilmer, president of USM, who was not immediately available before publication.