Loan Deal May Free Raiders of Paying Millions

A seller of bonds for the City of Irwindale testified at a legislative hearing Thursday that the Los Angeles Raiders will not be required to pay back at least $35 million--and possibly much more--of the $115 million that the Raiders are being “loaned” by Irwindale to build a football stadium there.

James E. Iverson, executive vice president of the bond sales firm of Miller & Schroeder, also told the hearing chaired by Assemblyman Mike Roos (D-Los Angeles) that $90 million of bonds that his firm had reported selling Sept. 11 to help finance the stadium had not actually been sold. To describe the transaction more accurately, he said, the bonds had been “parked” with a Minneapolis bank for 60 days.

He said that the purpose of this procedure had been to preempt a taxpayers’ lawsuit brought by Los Angeles City Councilman Ernani Bernardi and legislation introduced by Roos that sought to block the sale.

Much Rewriting Needed

Iverson, testifying under oath, said that before the bonds are “remarketed” to permanent buyers at an interest rate closer to market levels, perhaps more than three points higher than the 7.23% initial rate of the “parked” bonds, the Irwindale-Raider agreement is going to have to be substantially rewritten.

He said it will have to be made clear that if Raider stadium income is insufficient to pay back the bondholders, the difference will come from Irwindale redevelopment tax collections.

Iverson said that, in any event, millions of dollars of Irwindale redevelopment money would have to be used to make payments on the bonds in the years before the stadium is completed, during which time the Raiders will be contributing nothing to the repayments.

All this will have to be made clear in a “definitive” agreement now being negotiated by Irwindale and Raider attorneys to replace the “memorandum of agreement” to bring the Raiders to Irwindale that was signed Aug. 20, Iverson said.

Agreeing with Iverson on many points was Irwindale’s bond counsel, Timothy J. Sabo, who testified that he had repeatedly warned Irwindale officials who put together the initial Raider agreement that it had been “very hastily done” and would have to be changed in key respects before the bonds could be marketed.

Sabo said he had told Irwindale leaders that “gaps” in the agreement making it unclear what the Raiders’ repayment obligations would be would have to be closed before his firm could assure bond buyers that the bonds are safe.

Iverson concurred that “legitimate questions which we are addressing,” including “proper credit enhancements,” would have to be undertaken before the bonds could be marketed.

New Accord ‘Half Done’

Irwindale City Manager Charles Martin, who was present at the hearing, said later that drafting of a “definitive” agreement with the Raiders is only “half done,” despite an initial deadline for completing it of last Sunday.

In a brief interview, Martin agreed that many points in the earlier agreement would have to be changed or clarified if the Raider move is to be consummated.

Early in the hearing at Los Angeles City Hall, Roos said that he and his staff, after extensive study, had concluded that the Raiders would have to repay no more than $80 million of the $115-million “loan” they are to be given to build the stadium.

“Correct,” Iverson responded.

Sabo said that it was “not clear” to him just what the Raiders would have to repay.

Roos said that when other Irwindale commitments to build access roads, prepare the stadium site and make initial debt repayments were taken into account, Irwindale would be putting $175 million into the deal and getting back no more than $80 million.

Later, however, after Iverson and Sabo had testified about the use of redevelopment “tax increments” to help repay the bonds, Roos said it was becoming clear to him that the Raiders might not have to repay much of the remaining $80 million, either.

Insufficient Income Projected

Roos cited reports from Harrison Price, a firm employed by Irwindale to make revenue projections for the new stadium, that indicated income from the stadium would not be sufficient to pay off the bonds.

The assemblyman noted that Price had projected stadium income of only $13.8 million a year, when, according to what he said were his staff’s calculations, $24.4 million in gross income would be needed to generate the minimum $9 million a year necessary to pay off the bonds. Under the agreement, less than 50% of the gross income could be used for bond repayments.

Iverson later estimated that with a projected approximate 10.5% annual interest rate on the bonds, as much as $11 million annually would be needed to repay them.

Irwindale redevelopment consultant Fred Lyte responded to Roos that the $13.8 million was Harrison Price’s projection only for the first year and that the Price firm said revenue would rise to more than $20 million after five years.

Besides, Lyte contended, stadium revenue would have to amount to only $20.5 million a year to fund $9 million in repayments.

Projections Disputed

Lyte said that Irwindale has retained the accounting firm of Coopers & Lybrand to “review” the Price projections, which he said he believed were too low.

But Roos also displayed annual income figures that his staff had obtained from a dozen other stadiums around the country, all of which earned less money--and in many cases far less--than he said would be needed to repay the Irwindale bonds.

A number of these stadiums also have baseball teams as tenants as well as football teams. The general manager of Jack Murphy Stadium in San Diego, William Wilson, who testified at Thursday’s hearing, noted that while Anaheim Stadium, for example, reported more than $22 million in 1986 revenue, only $5.7 million of this had come from its football tenant, the Los Angeles Rams. So Wilson questioned whether the new Raiders stadium could possibly make enough money to pay off the bonds.

In other points at the hearing:

- Irwindale attorney Michael Montgomery said that, under the “definitive” agreement Irwindale is trying to negotiate, the Raiders would not be entitled to keep a $10-million cash advance they had been given to sign the initial deal if the Irwindale-Raider deal collapsed and it wasn’t Irwindale’s fault.

- Roos sharply questioned Irwindale officials as to why the Raiders had been allowed to commit themselves to playing in the new stadium for only 15 years when it would take 30 years to pay off the bonds. Roos said Raiders team owner Al Davis has a record of moving around that is not reassuring. Irwindale city spokesman Xavier Hermosillo charged that Roos was embarked on an Al Davis “witch hunt.”

- Montgomery read a letter from Davis reiterating that he not only fully intends to go ahead with his Irwindale move, but under no circumstances will the team return to the Los Angeles Memorial Coliseum, where it is playing now.