Question re Stadium Expansion funding

richthedentist

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Aug 2, 2001
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When we all sit here talking about the money needed for basketball upgrades and pretty much every other sport it always comes back to the fact that we have to repay the $100 million or so that we borrowed or took out bonds for the expansion of the stadium. One thing I am not and I know we have plenty of those here is a finance guy but when we originally borrowed that money or however we financed the project weren't interest rates alot higher than they are now? If they were shouldn't those bonds or borrowed money have been refinance to much lower rates hence saving us what to me would amount to millions from the original borrowed money? Just thought I would throw that out for discussion on a snowy day
 

superfan01

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May 29, 2003
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We issued the bonds in February 2009. It was part of larger sinkable bond issue - 233mm total issue size that the university iused for other projects as well. Coupon is 5% with a final maturity of 2039 for the 80 million of stadium expansion . First par call date is 2019 so the university can call them then. Until 2019 the school would have to tender for them.

Bonds are currently trading at a price of $115 or a YTM of roughly 4%. University would have to pay up to call them prior to 2019.
The bonds are callabale at 100 on May 1 2019. University would most likely call them then if borrowing costs remain low on that date.
 

superfan01

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So to answer your question. While borrowing costs have moved lower the university has yet to refinance their stadium bonds and most likely won't until 2019. So we are not saving "millions" just yet.
 

BigLou

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Jul 25, 2001
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Originally posted by superfan01:
So to answer your question. While borrowing costs have moved lower the university has yet to refinance their stadium bonds and most likely won't until 2019. So we are not saving "millions" just yet.
Well maybe a better way to say it is that for this particular set of bonds, borrowing costs have not moved lower. In order to refinance before 2010, the school would have to buy the bonds back at market rate which is now above par. That difference would have to be part of the amount borrowed under a new bond issue so, even with the interest rates being lower now, having a higher principal, even at the lower rate would result in a payment similar to what we have now.

I think I got that right.
 

TonyLieske

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Apr 25, 2008
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Originally posted by superfan01:
We issued the bonds in February 2009. It was part of larger sinkable bond issue - 233mm total issue size that the university iused for other projects as well. Coupon is 5% with a final maturity of 2039 for the 80 million of stadium expansion . First par call date is 2019 so the university can call them then. Until 2019 the school would have to tender for them.

Bonds are currently trading at a price of $115 or a YTM of roughly 4%. University would have to pay up to call them prior to 2019.
The bonds are callabale at 100 on May 1 2019. University would most likely call them then if borrowing costs remain low on that date.
Do we know if they sold them at coupon rate though? That seems unlikely, unless they sold them all to one investor (who then resold them). I would have expected Rutgers to get a better (lower) real rate than that in 2009 (ie: if a 100 par value bond sold for more than 100).
 

superfan01

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Let's take this one step further. Assuming it costs rutgers $100mm to build the expansion. Assuming we also had to borrow 80 mm at the 5% interest rate described above. That puts total cost of the project at 220 million after 30'years assuming we don't call bonds early ect...

Would the expansion really bring in 220 million in revenue over a 30 year period. I'm not sure and that can explain why so many were against it.

Let me know if im thinking about this right?
 

RUskoolie

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Aug 1, 2007
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I'm pretty sure we took out a 15 year bond where we had to pay 6 million per year plus interest each year. That was the argument that Pernetti used in the past, that if you took out the debt service for the stadium expansion, the football program was making money.
 
Jun 7, 2001
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Originally posted by superfan01:

Would the expansion really bring in 220 million in revenue over a 30 year period. I'm not sure and that can explain why so many were against it.
According to their revenue projections at the time, it would have. But unfortunately, once reality came into play, it was found that actuals were nowhere near the projections. I've always believed that this was part of the reason why Big Bob was thrown under the bus. While lack of transparency was cited, i've felt that this was part of it. Big Bob was a political liability to Corzine.

Thats part of the reason why there is a reluctance to borrow. Now if the Rutgers fanbase can step up and donate, there is not need to worry about revenue meeting projections.
 

