Sacramento arena bonds minimum purchase: $5,000

Sacramento Kings president Chris Granger tours the Golden 1 Arena site in August.
Sacramento Kings president Chris Granger tours the Golden 1 Arena site in August.

Want to help bankroll the city’s subsidy for the new Sacramento Kings arena? The minimum buy-in is $5,000.

The city of Sacramento expects to issue its permanent financing for the new Golden 1 Center on Sept. 22, city Treasurer Russ Fehr said Wednesday. According to an offering memorandum released late Tuesday, the bonds will be sold in $5,000 increments.

The permanent bonds will finance the bulk of the city’s $255 million contribution to the $507.1 million project. They will replace the short-term loan the city executed with Goldman Sachs & Co. on Aug. 13, when the city was rushing to get cash into the project and help the Kings’ owners stave off a potential financial squeeze and loan default.

Fehr said the city expects the bonds will carry 5.5 percent to 5.6 percent interest, generating annual debt service payments of $18 million to $19 million. But the exact amounts won’t be known until the bonds are actually sold.

“Once it’s done, we’ll know what we have for the next ... 35 years,” the treasurer said.

Technically, the city won’t be issuing new bonds Sept. 22; it will be reissuing bonds that it sold last month to Goldman Sachs to facilitate the short-term financing. Although it borrowed nearly $300 million last month, the long-term bond sale will total just $272.7 million. Fehr said the difference is that the city doesn’t have to borrow as much as previously believed for the reserve funds that are required in many bond deals, such as a fund to hold the final year’s debt service.

Ultimately, Fehr said approximately $220 million of the bond proceeds will be plowed into arena construction. The rest of the city’s $255 million subsidy will come through land parcels that are being contributed to the Kings, and other resources.

The bonds represent a mortgage on Sacramento’s parking operations. The city said it expects to increase parking rates to as much as $1.75 an hour at some downtown meters, an increase of up to 50 cents, although city officials said those rate hikes would take place regardless of the arena debt.

Aside from parking revenue, about 70 percent of the debt repayment will be contributed through lease payments from the Kings and increased property taxes generated at Downtown Plaza once Golden 1 Center opens. The arena is expected to be completed in 13 months.

City officials said they would have issued the bonds months ago, but a lawsuit challenging the subsidy prevented that. In the meantime, interest rates have risen, probably costing the city about $1 million a year in additional debt service. The delay also created a cash squeeze on the Kings and could have led them to be placed in technical default on their bank loan if the city didn’t have its temporary financing in place by Sept. 1. As a result, the city executed the short-term Goldman Sachs loan, which carries an annual interest rate of 2.47 percent.

In the lawsuit, three Sacramentans claimed the city had padded the public contribution with tens of millions of dollars in an illegal “secret subsidy.” A judge rejected the lawsuit last month following a two-week trial. The plaintiffs then agreed to forgo an appeal after the city agreed not to pursue them for court costs awarded by the judge.

The permanent bonds have been rated “A-plus” by Standard & Poor’s and “A” by Fitch Ratings Service. The offering is being led by Goldman Sachs and is being co-underwritten by BofA Merrill Lynch and Morgan Stanley.

Dale Kasler: 916-321-1066, @dakasler