The city of Sacramento and Kings basketball team this week announced they have come to terms on a key unresolved element of the 2014 deal to build a new arena downtown – the refinancing of a $73 million city loan to the Kings in 1997.
The agreement, not yet final, is for a revamped loan of $50 million, the amount the Kings still owe on the current loan. The Kings, however, are expected to pay at least $20 million to the city prior to a city bond sale, reducing the new loan to $30 million. The team also will put up six properties as collateral, including its former Natomas arena site.
City interim Treasurer John Colville, in a report to the City Council, said the new deal reduces the city’s financial risk, although the loan remains backed by the city’s general fund. It also satisfies a requirement attached to the existing loan that it be paid off if the Kings leave Sleep Train Arena.
Team officials say the new structure, including the $20 million pay-down, will make it easier for the team to redevelop the Sleep Train Arena site, and make good on a promise to the city not to let it sit idle for years.
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Kings officials, who began marketing the site last year, have offered no timetable for development.
“We continue to talk to potential anchor tenants, to joint venture partners,” Kings’ President Chris Granger told the council at its Tuesday meeting, “We are going through all the basic blocking and tackling that happens related to master planning. We want to do something that is good for Natomas … that is good for Sacramento.”
The City Council gave its finance team the go-ahead this week to proceed with the deal. Colville is scheduled to ask for further deal approvals on April 4. The city will sell new bonds and use those to pay off the existing bond debt. The Kings in turn will make annual payments to the city for 30 years on the new loan.
City officials estimate the deal will lower the Kings’ annual debt service from a current $5.7 million to about $2.6 million, depending on interest rates at the time of the bond sale.
The Kings have told the city they expect revenues from their downtown hotel, restaurants and stores in the partially-built Downtown Commons project area, which includes the new Golden 1 Center arena, to be capable of covering that annual debt. A city consultant, Keyser Marston, has reviewed those projections and determined the cash flows would be sufficient to pay the city loan, Colville said. He said the Kings can, however, use other revenue sources to pay the debt.
The six properties the Kings have pledged as collateral include five that the city turned over to the Kings as part of the complicated joint financing for the downtown arena, which opened last fall. In that deal, the city provided $32 million worth of mainly vacant properties to the Kings with the intent that the Kings would develop them over time.
Those properties have increased in value by 28 percent since then, Colville said. The Kings’ $46 million collateral pledge also includes a sixth property, the 83 acres in Natomas that includes the former Sleep Train Arena. That 83 acres is currently owned by the city, but will revert to the Kings once the 1997 loan is closed out.