RUJohnny99

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Nov 7, 2003
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Originally posted by superfan01:
Let's take this one step further. Assuming it costs rutgers $100mm to build the expansion. Assuming we also had to borrow 80 mm at the 5% interest rate described above. That puts total cost of the project at 220 million after 30'years assuming we don't call bonds early ect...

Would the expansion really bring in 220 million in revenue over a 30 year period. I'm not sure and that can explain why so many were against it.

Let me know if im thinking about this right?
That $100 mm also included paying off the original $30 mm from the 1994 stadium expansion (the one that Corzine originally planned to absorb), so it's not such a cut & dry calculation.

Also, it wasn't a 30 year bond that was floated. It was a series of bonds over 27 years totaling $233 mm that covered stadium expansion, the welcome center, and something else. The blended interest rate was 4.43%. $38 mm of that $233 mm (rougly 16%) has already matured and been paid back. Assuming the proportion of debt remained equal between the projects funded, the remaining debt on the stadium is $83.5 mm, with blended annual interest payments of $3.7 mm for the next 20 years or so. Broken up, that is $58.5 mm on the expansion ($2.59 mm debt service) and $25 mm on the refinancing of the 1994 debt ($1.11 mm debt service).

Since the 94 debt covered the whole stadium, the entire old stadium revenue can be used to cover debt service and repayment. That leaves $2.59 mm interest payments and $58.5 mm principal payment on the "expansion" debt. Back of the envelope accounting, that is $110 million in revenue needed, or roughly $5.5 million per year. That expansion also included the club seats. The club seats require a $3000 donation, plus $900 season ticket, for total revenue of $3.1 mm. Which means the remaining seats need to generate $2.4 mm or $342,000 per game. That works out to $34.20/ticket, which is probably about what the price of those tickets were when expansion was first started.
 

ATIOH

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RUJohnny, good work with the calcs. The OS linked was not the right one though, so the numbers are a little different. The rest is not aimed at you, but for people who are less familiar with the market.

Rutgers originally issued commercial paper to fund the expansion. It then took out that CP with long term variable rate debt (VRDOs).

I left Munis to trade unconstrained (Corp, HY, EM) back in mid-2013. At the time Rutgers was coming to market with a large deal which had a decent sized taxable piece. The taxable portion was being used to refinance tax-exempt debt that had already been refinanced. Most tax exempt debt can only be refinanced once and still remain tax-exempt.

They were contemplating refinancing the stadium debt again (to be taxable), but I don't believe they did. Not 100% sure. IF they did not refi, then the Stadium debt is still a VRDO. Rutgers essentially pays no interest on that debt, because rates are close to 1 bp (.0001) right now. However, Rutgers entered swaps to synthetically fix the debt. Which is pretty standard for the industry.

I have a spreadsheet at home that calculates the effective rate we actually pay. IIRC, it was below 4% but moves slightly. We can't hedge out the basis risk when combining munis and taxables.
 

DJ Spanky

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Jul 25, 2001
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Originally posted by superfan01:
In believe they were issued just above par for a yield of 4.98. Keep in mind this was issued in February 2009 when equities were near lows and credit spreads were very well at wides. Many thot the world was ending.
That was just stupid: everyone knew that that was going to happen in 2012 based on the Mayan Doomsday Calendar!
 

BigLou

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Jul 25, 2001
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Originally posted by RUJohnny99:


Originally posted by superfan01:
Let's take this one step further. Assuming it costs rutgers $100mm to build the expansion. Assuming we also had to borrow 80 mm at the 5% interest rate described above. That puts total cost of the project at 220 million after 30'years assuming we don't call bonds early ect...

Would the expansion really bring in 220 million in revenue over a 30 year period. I'm not sure and that can explain why so many were against it.

Let me know if im thinking about this right?
That $100 mm also included paying off the original $30 mm from the 1994 stadium expansion (the one that Corzine originally planned to absorb), so it's not such a cut & dry calculation.

