Though it did not receive an investment-grade bond rating letter for the proposed Oceanfront arena, Virginia Beach City Council is on track to move forward with financing and construction of the project.
A new proposal, presented to council Tuesday afternoon, indicates the bonds will be sold as unrated instruments; in addition, the developer, United States Management LLC, will increase its equity contribution by $7.5 million, to offset the risk of unrated bonds. The total projected cost of the arena is roughly $200 million.
According to City Manager Dave Hansen, who presented the proposal to council Tuesday, the new plan doesn’t change a lot.
“It really doesn’t have an impact to the city with regards to our obligations to reimburse their taxes,” he said.
The rating letter was one of seven conditions city council laid out in July as a requirement for approving USM’s arena financing plan.
Under the latest proposal, the amount financed is limited to no more than $240 million, a $70 million increase from an earlier proposal approved by council in December 2015. The development team’s contribution has decreased from $40 million, as approved last December, to less than $20 million, including a $7.5 million allotment toward construction costs. Also, no bond proceeds will be dedicated to previously incurred expenses.
“I see this as what it takes for them to be able to enter the market and see if there are interested investors willing to commit the funds for this,” Hansen said.
The most recent proposal also adjusts the dates for financing, closing, construction and opening, moving them back by 60 days. Now, the arena would open Dec. 1, 2019.
The feasibility study, one of the conditions imposed by council in July, was conducted by C.H. Johnson Consulting, a Chicago-based firm that bills itself as a “nationally recognized authority” on stadiums and related venues. The study was paid for by the developer. It says Virginia Beach’s healthy economy and strong tourism base make it a viable place for an arena. The study also cites smaller and older venues in the region, but suggests an arena could improve civic pride and draw visitors.
“The Hampton Roads region has been starved for a venue of this size and quality for quite some time,” the study says.
Some of the financial feasibility analysis, though, is not transparent. The study cites a provision under the Virginia Freedom of Information Act that grants an exemption from disclosing “proprietary information, voluntarily provided by a private business pursuant to a promise of confidentiality from a public body, used by the public body for business, trade and tourism development or retention.”
According to a Sept. 15 letter from City Attorney Mark Stiles to George L. Consolvo, a partner at Kaufman & Canoles in Norfolk who is bond counsel to USM, information redacted from the feasibility study includes: financial projection numbers; development assumptions about premium seating mix and price; projected paid attendance numbers; projection assumptions for luxury seats, club seats and loge boxes; and demand and attendance projections for family shows, concerts, other sporting events, boxing and graduations.
Under the original financing plan, approved by the City Council in December 2015, USM had 10 months to secure a $170 million loan from a Chinese lender.
Under the plan approved in July, USM proposed to borrow $200 million from B.C. Ziegler and Company, a Chicago investment bank that will serve as underwriter. In addition, USM was slated to decrease its own equity investment from $40 million to $10 million. The July plan also requires the Virginia Beach Development Authority to serve as a conduit issuer of bonds USM would use to finance construction.
According to the city council resolution endorsing the plan on July 12, the city, the commonwealth and the Development 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.” The bonds are to be repaid from revenue generated by the project.
City council met in closed session Tuesday, before the public briefing, to discuss the new approach to financing the project. City council will vote on the proposal on Oct 4. Next steps also include a special meeting and vote by the Development Authority on Oct. 4.