Wednesday, March 18, 2009

Forest City borrows $20 million from NBA lenders to counter Nets' losses

Despite suffering serious losses, more than $30 million a year, the owners of the New Jersey Nets have adjusted a key loan that could help the team limp toward a transition to a new Brooklyn arena.

The Forest City Enterprises press release issued yesterday sounds like gobbledygook:
Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) announced today that Brooklyn Basketball, LLC, in which the Company has an equity interest, has secured an extension of a $65 million credit facility related to the National Basketball Association (NBA) Nets professional basketball team. At closing, Brooklyn Basketball reduced the principal of the facility to $45 million through a $20 million add-on facility funded by a routine borrowing by the team under the NBA's League-wide Financing Facility.

The credit facility, through JPMorgan Chase Bank, N.A., has been extended to September 9, 2010, with a second extension available to June 9, 2011. The $20 million add-on is a combination of five-year and seven-year fixed-rate notes.


What does that mean? Well, as far as I can tell, it means that the owners of the Nets had already borrowed $65 million and not only extended that loan, but lowered the principal on it by taking out a separate $20 million loan.

Reasons to hang on

And, among the 12 teams in the 30-team league that were interested in a loan, the Nets borrowed the maximum. Remember, Forbes reported in December that the Nets were among only seven teams that declined in value, and the Nets experienced the largest retreat, of 13%.

A new arena paid for by naming rights (and maybe just taxpayers), with many luxury suites, would raise the value of the team enormously. That's why, as Forest City Enterprises struggles financially, selling off viable properties, Atlantic Yards likely will be held until the bitter end.

Forest City and partners have invested $250 million in Atlantic Yards, above and beyond the Nets. That's the largest single investment the company has made, an official told investors in October 2007, declaring it "risk-appropriate."

While that's actually less than the direct public subsidies for the project, it still indicates a commitment that Forest City is unlkely to walk away from soon.

NBA adds $200 million

Here's the background. The AP reported February 27:
The NBA has lined up $200 million to distribute to teams interested in additional cash, which the league considers a sign it remains strong in a slumping economy.

Between $13 million and $20 million will be available to each of 12 teams that have expressed interest in the funds, commissioner David Stern said Thursday. The money can be used for any purpose, including helping teams deal with operating losses incurred because of the economy.

It should not, Stern said, be construed as a bailout. At a time when credit markets have been frozen, investors saw the NBA as a safe bet.

"It's exactly the opposite" of a bailout, Stern told The Associated Press "This was a show of strength in the creditworthiness of the NBA's teams."

...The league has an existing $1.7 billion credit facility, essentially a line of credit established by lenders from which teams can borrow. The league had been interested in growing the facility when the credit markets seized up last fall.


FCE's comment

Yesterday's press release concluded:
"This is another example of our companywide strategy of proactively managing debt maturities across the full range of our business interests," said Charles A. Ratner, Forest City president and chief executive officer. "As always, we appreciate the support of our lenders in this effort, and I congratulate our internal team that secured the extension."

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