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Monday, October 17, 2011

Gelinas: A bailout brews in the Bronx

No one ever said so outright, but bondholders were plainly supposed to assume that, because Bronx Parking’s board is stacked with city officials and city officials talked up the bonds, that the city was there should the deal run into trouble.

It sure didn’t make sense on the merits. The old parking lots generated $7 million a year, but the new lots were supposed to pay twice that in annual debt costs. And Bronx Parking can’t just raise prices to fill the gap. Not many folks will pay $35 to park when there’s a new Metro North station right there.

Reality has caught up. Last week, Bronx Parking made its payment to bondholders only by tapping an emergency fund. The firm must make two more payments by next October—and it doesn’t have the cash.

There’s no mystery about what should happen: The bondholders should take their losses. . . .

The beep clearly hopes Bloomberg will go along to avoid a big bond default. Last week, Diaz’s lawyer, Al Rodriguez, said that if the parking-lot bond investors lose money, it would be “a huge financial disaster for the city,” because “bondholders will look at all city debt, and they’re not going to want to invest.”

No, bondholders should think no such thing. The documents blared warnings: “The bonds do not constitute and will not be a debt of the state of New York or the city,” and “An investment in the bonds involves a significant degree of risk.”

Diaz’s proposal relies on fear of a bond-market panic, which would force another 2008-style bailout of sophisticated investors. Apparently, such bailouts are OK as long as they come in the form of useful goodies, like the promise of taxpayer-subsidized construction jobs for Bronx voters.

But bondholders need to be taught a lesson. It’s bad enough national taxpayers have too-big-to-fail banks. Local taxpayers don’t need too-big-to-fail parking lots.

Bloomberg isn’t blameless, either. He should’ve stopped playing these coy debt games years ago. Now, the mayor’s office won’t say much more than to point out that the bonds aren’t city obligations, and that the city is working with the company “to try to generate more value from the project, if possible.” That value would come in the form of speeding up affordable housing at the site—housing that needs subsidies, too.

Bloomberg should say categorically that the city won’t step in with any bailout money. There’s no sense leaving bondholders room to hope when the mayor, as fiscal steward, has no choice.

The city has used the same wink-and-nod process it used for the Yankees’ parking to help “private” entities issue all kinds of debt, from $680 million for the Mets’ stadium to $2 billion issued by the Hudson Yards Infrastructure Corp.

Stormy JE Posted: October 17, 2011 at 06:06 PM | 6 comment(s) Login to Bookmark
  Tags: business, special topics, yankees

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   1. Shooty would run in but these bone spurs hurt! Posted: October 17, 2011 at 06:28 PM (#3966384)
Bloomberg isn’t blameless, either. He should’ve stopped playing these coy debt games years ago. Now, the mayor’s office won’t say much more than to point out that the bonds aren’t city obligations, and that the city is working with the company “to try to generate more value from the project, if possible.” That value would come in the form of speeding up affordable housing at the site—housing that needs subsidies, too.

Wait, what? They are going to pump money into subsidized housing to help out a ####### parking lot? How many people in these subsidized apartments are even going to own cars? Let the bonds default. #### it. Everyone knew that was a crooked deal from the beginning.

The beep clearly hopes Bloomberg will go along to avoid a big bond default. Last week, Diaz’s lawyer, Al Rodriguez, said that if the parking-lot bond investors lose money, it would be “a huge financial disaster for the city,” because “bondholders will look at all city debt, and they’re not going to want to invest.”

Robert Moses would be proud.
   2. LionoftheSenate Posted: October 17, 2011 at 06:53 PM (#3966420)
It was only 2004 when I remember paying $13 to park no more than 150 yards from the "big bat" at Yankee Stadium.
   3. jingoist Posted: October 17, 2011 at 06:59 PM (#3966432)
I say spin up a story to Goldman Sachs; they'll collateralrize these sh*t bonds into a derivative and sell it back to TIAA-CREF.
That way the NY City school teachers retirement program can sustain another set of losses sililar to 2008.
   4. aleskel Posted: October 17, 2011 at 07:11 PM (#3966449)
Wait, what? They are going to pump money into subsidized housing to help out a ####### parking lot?

Since the City doesn't own the lots, this wouldn't be a city-funded project. I'm not sure what the author meant by "subsidies," but it's likely she meant tax abatement.
   5. Rally Posted: October 17, 2011 at 07:45 PM (#3966499)
Last week, Diaz’s lawyer, Al Rodriguez, said that if the parking-lot bond investors lose money, it would be “a huge financial disaster for the city,” because “bondholders will look at all city debt, and they’re not going to want to invest.”


Rodriguez makes 30 million dollars per year, can't stay on the field, can't buy a hit in the postseason, and moonlights as a lawyer? Let him fork over the money.
   6. valuearbitrageur Posted: October 17, 2011 at 11:05 PM (#3966684)
Since the City doesn't own the lots, this wouldn't be a city-funded project. I'm not sure what the author meant by "subsidies," but it's likely she meant tax abatement.


Which of course is a direct and blatant subsidy not available to developers not building politically favored developments.

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