City Of Sacramento Moves Forward With Bonds For The Arena

UPDATE Aug. 13, 11:52 a.m. - The City of Sacramento has sold $299 million in bonds to help pay for the construction of a new arena in downtown Sacramento. 

Read the city's full press release here.

Original Post:

The city of Sacramento’s treasurer, Russ Fehr, will offer for sale about $275 million in short-term bonds by the end of August to help pay for construction of a new arena in downtown Sacramento.

Fehr completed one of the final steps in the bond process for the arena Tuesday night with a presentation on the bond-offering before the city council.

The city has received an "A" rating from the Fitch credit-rating agency. Fehr says Standard & Poor's is next. 

"We figure the rating will either be an "A" or "A-", and then the bank has to do its due diligence, satisfy themselves that they're prepared to buy the notes, and then we'll execute the transaction," says Fehr.

Fehr says Goldman Sachs, which has agreed to purchase the short-term bonds, will review a Sacramento judge's tentative ruling against the plaintiffs in a lawsuit against the city and the Sacramento Kings.

Judge Timothy Frawley ruled the plaintiffs' case was without merit. 

The short-term bonds will be offered regardless of the outcome of that suit. But, Fehr says the city will wait until the court's ruling before refinancing the short-term bonds with long-term bonds, which he hopes will happen in September.

The city will have to pay a higher interest rate until it is eligible to refinance again if it issues long-term bonds while a lawsuit against the partners in the project is ongoing. Fehr says the city would pay an extra half-percent for ten years if it doesn't wait for a final outcome to the case.

Fehr says the lawsuit has already cost the city tens of millions of dollars.

If the city had issued the bonds in March, the cost to retire them would have been as much as $610 million. The long-term interest rates will likely be about a half-a-percent higher in September than they would have been in March. Fehr says today the loan would cost as much as $690 million because of the lawsuit delay. 

"It would have been $17 [million a year]," he says. "Now, we're projecting $19 million. So, $2.5 million a year for 32 years, we're looking at $75 to $80 million."

Fehr says the city will ultimately pay between $170 million and $205 million of the amount required to pay off the long-term bonds. He says that's a quarter to a third of the overall cost to retire the debt.

"Included in the debt plan are the lease payments being made by the team and property taxes that the Kings will pay on the arena -or possessory interest tax - and if you look at those two sources over time, they make up between 65 and 75 percent of the total payments," says Fehr.

The plaintiffs in the case, Isaac Gonzalez and members of Sacramento Taxpayers Opposed To Pork, or STOP, have not said if they will file objections to the Frawley's tentative ruling. They have 15 days from last Friday to do so.

If the ruling is declared final, the plaintiffs will have 60 days to file an appeal.