Also, it wasn't a 30 year bond that was floated. It was a series of bonds over 27 years totaling $233 mm that covered stadium expansion, the welcome center, and something else. The blended interest rate was 4.43%. $38 mm of that $233 mm (rougly 16%) has already matured and been paid back. Assuming the proportion of debt remained equal between the projects funded, the remaining debt on the stadium is $83.5 mm, with blended annual interest payments of $3.7 mm for the next 20 years or so. Broken up, that is $58.5 mm on the expansion ($2.59 mm debt service) and $25 mm on the refinancing of the 1994 debt ($1.11 mm debt service).

Since the 94 debt covered the whole stadium, the entire old stadium revenue can be used to cover debt service and repayment. That leaves $2.59 mm interest payments and $58.5 mm principal payment on the "expansion" debt. Back of the envelope accounting, that is $110 million in revenue needed, or roughly $5.5 million per year. That expansion also included the club seats. The club seats require a $3000 donation, plus $900 season ticket, for total revenue of $3.1 mm. Which means the remaining seats need to generate $2.4 mm or $342,000 per game. That works out to $34.20/ticket, which is probably about what the price of those tickets were when expansion was first started.


Are you sure about $30M in debt from 2014? As I remember it, most of the 1994 construction was paid for by the NJ Sports and Exhibition Authority. The NJSEA refinanced meadowlands bonds at a lower rate and cashed out about $250M, most of that went to Atlantic City but Rutgers was given a piece for the 1994 stadium construction. I also remember the recent expansion being near the $100 mill mark, maybe lowered a bit when locker rooms and recruiting lounge were removed. The aborted Corzine fundraising effort was as I recall to lower the need for financing on the project, not pay off old debt.
 

DJ Spanky

Heisman
Jul 25, 2001
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Originally posted by RUJohnny99:
Originally posted by superfan01:
Let's take this one step further. Assuming it costs rutgers $100mm to build the expansion. Assuming we also had to borrow 80 mm at the 5% interest rate described above. That puts total cost of the project at 220 million after 30'years assuming we don't call bonds early ect...

Would the expansion really bring in 220 million in revenue over a 30 year period. I'm not sure and that can explain why so many were against it.

Let me know if im thinking about this right?
That $100 mm also included paying off the original $30 mm from the 1994 stadium expansion (the one that Corzine originally planned to absorb), so it's not such a cut & dry calculation.
One other thing to take into consideration is that that $100 million covered more than the club seats, South Endzone expansion and original debt. There were additions to, or expansion of, existing non-football-related practice facilities, plus some other items. So it's annoying when ignorant fools babble on about $100 million for only 11K seats.
 

ATIOH

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Sep 3, 2004
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Originally posted by ATIOH:
RUJohnny, good work with the calcs. The OS linked was not the right one though, so the numbers are a little different. The rest is not aimed at you, but for people who are less familiar with the market.

Rutgers originally issued commercial paper to fund the expansion. It then took out that CP with long term variable rate debt (VRDOs).

I left Munis to trade unconstrained (Corp, HY, EM) back in mid-2013. At the time Rutgers was coming to market with a large deal which had a decent sized taxable piece. The taxable portion was being used to refinance tax-exempt debt that had already been refinanced. Most tax exempt debt can only be refinanced once and still remain tax-exempt.

They were contemplating refinancing the stadium debt again (to be taxable), but I don't believe they did. Not 100% sure. IF they did not refi, then the Stadium debt is still a VRDO. Rutgers essentially pays no interest on that debt, because rates are close to 1 bp (.0001) right now. However, Rutgers entered swaps to synthetically fix the debt. Which is pretty standard for the industry.

I have a spreadsheet at home that calculates the effective rate we actually pay. IIRC, it was below 4% but moves slightly. We can't hedge out the basis risk when combining munis and taxables.
Just confirmed that the VRDOs are still outstanding. They priced this morning at 0.01% and have been at that rate for pretty much the whole year. There is $72.2MM outstanding.
 

BoroKnight

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Mar 13, 2010
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Damn, all of this makes my head hurt. No wonder it's so easy to get people to rail against all the borrowing. The tougher something is to understand, the easier it is to demagogue it.