Meadowlands Stadium: Split decision

The financing for the new $1.6 billion Meadowlands American football stadium in New Jersey is notable as the largest stadium financing ever to close in the United States and, depending on the exchange rate used, rivals the UK's Wembley as the most expensive in the world. It is also the first stadium to be financed in a joint venture between two teams, the New York Jets and the New York Giants.

The financing featured $1.3 billion in bond debt, split equally between the two teams. Goldman Sachs and Lehman Brothers underwrote $650 million in bonds for the Giants, while Citigroup and RBC Capital Markets underwrote the same sum for the Jets. The two financings closed on the same day, on 16 August 2007.

The Giants bonds have three maturities, of 2029, 2037 and 2047, while the Jets bonds all mature in 2047. The Jets bonds consist of a $200 million floating rate tranche wrapped by FSA, $255 million of auction rate securities wrapped by FSA, and another $195 million of auction rate bonds with the same terms wrapped by FGIC. The two teams have enhanced their debt with different sets of swaps which makes assigning, and comparing, coupons difficult.

Greg Carey, managing director at Goldman Sachs, cites the 40-year maturity of the bonds as a landmark feature of the financing, and enthuses about the strength of the football credit; "This is $1.3 billion in bond debt on the back of just sixteen football games per year, eight regular season home games per team. It's a testament to the strength of the teams, the market and the league."

He explains that the teams opted for joint-venture financings, rather than a single deal, due to the preferences of the team ownerships, and obligations to the NFL; "One team cannot subsidise the other, and the conflicts and liability issues between ownership groups would be too great."

The financing featured no equity, and instead included two $150 million loans, one to each of the teams, from the NFL. The source for these loans is the G3 programme, whereby 34% of visiting-team ticket revenues from NFL games are deposited into a pool which is shared among the 32 teams annually. In the case of a team that has taken loans from the NFL, this portion of the ticket revenue does not go into the pool, but is rather used to pay down the loan. To date, 13 NFL teams have taken advantage of the G3 programme, for 12 stadiums.

The G3 factor is also fundamental to the two-part financing, as each of the teams in the top six television markets is entitled to a $150 million dollar-for-dollar contribution from the pool. The NFL had to make certain modifications to its rules, as no stadium had previously benefited from two loans; however, it was agreed that the loans are provided to each team and not to each facility.

Jay Cross, president of the Jets, explained that for the Meadowlands deal, this portion of the financing acts in a similar way to equity, as it does not eat into lender cashflows, because the percentage of ticket revenues could only be used to pay down NFL loans, and would not otherwise have been available as a source to pay off other debt.

The Meadowlands stadium also benefits from payment-in-lieu-of-taxes (PILOT) treatment, which was approved by the state authorities and allows the sports teams' special purpose vehicle to pay down its debt instead of paying property taxes, at an equal or lower rate to the exempted tax.

As with many of the other US stadium deals, the bonds were monoline wrapped. In this case, FGIC was the main insurer for the Giants, wrapping $455 million of the bonds, with FSA wrapping the remaining $195 million. On the Jets bonds, the two insurers' commitments were exactly transposed, with FSA taking the lead role. The bonds have since been the victims of the twin blows of monoline weakness and disturbances in the auction rate market, where the interest rate on bonds is set through periodic Dutch auction. But their August close captured the market high point.

Cross believes that the potential difficulties of two simultaneous financings were assuaged by agreeing to joint bond counsel, and by the respective requirements of both monolines on the deals, which he says "ensured continuity from the sponsor perspective".

As far as revenue sources and uses, all game-day-related revenues (ticket sales, refreshments, parking and so forth) belong to the team, whereas all income directly related to the stadium is used towards the senior debt. Stadium revenues in turn break down into joint venture revenues and items such as club seats and concession proceeds that go to each borrower. The joint venture revenues include luxury suites, team rents, cornerstone sponsorship and naming rights. Unlike the club seats, which are available to fans from both teams for their respective games, the luxury suites entitle the holder to attend all games and events at the stadium. On the occasions when one team plays the other (one home game per team, every four years) the two will alternate home team status.

Much of the financing's innovation comes down to the Meadowlands' unique nature as host to two teams. It became a reality once the Jets failed in their attempt to move to Manhattan, in New York proper, in 2005. With the Giants now winners of the sport's championship, the Superbowl, in February, at least one of the stadium's owners can look forward to healthy patronage. But the stadium's proximity to New York, the most lucrative market in US sports, means the deal was able to earn its bragging rights with ease.

Jets Stadium Development LLC/Giants Stadium LLC
Status: Closed August 2007
Size: $1.6 billion
Location: New Jersey, USA
Description: Joint venture bond financings for Meadowlands stadium
Ground lease owner: New Jersey Sports & Exposition Authority
Sponsor: The Jets and the Giants American football clubs
Debt: $1.6 billion total ($650 million per club in bond debt, plus $150 million per team in NFL loans)
Maturity: Jets bonds 2047, Giants bonds 2037 and 2047
Mandated lead arrangers: Citi and RBC (Jets); Goldman Sachs and Lehman Brothers (Giants)
Monolines: FGIC and FSA
Bond counsel: Nixon Peabody
Monoline counsel: Winstead
Independent engineer: Merritt & Harris
Design-build contractor: Skanska
Sponsor legal: Proskauer Rose (Jets); Sullivan & Cromwell (Giants)
Trustee: Bank of New York