Annually.
The OM provides preliminary debt service projections on page 16 (page 23 of the pdf). Debt service is projected to be $8.3 million in 2012 and increases to $10 million by 2017, where it remains for the rest of the projection (that's for the 2011A and 2011B bonds combined). Given the face amount for the 2011A and 2011B bonds of $107 million and $9 million respectively (page 2), those preliminary numbers contemplate an interest rate of 6.8% and 6.4% respectively. I will accept that JPM has their pencils sharpened around that assumption.
Walker's NOI projection (appendix E, starting on page 320 of the OM pdf) on the other hand shows income of $2.4 million in 2012 growing to $4 million in 2017 in the base case. In no year is Walker's base projected NOI sufficient to cover the corresponding year's debt service. The cumulative deficit is $118 million, which optimistically assumes that it is costless to finance the annual deficits.
Folding in the $1.5 million per year from Ellman still results in a cumulative deficit of $73 million and annual deficits in all years but 2040.
Numbers! Excellent. Let's discuss.
If you would review the debt service amounts, you would note that they clearly contemplate a component for principal. This is confirmed in the summary of the indenture as set forth in schedule A-1 (starting on page 35 of the pdf). The principal portion is placed in the "Bond Retirement Fund". As such, your interest rate calculations which do not assume such component are not correct in my view.
Why does this matter? I suspect that you already know by now, but I will explain for anyone else reading this. In calculating the viability of an investment such as these parking rights to determine whether one "breaks even", one
does not look at the portion of any debt service related to the principal. The reason is that, at the end of the financing, one still has the asset which one has purchased. Certainly one must look at the value of an asset for an asset that is losing its value (such as a piece of machinery with a definite usable life span), but such is not the case with land rights such as this. The fact is, of course, that the value of the land will be worth more than its acquisition price, given the nature of the development.
In other words, if you DO count the principal, you are actually counting profit for the owner of the parking rights. IF, for example, at the end of the thirty years, you have paid all of the debt service AND the principal, you are left with the land rights, free and clear. In that case, you have MADE $100M in profit.
To put it in another way, what you are referring to as a "cumulative deficit" is in fact the equity in the land rights that the CoG will have paid off. the CoG still has the asset which will be worth $100M as a minimum, and likely well in excess of that 30 years from now.
As such, there is no such cumulative deficit. Based on Walker's self-admitted conservative projections, there is a deficit at the beginning, but it is reduced year by year and overcome in the later years of the term of the bonds.
Walker used 2.5 to 2.7 (figure 53, p 66, p 265 of the OM file). They also assume that the three pre-season games attract 7,500 attendees in all years of the projection, which does seem optimistic given that they've been drawing about that much for regular season games in October for the past few years. The projected event attendance numbers came from CSL, which is the firm retained by MH to manage the facility. It is possible that CSL sandbagged the numbers, but given that they only get the contract if the deal goes through, you'd think they'd be incentivized the other way.
Noted on the 2.5/2.7, which is different from the 2.6/2.8 that i thought I recalled. That being said, you should be aware that 2.5 is a pretty universal standard in the parkiing business, so it is conservative nevertheless (since the only time they used the universal 2.5 standard is where they were referring to the penny-ante "other" events, which were chickenfeed as a parking contributor by comparison).
To correct you on a point, CSL is
NOT the firm retained by MH to manage the facility. They are in fact only a consultant firm, and do not manage facilities. The documentation clearly indicates that they were hired as a consultant (page 197 of PDF). They were not even hired by Hulsizer, interestingly enough.
Accordingly, your speculation about CSL's incentives as noted above is not germane.
If we say that the pre-season games offset the post-season games over the long run, we could crudely adjust Walker's revenue by a factor of 2.7/2.5. This still results in a significant shortfall.
I don't think the numbers support you here, at all.
If you are suggesting that a shortfall of ~2500 patrons per pre-season game (even assuming that to be the case) offsets 17,000 patrons (times two at a minimum) every few years, without even taking into account >4 game series or longer runs than one-round-and-out every so often, then i simply have to challenge that as unsupportable. That would assume that one can project anything longterm from the current disjointed scenario when attendance has been depressed.
One would have to scale Walker's NOI up by 44% to result in a cumulative deficit of zero by 2041, and that still results in a short fall of a few million dollars for the next 15 years (again that includes the $1.5 million from Ellman... it's 71% without that).
As noted above, the numbers that you cite are fundamentally flawed due to the principal component issue.
All of these deficits coupled with the additional $97 million outlay comes at an inconvenient time for the city. I admit I haven't looked at their pension fund, but if it's similar to the vast majority of public pensions, they have a significant funding gap while their workforce ages. If these outlays cause them to delay contributions to their pension fund (a popular tactic) they could very well find their in a "death spiral" in a few years if they have to liquidate assets to cover benefits. Again, I admit I haven't looked at their pension, but this is an issue for the vast majority of state and local governments and I'd be surprised if they're different.
This is not in the least bit germane to the Business of Hockey. It has not a thing to do with this transaction. I am at a bit of a loss as to why you would raise it apropos of nothing.
Other than the last nonsequiter, great discussion.
). This could potentially turn into a bigger financial disaster for Glendale than it already is.
) - none of it was pertinent to the issue before Baum J., which was the right of the NHL to select its owners. Same thing for the supposed "losses" incurred by Moyes. For purposes of the matters before the court, it makes no difference what the losses were, which is why they drew comparatively little attention or argument. Of course, counsel for Moyes and JB tried to cloud the issue by filing all that stuff, but none of it mattered, because none of it pertained to the issue.
