Time-lapse of Downtown Plaza demolition
With the last of the litigation cleared away, Sacramento officials expect to pony up the city’s $255 million share of the new Kings arena by Sept. 1.
And not a moment too soon.
After months of delays, both the Kings and the city are eager to have the city’s financing completed quickly. If the city’s money isn’t in place by Sept. 1, the Kings’ lender, Goldman Sachs & Co. has the right to declare a default on the team’s construction loan, according to a city document.
A default wouldn’t imperil the $507 million project, according to finance experts and city officials. But it’s a step the Kings and the city would like to avoid.
Even without the lender’s deadline, financial pressures are looming: The Kings, who broke ground at Downtown Plaza last October, have poured $216 million into the project, and city officials say the team needs the city’s money soon to keep things on track.
“They didn’t borrow $500 million,” Assistant City Manager John Dangberg said Thursday, moments after a Sacramento Superior Court judge dismissed the final lawsuit holding up the city’s financing. “They borrowed, or raised, $250 million. ... We’re halfway through construction and we need to get our money in.”
The Kings wouldn’t comment on the prospect of a default or the financial details of the project. But team President Chris Granger indicated the team isn’t worried about hitting any stumbling blocks.
“As we have said from Day 1, we have complete confidence the Golden 1 Center will open in October 2016,” Granger said in a prepared statement.
Dangberg said he isn’t worried about the Kings’ loan with Goldman Sachs going awry. The big investment bank is the city’s interim lender, too, and isn’t interested in interfering with progress on the arena. Even if the city misses its Sept. 1 deadline, Dangberg said the Kings and Goldman will “keep the project going.”
Experts said lenders will usually work out a compromise if a default occurs, particularly if it’s just a “technical” default and the borrower is keeping current on the loan payments.
“I don’t think anything’s in jeopardy,” said Marilyn Cohen of Envision Capital Management, a Los Angeles municipal bond advisory firm.
A spokesman for Goldman declined comment on the Kings loan. The possibility of a default is mentioned in a debt “limited offering memorandum” city staffers submitted to the City Council last month.
The city’s eagerness to proceed with arena financing also relates to cost. Although interest rates are lower than they were in May 2014, when the City Council approved the deal with the Kings, rates have crept up in recent months and another interest hike is likely in September. City Treasurer Russ Fehr estimated that the city could have saved $1 million a year in borrowing costs if it could have completed its financing last February, when two other lawsuits were resolved.
Judge Timothy Frawley signed the papers dismissing the lawsuit at a two-minute court hearing Thursday. The plaintiffs in the suit, retirees Julian Camacho and James Cathcart and neighborhood activist Isaac Gonzalez, weren’t in court. Their lawyers, Patrick Soluri and Jeffrey Anderson, also didn’t appear.
They haven’t been available for comment since Frawley issued a blistering 41-page “proposed” decision in late July, flatly rejecting their claims that the city added an illegal “secret subsidy” worth tens of millions of dollars to the $255 million public contribution. Frawley also told the plaintiffs they had to reimburse the city for its court costs, which could total as much as $98,000.
Under a settlement announced Wednesday, the plaintiffs dropped the case and gave up the right to appeal. In return, the city agreed to forgo the court costs.
Having the lawsuit out of the way enables the city to proceed more quickly. Dangberg and Fehr said a short-term loan, also with Goldman Sachs, should be completed by Sept. 1. The loan will only last a few weeks and will give way to 35-year bonds, probably sometime later in September. The bonds will be backed mainly by increases in city parking revenue, although about 70 percent of the debt repayment will come from the Kings through rent and property taxes. Fehr said he believes the annual debt service on the bonds will total $18 million to $18.5 million.