Sacramento completes Kings arena financing with $272.9 million bond sale

The city of Sacramento completed the sale of $272.9 million worth of bonds Thursday to finance the public’s share of the new Kings arena, capping a financial journey that began four years ago.

The bond sale cements the financing of the big construction project once and for all. The bonds replace a short-term loan the city executed in mid-August, when the project was beginning to face a cash squeeze.

City Treasurer Russ Fehr said the bonds will carry a 5.67 percent interest rate. The annual debt service will come to $18 million, although the Kings will pay an estimated two-thirds of the cost through lease payments and property taxes generated by the new Golden 1 Center. The $507 million arena is set to open in October 2016.

“I’m feeling pretty good,” Fehr said from the offices of Goldman Sachs & Co., the lead underwriter of the bond sale. “I think we got ourselves a good deal.”

Fehr said he and Assistant City Manager John Dangberg have been in New York since Monday, meeting with bond traders, hedge-fund managers and other potential buyers. A New York insurance company, MacKay Shields, bought the single largest chunk of the bonds: $75 million.

The bonds represent a mortgage on the city’s parking operations. City officials expect to raise the rates on some downtown parking meters by as much as 50 cents an hour, although officials have said the rate hikes would have taken place regardless of the arena debt.

Of the bond proceeds, approximately $220 million will be plugged into arena construction; the rest will go into debt reserves and various bond-issuance costs.

The $220 million represents up the vast majority of the city’s $255 million subsidy. The rest consists of land parcels being donated to the Kings, and other resources.

In a last-minute switch, the bond sale was broken into multiple parts: Institutional investors purchased a total of $250.6 million in bonds that mature in 35 years. So-called retail investors, mainly individuals, bought the remaining bonds. The retail bonds consist of six different issues, maturing at various times between 2018 and 2023. Fehr said individual investors tend to favor shorter maturities than big institutions.

The city wanted to complete the bond sale in February but was delayed by a citizens’ lawsuit alleging the city was giving the Kings a “secret subsidy” worth tens of millions of additional dollars. A judge rejected the suit earlier this summer. In the meantime, the Kings’ owners were facing a potential cash shortage and the possibility of a technical default on their loan if the city didn’t get its money into the project by Sept. 1. That scenario necessitated the short-term loan the city completed in August, but in the meantime, interest rates have risen. Fehr has said the delay probably will cost the city about $1 million a year in higher debt service payments.

Fehr noted that back in 2011, when the city was negotiating an arena deal with the Kings’ prior owners, the Maloofs, the city contemplated selling its parking operations outright to private investors to finance the project. But Fehr rejected that plan, saying he didn’t want private interests controlling the city’s garages and meters and making a huge windfall off from rate hikes.

“That was a bad, bad, bad idea,” Fehr said.

(c)2015 The Sacramento Bee (Sacramento, Calif.)

Visit The Sacramento Bee (Sacramento, Calif.) at www.sacbee.com

Distributed by Tribune Content Agency, LLC.