Muni Watch: Investors in Yankee Stadium garages in a pickle

The New York Yankees, the most successful franchise in Major League Baseball history, sit atop their division again. It's the investors holding about $240 million of municipal debt tied to garages at Yankee Stadium who are in a slump. A reserve fund used to pay bondholders led by Nuveen Asset Management and Third Avenue Management LLC may run dry by April. Bronx Parking Development Co., a nonprofit that operates the facilities under a lease with New York City, said last week that the securities must be restructured, requiring investors to take losses. Debt maturing in 2017 traded as low as 46 cents on the dollar on June 20, according to data compiled by Bloomberg. More fans are taking public transportation to games, and attendance at Yankee Stadium has slipped, cutting into the revenue that backs the bonds. Occupancy at the garages and lots has dropped to 38 percent from 46 percent last year, according to securities filings. When the debt was issued in 2007, the nonprofit projected occupancy of 88 percent. “The outstanding bonds must be restructured to reflect the present level of cash flow from operations,” Edward Moran, a financial adviser for Bronx Parking, wrote in a notice filed with the Municipal Securities Rulemaking Board. “Unless debt- service costs are lowered through a voluntary restructuring, bankruptcy will eventually be BPDC's only option.” Moran also cut projections for the garage's 2012 operating income by 7.5 percent, to $6 million. Five Garages Bronx Parking issued $237.6 million of municipal bonds in 2007 through New York City's Industrial Development Agency to build three garages, renovate two others and refurbish six lots near the 50,287-seat Yankee Stadium. The facility opened in 2009 adjacent to the site of the team's old ballpark. The city isn't obligated to pay debt service if the bonds default or Bronx Parking files for bankruptcy protection. Even so, the deal may become one of the biggest failures in decades for debt issued by a New York City agency, according to Municipal Market Advisors, a Concord, Massachusetts-based research firm. The project received a $70 million subsidy from New York State and about $39 million from the city. As of Dec. 31, 2010, Bronx Parking also owed the municipality $17.8 million in payments in lieu of taxes, according to a March audit by Comptroller John Liu. Ray Orlando, a spokesman for the city's Office of Management and Budget, and Patrick Muncie, a spokesman for the Economic Development Corp., declined to comment. Steven Polivy, an attorney representing Bronx Parking, didn't respond to requests for comment. Moran said he couldn't speak without bondholders' permission. Nuveen Holdings Kristyna Munoz, a Nuveen spokeswoman, said John Miller, co-head of fixed-income investment, wasn't available for comment. Nuveen held $131.1 million of the parking-garage debt as of May 31, according to data compiled by Bloomberg. Third Avenue owned $27.5 million as of Jan. 31. A refinancing where some bondholders accept losses of principal and extend maturities is likely, said Laurence Gottlieb, Chief Executive Officer of Fundamental Advisors LP, a New York-based private-equity firm that focuses on municipal debt. He declined to say whether Fundamental owned Bronx Parking debt. 'Meaningful Restructuring' “Achieving a meaningful restructuring of a facility like Bronx Parking requires a unique level of expertise and cooperation from investors, advisers and the authorities,” Gottlieb said. “There are a number of similar muni-related restructurings unfolding across the county that could benefit from private-sector proficiency to produce a successful resolution.” Municipal bonds issued for a 954-space garage in downtown St. Paul, Minnesota and a 2,700-space garage in Cincinnati, Ohio are also in default, according to Bloomberg data. The Yankee stadium parking garage project has been plagued from the start. Bronx Parking increased the number of available spaces to about 9,300 from 7,425 even though the new stadium had about 7,000 fewer seats than the original ballpark, where Babe Ruth played. Meanwhile, fans put off by the $35 parking fee -- $48 for valet service -- have sought cheaper spots at shopping malls and smaller lots. Operating expenses at the garages and lots are estimated at about $7.1 million this year, more than $4 million over projections included as part of the official statement for Bronx Parking's 2007 bond sale. Public Transportation Cutting prices wouldn't help much because more people are taking public transportation, said Marlene Cintron, president of the Bronx Overall Development Corp., a redevelopment agency in the borough president's office. She sits on the Bronx Parking board. An average of 3,151 people take the Metro-North Railroad to the stadium, getting off at a station that opened in 2009, according to Aaron Donovan, a spokesman for the Metropolitan Transportation Authority, which operates the line. That translates into 500 to 1,000 fewer cars in the garages, he said. About 15,000 fans per game take the subway, Donovan said. “I took the train down from Connecticut and it was so easy,” said Matt Fabian, a managing director at Municipal Market Advisors. “The whole thing was easy and pleasant and quick.” Yankee home attendance has slipped to an average of 42,234 per game this year from 45,107 last year, according to the ESPN website. The Yankees won 49 games and lost 32 as of July 5 and lead the American League East. Using Reserve Bronx Parking has used its debt-service reserve since April 2011 to make interest payments. About $5 million remains in the fund. In a notice filed with the MSRB on June 26, Moran said Bronx Parking's corporate structure had to be reorganized. Management also needs to better coordinate marketing with the Yankees, including analyzing programs that would pay commissions to the team. Bond attorneys would need to examine the degree to which the nonprofit Bronx Parking could work with the Yankees, a for- profit company, because tax-exempt debt was used to finance the garages, Moran wrote. Alice McGillion, a spokeswoman for the Yankees, said the team has suggested ways that Bronx Parking can improve marketing and pricing to boost revenue. None was accepted, she said. Hotel Proposal Bronx Parking has also explored redevelopment opportunities. Last year, it approved leases with companies that want to develop affordable housing and retail. Meanwhile, the Bronx economic-development agency proposed razing a four-level, 750,000-square-foot garage renovated using money from the bond issue and building a hotel and conference center on the site, one block south of the new stadium. The agency received seven expressions of interest in the hotel and conference center proposal, Cintron said in a telephone interview. Cintron declined to name the companies. “Can we do better marketing to attract a little bit more? Probably,” said Cintron. “I think what we need to do is agree that we have an issue that's caused by external factors that aren't going to change anytime soon.” --Bloomberg News--