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Hedge Funds Target Yankee Stadium Parking-Garage Muni Bonds Near Default
Hedge funds specializing in distressed debt are buying municipal bonds backed by parking lots and garages at the new Yankee Stadium, which face a payment default as soon as next year, according to two people familiar with the purchases.
Monarch Alternative Capital LP and Davidson Kempner Capital Management LLC are among buyers of the debt, said the people, who asked not to be named because the investments are private. Holders could take over the garages, foreclose or force the operator into bankruptcy in a default, the people said.
“This facility seems meaningfully impaired, but there are some potential fixes,” said Laurence Gottlieb, chief executive officer of Fundamental Advisors LP, a private-equity firm in New York that buys municipal debt. “Costs can be reduced and it could be repositioned for commuter parking.”
The new holders joined a committee of creditors that includes Nuveen Asset Management and other owners of the $237.6 million of tax-exempt debt sold in 2007, the people said.
Bronx Parking Development Co. issued the bonds through New York City’s Industrial Development Agency to build three garages, renovate two others and refurbish six lots near the 50,287-seat stadium.
Bronx Parking’s parent has defaulted on two other projects, a garage in Rochester, New York, and a senior living center in Syracuse, according to documents for the stadium parking bonds. In a debt-workout agreement, the parent’s interest in the Rochester garage was transferred to the bondholder, according to the debt-sale documents.
Yankee Stadium, home of Major League Baseball’s New York Yankees, opened in 2009 across from the original ballpark where Babe Ruth played, about six miles (10 kilometers) north of midtown Manhattan. So far, income from parking is short of projections and insufficient to cover bond payments because of competition from public transport and car lots at a nearby mall.
The garages generated $2.4 million in April, 28 percent less than assumed, according to a May 25 report available to bondholders. They hold 9,266 spaces and the average occupancy has been 43 percent since the Yankees’ home season began March 31, according to bond filings. Self-parking on game days costs $35, an increase of $12 over last year.
The facility will not have sufficient operating revenue to make an interest payment on April 1, 2012, based on current projections, according to Steven Polivy, an attorney at Akerman Senterfitt LLP in New York, which represents Bronx Parking. That payment would need to be made out of the debt service reserve fund, he said.
“BPDC will continue to explore various alternatives to increase revenues and reduce the operating expenses of the parking system,” Polivy said in an e-mail. “Bronx Parking has no control over the transfer and sale of its bonds on the secondary market.”
William Loewenstein, president of Community Initiatives Development Corp., a Hudson, New York-based nonprofit organization that owns Bronx Parking, declined to comment.
Bronx Parking drew on reserves to make a $6.9 million bond payment due April 1. It also has failed to maintain a debt- service coverage ratio -- cash as a multiple of annual interest and principal payments -- of 1.15. The current ratio is 0.56, according to Bronx Parking’s 2011 budget. The next $6.9 million bond payment is due Oct. 1.
Creditors agreed in March not to declare the bonds in default after Bronx Parking consented to operational changes.
A $3 million block of 5.75 percent parking bonds maturing in 2027 was sold to a customer at 63.5 cents on the dollar on May 4, according to data compiled by Bloomberg.
Third Avenue Management LLC, a New York-based investment adviser, bought Bronx Parking bonds through a credit fund, said its CEO, David Barse.
“There is an opportunity in these securities” for price gains, Barse said in a June 9 interview on Bloomberg Television’s “Taking Stock” with Julie Hyman. If the bond issuer defaults, which Barse said isn’t likely, holders would have access to “some pretty attractive real estate that is around Yankee Stadium.”
Peter Block, a Morgan Stanley executive director, said the bonds could rise to as much as 80 cents if Bronx Parking monitors and adjusts rates.
“The Yankees continue to draw consistently strong attendance,” Block said in a March 18 report.
The Yankees attracted 1.4 million fans to home games this season through June 9, up 16 percent from 1.2 million in the same period last year, according to the Sports Network news service. The Yankees led all Major League Baseball teams in attendance last year at 3.77 million, according to ESPN.
Gottlieb said investors are looking for opportunities in municipal bonds after a corporate-debt rally. His firm took control of the Memphis Redbirds Minor League Baseball franchise after buying tax-exempt bonds backed by the team last year.
“The muni distressed market is very different than trading on-the-run corporate distressed,” he said. “Muni credits have a much longer fuse before they weaken due to the structure of most muni bonds.”
Documents for the Bronx Parking bonds say the system may have limited value to bondholders should they take it over because a foreclosure sale wouldn’t raise enough to pay off the debt and the trustee isn’t expected to collect enough revenue to cover payments.
Bronx Parking must hire a consultant and make “reasonable efforts” to get better signage on the Major Deegan Expressway, which runs past the stadium, to direct cars to its facilities, according to the forbearance agreement with U.S. Bank National Association, the trustee that protects bondholders’ rights. It also must file monthly revenue and expense reports.
Both New York state and New York City have an interest in ensuring that the stadium’s garage operations improve. The state gave Bronx Parking $70 million and the city gave it $34 million for a park on the roof of one garage. Bronx Parking also owes the city $18.4 million in deferred rent and payments in lieu of taxes, according to Polivy.
“We will certainly make ourselves available to assist in discussions and to help evaluate potential alternatives,” Patrick Muncie, a spokesman for New York City’s Economic Development Corp., said in an e-mail. “We remain open to exploring any proposals that reflect our ongoing revitalization efforts in the South Bronx.”
Nuveen added $5 million of the garage bonds in the first quarter, bringing its holdings to $121.6 million, according to data compiled by Bloomberg. John Miller, chief investment officer for Chicago-based Nuveen declined to comment. T. Rowe Price Group Inc. and Aetna Inc. (AET) also held some of the bonds as of March 31 and Dec. 31, respectively.
Spokesmen for Davidson Kempner and Monarch Alternative Capital declined to comment.
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