City finalizes financing plan for Arco Arena
By Terri Hardy - Bee Staff Writer
Published 12:00 am PDT Wednesday, May 9, 2007
Story appeared in METRO section, Page B3
The future of a new arena for the Sacramento Kings is still up in the air, but a complicated new $70 million financing plan for Arco Arena was cemented Tuesday night.
[FONT=arial,helvetica,sans-serif]The Sacramento City Council unanimously approved a deal that would meet a deadline to refinance the Kings' existing $70 million loan with Sacramento.
Complicating the transaction, city Treasurer Tom Friery said, was the chance that the Kings could leave Sacramento over the next few years, severely affecting the value of Arco Arena, which would be used as collateral.
Another problem has been assertions by the city and NBA officials that the building is nearing the end of its useful life.
"We solved that issue by making the loan for 10 years," Friery said.
As proposed, the loan would be amortized over 20 years, but in 2017 the city would have to go out again and find another lender for the remainder of the debt. At that time, $51 million would be outstanding, Friery said.
"It's a time period everyone is comfortable with," Friery said. "A 20-year loan would have cost more and would have meant greater exposure for us."
The Kings still own the arena but the city guarantees the $70 million loan. The city plans to sell bonds and the Kings would repay the city in quarterly payments.
Under the deal, a lower interest rate is likely and the Kings will likely see their annual payments of about $6 million reduced to about $5 million, Friery said.
In the event the Kings default, the city holds a $25 million interest in the Kings franchise as collateral. Also, it would take possession of Arco and the 85 acres owned by the Maloof family.While Arco has diminished in value over time, the land it rests upon has increased. In 2005 it was valued at $38 million.
Since the Kings' original loan with the city was approved in 1997, the Kings have made every payment on time, Friery said.
Jim Thomas, who owned the team at the time, came to the city for help.
He said the team was losing money and a private loan he had taken out for Arco required almost all profits to be used to pay down the balance, leaving little for reinvestment.
The city agreed to the two loans: one for $70 million to allow Thomas to pay off his debt; and a second for $8.5 million to be used to help the team make the first loan payments for seven years.
Thomas also wanted a low interest rate, so the 1997 deal called for the loan to be paid off and restructured after 10 years.
City Councilman Robbie Waters said at Tuesday's council meeting that he's often asked if the city made money on the Kings loan.
"No sir, the city broke even," Friery answered.
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By Terri Hardy - Bee Staff Writer
Published 12:00 am PDT Wednesday, May 9, 2007
Story appeared in METRO section, Page B3
The future of a new arena for the Sacramento Kings is still up in the air, but a complicated new $70 million financing plan for Arco Arena was cemented Tuesday night.
[FONT=arial,helvetica,sans-serif]The Sacramento City Council unanimously approved a deal that would meet a deadline to refinance the Kings' existing $70 million loan with Sacramento.
Complicating the transaction, city Treasurer Tom Friery said, was the chance that the Kings could leave Sacramento over the next few years, severely affecting the value of Arco Arena, which would be used as collateral.
Another problem has been assertions by the city and NBA officials that the building is nearing the end of its useful life.
"We solved that issue by making the loan for 10 years," Friery said.
As proposed, the loan would be amortized over 20 years, but in 2017 the city would have to go out again and find another lender for the remainder of the debt. At that time, $51 million would be outstanding, Friery said.
"It's a time period everyone is comfortable with," Friery said. "A 20-year loan would have cost more and would have meant greater exposure for us."
The Kings still own the arena but the city guarantees the $70 million loan. The city plans to sell bonds and the Kings would repay the city in quarterly payments.
Under the deal, a lower interest rate is likely and the Kings will likely see their annual payments of about $6 million reduced to about $5 million, Friery said.
In the event the Kings default, the city holds a $25 million interest in the Kings franchise as collateral. Also, it would take possession of Arco and the 85 acres owned by the Maloof family.While Arco has diminished in value over time, the land it rests upon has increased. In 2005 it was valued at $38 million.
Since the Kings' original loan with the city was approved in 1997, the Kings have made every payment on time, Friery said.
Jim Thomas, who owned the team at the time, came to the city for help.
He said the team was losing money and a private loan he had taken out for Arco required almost all profits to be used to pay down the balance, leaving little for reinvestment.
The city agreed to the two loans: one for $70 million to allow Thomas to pay off his debt; and a second for $8.5 million to be used to help the team make the first loan payments for seven years.
Thomas also wanted a low interest rate, so the 1997 deal called for the loan to be paid off and restructured after 10 years.
City Councilman Robbie Waters said at Tuesday's council meeting that he's often asked if the city made money on the Kings loan.
"No sir, the city broke even," Friery answered.
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