March 30 (Bloomberg) -- Billionaire Philip Anschutz’s plan to build a football stadium and convention-center addition in downtown Los Angeles offers the city a financial guarantee that falls short of what he gave with Staples Center 13 years ago.
The Anschutz subsidiary behind the project is providing no letter of credit or additional guarantee for $350 million of municipal bonds related to the development, according to a Feb. 16 proposal, unlike the backing provided for Staples Center.
Without such assurance, Los Angeles taxpayers may be on the hook if stadium and convention-center proceeds to the city come up short of what’s needed for the bonds. Anschutz Entertainment Group President Tim Leiweke has said the company will make up any shortfall servicing municipal debt needed to finance the convention-center portion of the $1.35 billion project.
“With no bank, corporate or municipal insurance, you are possibly looking at the city having to make the payments,” Jeffrey Appelbaum, an attorney who specializes in stadium finance at Thompson Hine LLP in Cleveland, said in an interview.
Michael Roth, a spokesman for Los Angeles-based Anschutz Entertainment, said he couldn’t immediately comment.
Anschutz Entertainment’s plan for a National Football League stadium in downtown Los Angeles envisions tearing down part of the existing convention center and building an extension with as much as $350 million in municipal bonds.
Payments on the bonds would be backed by taxes and fees from the stadium and the convention-center addition, with any shortfall covered by L.A. Event Center LLC, the limited liability company created for the project, according to the Anschutz Entertainment proposal.
The plan, outlined in a letter dated Feb. 16, describes the terms as “similar to that currently in place for Staples Center.”
‘No Credit Enhancement’
In 1998, two companies affiliated with Anschutz offered a letter of credit from a bank to back payments on $45.6 million in municipal bonds sold to partly finance construction of the Staples Center basketball and hockey arena for the Los Angeles Lakers and Kings, according to the prospectus.
Under the current proposal, “No private credit enhancement will be provided by Developer to support such Bonds.”
“We will privatize the stadium, no hidden agendas,” Leiweke said at press conference on Feb. 1, the day he unveiled a stadium naming rights deal with Farmers Insurance Group. “It will be paid for completely privately, I promise.”
Los Angeles Mayor Antonio Villaraigosa created a commission on the same day to study the plan with the goal of “helping to ensure that the interests of taxpayers are protected,” according to a release.
The letter of credit backing the $45.6 million in Staples Center-related bonds came about because then-city councilman Joel Wachs asked the company to support its pledge to make bond payments with a stronger guarantee, according to Greg Nelson, a former aide to Wachs.
In the case of the new stadium, the “promise to guarantee shortfalls in the bond payments is not coming from Phil Anschutz or AEG, but from the L.A. Event Center LLC, a subsidiary of AEG,” Nelson wrote in an e-mail. “The creation of an LLC protects AEG’s assets. Just the assets of the development company would be at risk, and those assets are unknown.”
Anschutz, 71, is ranked 34th in the Forbes Magazine list of richest Americans, with a net worth estimated at $7.5 billion.
City Council President Eric Garcetti announced a committee of five council members to study the proposal on March 29.
“What is the backup? That’s a question we’re going to ask,” City Councilman Bill Rosendahl said in an interview. “If Anschutz was willing to offer more of a guarantee then, why isn’t he willing to do that again?”
The city’s planning department holds a hearing today on the stadium proposal at the convention center.